A Statistic I Hadn't Seen Before

Christian Boda, via Q&O, discusses inflation rates in the context of income (in)equality issues.  He offers this bit of information:

Inflation differentials between the rich and poor dramatically change
our view of the evolution of inequality in America. Inflation of the
richest 10 percent of American households has been 6 percentage points
higher than that of the poorest 10 percent over the period 1994 "“ 2005.
This means that real inequality in America, if you measure it
correctly, has been roughly unchanged.

This actually makes a ton of sense - Walmart helps hold down food and clothing costs for average folks while the rich pay ever increasing rates to stay at the Ritz at Laguna Niguel.  He argues that as a result, globalization and the growth of low-cost manufacturing in China tends to help rather than hurt the poor.

It also helps to answer a question I had yesterday -- why do metrics of median wage growth adjusted for inflation tend to look unexciting, while at the same time other metrics show the poor doing so much better materially.  This notion of a graduated inflation rate by income class would go a long way to explaining these paradoxes.  In short, we may be applying the wrong inflation rate to metrics of wage growth of various income groups in assessing their well-being (not to mention the usual failing of missing individual migration between income groups).

  • nicole

    Will Wilkinson did some great posts on a similar topic a little while back, starting with this one. Lane Kenworthy took issue with this, Will responds here.

  • http://dullgeek.blogspot.com mjh

    I'm not an economist... so please take this with whatever size grain of salt is necessary. But after reading Cox & Alm's book (The Myths of Rich & Poor), I got the impression that having a gap between the rich and the poor, was beneficial to the poor. For certain goods - those that have a high cost of development, but low cost of production - the rich tend to be the ones who fund the development of those goods. The the market, through competition, brings the prices down to the marginal production costs, and the poor get those goods and services for almost nothing.

    Examples of this abound, but CD & DVD players come screaming to mind, reminding me of a scene from the Adam Sandler movie "The Wedding Singer" where one character brings home CD player costing "only $800".

  • Sedulous

    Sorry for the tangent...

    From the mouths of babes comes communism disguised as compassion:

    "I said to my dad, 'If that guy didn't have such a nice car, then that guy could have a nice meal,' " the 15-year-old from Atlanta, Georgia, recalled.

    http://www.cnn.com/2008/LIVING/wayoflife/07/02/hunger.house/index.html

    Downsizing what you don't need and giving to help the poor (which is presumably what happens in the rest of the article) is a good thing. But never a thought was given to the idea that one guy could have a nice car and he could probably still buy the other guy a meal -- it's not either/or. Nor was there any thought as to why the guy was homeless. Mentally ill? Unable to hold down a job? Disabled? Too lazy to take a job? No jobs available? Sometimes injustice causes people to live in poverty, sometimes its unfortunate circumstances, sometimes its the person's own fault. The compassion is laudable; the philosophy is hideous. I hope the family helps a lot of people in need because it is true that "It is better to give than to receive". But the perpetuation of "you can't be well off because so-and-so's poor" is nearly criminal. Too bad so many journalists and politicians think like 15-year olds.

  • Lord

    The effect would have since reversed though since the poor spend much more on food and fuel.

  • Dan

    MJH - are you sure you have the right movie? The Wedding Singer was made in 1998. If I recall, CD players were around $200 at the time. And I know I bought one in the late 80's for well under $800, because my dad wouldn't have let me spend that much!

    Lord - you make a great point. The poor spend much more of their income on food and fuel, so they're the ones getting hurt most by the current inflationary environment. There's no way to sugar-coat it and we shouldn't do so. Yes - a lot of people are poor/homeless because of mistakes they made. But even more people who are well off are rich because they were born with advantages (and I include myself in this group.) I know I would not be doing as well as I am if it weren't for a number of circumstances beyond my control. Yes - I've worked hard and have a successful career. But my chances of going to the right schools, meeting the right people, etc. would have been far lower had I been born poor.

  • Jimmie Moore

    The wedding singer is a period piece set in 1985, which would have been right around when a cd player was north of $500, in 1985 dollars.

  • Full story

    Boda needs to write something about the skewing of facts by the honorary co-chair of the Democratic Socialists of America:

    "Top 1%, in terms of wealth, have more wealth than the bottom 90% ."
    - Barbara Ehrenreich -

    http://www.thenation.com/doc/20080707/ehrenreich_video

  • Dan

    Yes - I believe that would have been the price for a CD player in 1985. Didn't know the movie was set back then. My dad was among the first to buy a CD player, in around 1983, and I believe he paid well over $1,000.