"...ratios of the 90th to 10th percentiles of the US income distribution have grown by 6% from '94 to '05, roughly a third of the total rise in inequality since 1984. When income-gap specific inflation rates are used to estimate the change in inequality, 90th/10th ratios have risen only 2% in this period. Moreover, if inflation rates are corrected for new-goods bias...we find that inequality has been unchanged since 1994."
Their basic argument is that the economy has changed in such a way that inflation has actually been negative for lower income consumers, largely due to increased producitivity and increased imports from cheap labor countries such as China. A very good illustration of their inflation calculation can be found on page 41 (figure 10) of their working paper, here: http://faculty.chicagogsb.edu/christian.broda/website/r..._TradeInequality.pdf
You dont often find papers that defy conventional wisdom as strongly as, "we find that inequality has been unchanged since 1994." That's quite a conclusion to actually be able to back up.
Well, let's not get carried away. They're saying that, although wage and income inequality has increased, the poor haven't gotten any poorer relative to the rich because the stuff that they buy is getting cheaper and cheaper, mostly because of trade from China, whereas the stuff rich people buy is still expensive.
They're not disputing the rise in income inequality: "Over the past three decades there has been a spectacular rise in income inequality as measured by official statistics."
They're just saying thank God for cheap goods from China or they'd be even worse off.
Also, note this: "The lower inflation at low income levels can be explained by three factors: 1) The poor consume a higher share of non-durable goods — whose prices have fallen relative to services over this period; 2) the prices of the set of non-durable goods consumed by the poor has fallen relative to that of the rich; and 3) a higher proportion of the new goods are purchased by the poor."
Translation: 1) the stuff poor people can afford to buy has gotten cheaper; 2) Rich people don't buy nearly as much cheap stuff from China as poor people do (because they're rich and don't have to); and 3) more poor people shop at Target than rich people.
Hooray! The rich have made more and more money lately, while the poor haven't, but as long as the poor keep buying cheap shit from China and the rich keep shopping at Nieman Marcus the gap won't get any bigger.
I'm not sure this is something to be jumping up and down about. But it should be a reminder to people like Lou Dobbs that there are middle and lower class benefits to trade, much in the same way there are similar middle and lower benefits to immigration.
You never hear that from Lou, do you?
There was a study like this done about 6-8 months ago that showed much the same thing about immigration: when you factor in all the Dobbsian costs -- depressed wages, government services used by illegals, Ricky Martin, your wife banging the gardener, etc. -- they're either offset by the lower prices people pay for goods and services, or it may actually be a net plus.
Also something you never hear from Lou.
Interesting stuff, though. Thanks for passing this along. Can I pass it along as well? It does say "Preliminary and Incomplete. Please do not circulate." at the top.
I need only look as far as your candidates to find arguments blaming our trade agreements for increased inequality in this country. And I need only look to any conservative discussing the issue in the past 10 years to find the argument that rising income inequality is offset by price changes. Now we have data to explicitly support one explanation over the other. I win, Hillary loses.
What does the bottom 20-30% use money for? Consumption. And the data shows that they are able to consume at a rate that shows no increase in inequality from 14 years ago. What is the inequality argument about if not what this paper addresses?
Yeah, we could raise their incomes - just cut off free trade. Then we could ensure that they realize no increased benefit and others actually suffered. It would be more "fair" though, right Barack?
Originally posted by heckofajobBrownie: When he's talking about "fairness" he's usually talking about foreign environmental and labor standards, no? I don't see anything wrong with that.
I was referring more to his capital gains rationale - help no one and hurt some because it increases "fairness".
quote:
But you're preaching to the choir a bit here.
Yeah, I just wanted to point out that there isnt really a gap between what they are saying and what I was saying. "the poor haven't gotten any poorer relative to the rich" is the point. Wage differences dont take away from it, they are just part of the story.
Well, raising the CG rate sensibly would help in the sense that it should raise revenue in a time of deficit. So it's not without reason. And the vast majority of people who pay CG taxes are wealthy.
But we don't want to get into that again. It'll be one of your bargaining chips when we get into the smoke-filled room.
Don't worry. I'll let you tell the investor class types at the AEI convention that you forced me to capitulate on the CG and corporate rates in exchange for my carbon tax. You can take credit for all of it. Most of my constituents don't even know what they are anyway.
Both of my daughter had to pay CG tax this year and they are 12 and 16. Why becuase I started saying $50 a month in a mutual fund for them from the month they were born.
As for the education IRA, or what ever you want to call it. It was not around when I started and you cannot roll money into it. So it is not an option but I am looking for options.
And I am in no way even on the upper side of middle class.
