Wal-Mart vs. Inequality

Wal-Mart is famous for its low prices, but according to a new analysis by a couple of University of Chicago profs, Wal-Marts price cutting has also cut something else (or at least restrained its growth): inequality. Steven Levitt reports:

Inequality is growing in the United States. The data say so. Knowledgeable experts like Ben Bernanke say so. Ask just about any economist and they will agree. (They may or may not think growing inequality is a problem, but they will acknowledge that there has been a sharp increase in inequality.)

According to two of my University of Chicago colleagues, Christian Broda and John Romalis, everyone is wrong.

Their argument could hardly be simpler. How rich you are depends on two things: how much money you have, and how much the stuff you want to buy costs. If your income doubles, but the prices of the things you consume also double, then you are no better off.

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!

More. (HT: Restrained Radical) Of course, food prices are currently on the rise thanks in part to the ethanol mandates imposed by the government last year, and this may well cancel out Wal-Mart’s inequality canceling effect. Still, if it wasn’t for Wal-Mart’s comparatively low prices, the effect of this would be even worse. Maybe this news will make some of Wal-Mart’s more trenchant critics reconsider whether equality is all its cracked up to be. Then again, maybe not.

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  • none

    Was the cost of gas factored in?

  • none

    Was the cost of gas factored in?

  • Chase

    One of the things worth considering regarding inequality, particularly from a Catholic perspective, is the extent to which society is integrated across socioeconomic boundaries. One of my concerns is that, if the rich and the poor truly consume wholly different products, if they live in wholly different worlds, than inequality is perpetuated, not resolved, and a true spirit of communitas is lacking. Thoughts?

  • Chase

    One of the things worth considering regarding inequality, particularly from a Catholic perspective, is the extent to which society is integrated across socioeconomic boundaries. One of my concerns is that, if the rich and the poor truly consume wholly different products, if they live in wholly different worlds, than inequality is perpetuated, not resolved, and a true spirit of communitas is lacking. Thoughts?

  • http://www.thewellnesscenter.info Terry Henry

    I found that people who make 1 million dollars a year can be poorer than those who make 50 thousand a year. Sometimes the millionaire has less because they buy more than they can afford. Greed is a big problem.

  • http://www.thewellnesscenter.info Terry Henry

    I found that people who make 1 million dollars a year can be poorer than those who make 50 thousand a year. Sometimes the millionaire has less because they buy more than they can afford. Greed is a big problem.

  • http://www.thearjayconception.com Rj

    Chase is right. Walmart IS contributing to inequality, though. They pay their workers a dime.

  • http://www.thearjayconception.com Rj

    Chase is right. Walmart IS contributing to inequality, though. They pay their workers a dime.

  • http://blog.myspace.com-jaxhawk rotenochsen

    YOU ARE RIGHT ON, BUT THE “UNION” FAITHFUL WILL CONTINUE THEIR MARCH TO POWER BY DENYING THAT WAL MART AND STORES LIKE IT ACTUALLY HELP THE “LITTLE PEOPLE” LIKE US. THANKS FOR YOUR INSIGHT! jAXCONSERVATIVE

  • http://blog.myspace.com-jaxhawk rotenochsen

    YOU ARE RIGHT ON, BUT THE “UNION” FAITHFUL WILL CONTINUE THEIR MARCH TO POWER BY DENYING THAT WAL MART AND STORES LIKE IT ACTUALLY HELP THE “LITTLE PEOPLE” LIKE US. THANKS FOR YOUR INSIGHT! jAXCONSERVATIVE

  • Alice Roddy

    Chase, the rich may consume different products than Wal-Mart shoppers like me, but I don’t want to live in their world for more reasons than money. I don’t want a second home, for instance, because I value neighborhood and roots. I think some people have more money than they know what to do with, literally, and it isn’t making their lives more satisfying.

  • Alice Roddy

    Chase, the rich may consume different products than Wal-Mart shoppers like me, but I don’t want to live in their world for more reasons than money. I don’t want a second home, for instance, because I value neighborhood and roots. I think some people have more money than they know what to do with, literally, and it isn’t making their lives more satisfying.

  • Chase

    Alice, I don’t believe I’m advocating a consumerism persay, but rather that the separation between the rich and poor (or, if you like, the shrinking middle class) has consequences for our sense of human community. This burdens the rich to live within more reasonable means as much as it burdens lawmakers to create avenues for helping the poor.
    When a CEO makes 100-500x what his lowest paid employee does, that has consequences beyond that employee’s inability to buy things: it gets to the CEO’s understanding of how his fellow man lives and his resulting decisions vis a vis that worker’s benefits and working conditions.

