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walmart and economic inequality

The formidable Lane Kenworthy spars with Steven Levitt and Will Wilkinson over the right way to interpret the significance of a new paper purporting that economic inequality has not increased as much as many scholars think. The basic idea behind the new paper, written by Chicago economists Christian Broda and John Romalis, is that while income inequality has increased, the consumption capability of the poor has increased due to imports sold at low-cost retailers like Walmart. Lane first offers a clean rebuttal, followed by a Wilkinson defensive jab, and then an uppercut from Lane to end matters. How did things settle? This from Lane:

Even if consumption inequality has increased only a little, the rise in income inequality has produced a noteworthy increase in inequality of capability. The rich aren’t forced to purchase goods and services whose prices have increased more rapidly; they could switch to the same consumption bundle as the poor if they wished.

In my view the Broda and Romalis analysis is important for our understanding of (absolute) poverty, rather than inequality. They find that the prices of goods poor Americans tend to purchase have risen less rapidly than the overall inflation rate. …if the finding is correct, it suggests that the trend in living standards for America’s poor was more favorable (or less unfavorable) between 1994 and 2005 than income data imply.

Written by brayden king

May 21, 2008 at 6:50 pm

One Response

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  1. One man’s knockout is another man’s whiff, I guess!

    http://www.willwilkinson.net/flybottle/2008/05/21/inequality-of-capability/

    Maybe this is what happens when a sociologist and a philosopher argues about economics.

    Like

    Will Wilkinson

    May 21, 2008 at 8:00 pm


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