Inequality isn't rising after all?

[ramseya]

http://www.economist.com/finance/economicsfocus/displaystory.cfm?story_id=11791427

an excerpt from the article:

A person’s demand for a particular good or service does not rise in exact proportion to his income. As he grows richer, the pattern of his spending changes, as well as the amount. In particular, high-wage households spend a greater share of their income on services and a smaller share on “non-durable” items, such as food, clothing, footwear and toiletries.

For most of the past three decades, the price of non-durable goods has been falling relative to the price of the services—investment advice, personal care, domestic help and so on—that the rich spend more of their money on. If these differences between the inflation rates faced by the rich and the poor are taken into account, the rise in inequality is reduced and may even vanish.

What do you think? The article admits that the research has problems but it warrants a re-examination of the long-held belief that inequality in the US has increased over the last 25 years.

[Dauphin]

The rich still get the cheaper "non-durables" if they so wish, and the chances of the poor ever using the "services" used by the wealthy decreases. How does that reduce inequality?

[Vanguard]

The Chicago economists found that the share of non-durable spending for the very poorest households was 12 percentage points higher than for the richest households. Because the price of services rose by more than the price of goods during this period, the inflation rate for the rich was far higher than that for the poor. Rich households also buy dearer versions of the same goods than poor consumers. For each product category—a 16-ounce carton of milk, say—well-off households paid an average of 25% more than poor households. This is not because the rich are gullible shoppers but rather, say the authors, because they tend to buy goods of better quality (such as organic milk), the prices of which are higher and tend to rise more quickly.

Yeah. And if you redefine "rich" to mean "poor" then you will find out that the wealthy aren't doing very well.

When you can define "greater variety of goods and services" as being equivalent to "increased wealth" for the poor and, at the same time, define it as decreased wealth for the rich, well, you can pretty much prove anything you want.

[rah]

Just silly.

[GePap]

This is the bad side of my alma mater....

I think the study is stupid, and why wasn't housing included as a cost for the poor?

Also, the last line makes no sense to me. Of course cheap industrial iports are a boon to the poor, but what does that have to do with inequality?

[DanS]

I don't know whether we have suitable measures, but it is undeniable that some of the more useful goods have become dirt cheap compared to what they used to cost -- clothing staples as just one example.

However, I would guess that the favorable part of that equation is in Wal-Mart country -- nowhere near the metro areas.

[Kidlicious]

This is not because the rich are gullible shoppers but rather, say the authors, because they tend to buy goods of better quality (such as organic milk), the prices of which are higher and tend to rise more quickly.

Organic milk is not that much more than regular milk, but I don't think that's what they ought to mention. The rich (some of them) pay a premium to buy things that poorer people can't afford. That hardly means that inequality is less than it's been claimed to be.

[ramseya]

Well I suppose the research is predicated on the assumption that the poor would never have used the services as much as the rich anyway. With that assumption held, the simple fact that inflation rates are different between services and goods and between certain goods and other goods means that the rich man's dollar buys technically more but relatively less of the same basket of goods and services as it did 30 years ago while the poor man can buy both absolutely more and relatively more than he could 30 years ago.

That would basically mean that there isn't a greater disparity in inflation-adjusted purchasing power than the disparity of 30 years ago.

[ramseya]

DanS:

However, I would guess that the favorable part of that equation is in Wal-Mart country -- nowhere near the metro areas.

I'd have to disagree as there are Wal-Marts in the cities and its predecessors like K-Mart, Caldor, Woolworth, etc. were primarily urban stores.

[Zkribbler]

Dammit. We gave all those rich folks mega-tax-breaks so they could create jobs. Instead, they've been squandering their money on food, clothes and houses?! No wonder nothing has been trickling down.

[Theben]

If the rich man is buying a higher quality good that should factor into the equation. Somebody with an axe to grind seems to have written this drivel.

[Arrian]

Somebody with an axe to grind seems to have written this drivel.

UChicago economists.

-Arrian

[DanS]

Originally posted by ramseya
I'd have to disagree as there are Wal-Marts in the cities and its predecessors like K-Mart, Caldor, Woolworth, etc. were primarily urban stores.

You are taking it too literally. In Wal-Mart country, land is cheap and the real estate boom -- and the resulting crazy house prices -- passed them by. This comprises about half the US.

[rmsharpe]

Originally posted by Theben
Somebody with an axe to grind seems to have written this drivel.

Yes, you did.

[GePap]

Originally posted by ramseya
Well I suppose the research is predicated on the assumption that the poor would never have used the services as much as the rich anyway. With that assumption held, the simple fact that inflation rates are different between services and goods and between certain goods and other goods means that the rich man's dollar buys technically more but relatively less of the same basket of goods and services as it did 30 years ago while the poor man can buy both absolutely more and relatively more than he could 30 years ago.

That would basically mean that there isn't a greater disparity in inflation-adjusted purchasing power than the disparity of 30 years ago.

Well, that initial assumption is a pretty bad one, isn't it? It only works if you assume the poor know such services are completely out of their league.

And what exactly is the point anyways? Since the price of all goods for the Rich have also dropped, the rich as has already been said can buy all those same items, even ones with a 25% premium, AND buy the services we assume the poor don;t even dream to have, AND get to place money away to invest, or can pay less of their income towards services like education or healthcare, two critical services that the study also left out.

I think this is a moronic way to measure quality of life.