Monday, May 19, 2008

The Poor Are Getting Poorer? Maybe Not.

If only I had a nickel for every time I heard someone decry the situation of inequality today: "The rich get richer while the poor only get poorer!" But then, I would be the rich, and then I would be the bad guy.

I've always had a problem with this common complaint, and I have attempted to justify my positions. However, I am no economist, and thus my opinions are not made with the sharpest of prose.

I did get lucky though, to stumble upon a New York Times blog by Steven Levitt:

When people talk about inequality, they tend to focus exclusively on the income part of the equation. According to all our measures, the gap in income between the rich and the poor has been growing. What Broda and Romalis quite convincingly demonstrate, however, is that the prices of goods that poor people tend to consume have fallen sharply relative to the prices of goods that rich people consume. Consequently, when you measure the true buying power of the rich and the poor, inequality grew only one-third as fast as economists previously thought it did — or maybe didn’t grow at all.

Why did the prices of the things poor people buy fall relative to the stuff rich people buy? Lefties aren’t going to like the answers one bit: globalization and Wal-Mart!


Not only are Wal-Mart’s prices lower, but its entry also induces competitors to lower prices. The impact is much larger on the poor than the rich, both because the poor are more likely to shop at Wal-Mart and because they spend more of their income on food.
Here is a link to the study.

This is not meant to be a complete defense of those who make millions or perhaps billions of dollars a year (although I see no harm in it). I mean to show that the rich ARE getting richer, but not at the expense of the poor or middle class; instead the opposite is true: what benefits the rich in the end is directly tied to how they benefit all others. In other words, capitalism continues to be to the benefit of most (if not all) individuals, whether it is overtly evidential or not.

Of course, I do have a better grasp of freedom and economics than most people, so when I saw the comments to the article I had to cringe:

At what point does Wal-Mart stop having the incentive to keep their prices low. If they become a towns only grocer they have complete price control and can at some future point raise prices artificially high.

— Posted by Billy

Actually Billy, their prices are that way for a reason: it makes them more money than it would if they raised it to a point at which fewer people could buy their goods. What would be the point in that?

Food prices are going up rapidly, correct? So this gap in equality will start to show up pretty damn soon, I would imagine.

— Posted by Grant

This is tied to gas prices, Grant, yet the general trend HAS been downward. Also, who do you think uses more gas? Poor or rich?

I believe that there’s a point missing. In principle, of course, you’re right in saying that the real income matters. What is missing though, is the fact that people who reside at the lower end of the income distribution would probably like to change their consumption patterns but aren’t capable of doing so.

— Posted by J0k3r

I hope you're joking, Jok3r; if not, then I call bullshit. What makes you think that someone cannot change their consumption patterns? In fact, many people are able to become rich because they don't spend their money as frivolously as many poor people (including me), and invest or save it intelligently until they are comfortable enough to be able to spend more on superior goods.

There are many more comments that I do not have the energy to comment on.

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