  • Chase

    Alice, I don’t believe I’m advocating a consumerism persay, but rather that the separation between the rich and poor (or, if you like, the shrinking middle class) has consequences for our sense of human community. This burdens the rich to live within more reasonable means as much as it burdens lawmakers to create avenues for helping the poor.
    When a CEO makes 100-500x what his lowest paid employee does, that has consequences beyond that employee’s inability to buy things: it gets to the CEO’s understanding of how his fellow man lives and his resulting decisions vis a vis that worker’s benefits and working conditions.

  • Alice Roddy

    Chase, is there any historical evidence to suggest that law makers help the poor? My reading of history is that money taken from prosperous people in the name of helping the poor does not achieve its objective due to the nature of politics. A segment of the population that feels dependent upon politicians tends to assure their continuation in power. So the poor get a trickle but not enough to make them independent.
    I do very much believe that the prosperous should assist the less well off. Indeed, it is one of the blessings and benefits of prosperity that gives those who have great joy. But let’s not confuse society with government. Society should do a great deal. Government operates through coercion–taxation or jail–and violates our God given free will.
    We greatly cherish our autonomy, witnessed by the fact that even people who are extremely generous by themselves resent and resist taxes. Government takings have crowded out much private charity, to the detriment of charity.

  • Alice Roddy

    Chase, is there any historical evidence to suggest that law makers help the poor? My reading of history is that money taken from prosperous people in the name of helping the poor does not achieve its objective due to the nature of politics. A segment of the population that feels dependent upon politicians tends to assure their continuation in power. So the poor get a trickle but not enough to make them independent.
    I do very much believe that the prosperous should assist the less well off. Indeed, it is one of the blessings and benefits of prosperity that gives those who have great joy. But let’s not confuse society with government. Society should do a great deal. Government operates through coercion–taxation or jail–and violates our God given free will.
    We greatly cherish our autonomy, witnessed by the fact that even people who are extremely generous by themselves resent and resist taxes. Government takings have crowded out much private charity, to the detriment of charity.

  • http://populisthope.blogspot.com Matt Talbot

    How rich you are depends on two things: how much money you have, and how much the stuff you want to buy costs. If your income doubles, but the prices of the things you consume also double, then you are no better off.

    The sky in their world must be a very pretty color indeed.

    This just seems deliberately obtuse. So, if my income doubles, but I’m still using up all my income, but buying fancier cars and a nicer home, I’m no better off? If we lived in a world of economic abstraction (as Christian Broda and John Romalis appear to) then you can maybe make this case. But in the real, actual world populated by human beings capable of seeing their relative economic place on the ladder? Not so much.

  • http://populisthope.blogspot.com Matt Talbot

    How rich you are depends on two things: how much money you have, and how much the stuff you want to buy costs. If your income doubles, but the prices of the things you consume also double, then you are no better off.

    The sky in their world must be a very pretty color indeed.

    This just seems deliberately obtuse. So, if my income doubles, but I’m still using up all my income, but buying fancier cars and a nicer home, I’m no better off? If we lived in a world of economic abstraction (as Christian Broda and John Romalis appear to) then you can maybe make this case. But in the real, actual world populated by human beings capable of seeing their relative economic place on the ladder? Not so much.

  • Chase

    Alice:

    Certainly the power of taxation is a very serious one. However, Catholic social teaching strongly affirms the notion of a common good tied to certain rights afforded individuals. Among them, for example, that every person can earn reasonably earn a wage for a proper living for himself (indeed, to read Msgr. Ryan and others, for the wellbeing of his or her entire family, freeing a parent to care for the children exclusively). As a human person, anyone with this right has a claim against all other persons: when one person is not afforded a proper living, we have all failed. Catholic teaching gives certain moral authority to government precisely because it is the institution which facilitates the responsibilities of each person to rights like a just wage, or to proper health and education.

    We cannot let pure redistribution of wealth dominate this discussion: indeed, the most critical needs a government can provide for are institutional in nature: schools, hospitals and jobs. However, our redistributive programs should and often do recognize that, for example, a child ought not pay for the failure of their parents, that no one should fully bear the brunt of occasional misfortune, and that certain basics ought be afforded to the migrant, to the disabled, to the poor precisely because they are human persons.

    Proper government allows space for generous individuals, for the private and corporate charity of others. Indeed, government which creates the incentives and the social capital for these organizations to thrive serves its interests well. But we all – regardless of creed or even charitable will – bear a moral obligation to the least of these, to the creation of a safety net necessary for the thriving of the human person, the family and our community. If government is not yet reflective of the “better angels of our nature,” than the knowledge that it can, that it must be to protect justice, must inspire us to action.

  • Chase

    Alice:

    Certainly the power of taxation is a very serious one. However, Catholic social teaching strongly affirms the notion of a common good tied to certain rights afforded individuals. Among them, for example, that every person can earn reasonably earn a wage for a proper living for himself (indeed, to read Msgr. Ryan and others, for the wellbeing of his or her entire family, freeing a parent to care for the children exclusively). As a human person, anyone with this right has a claim against all other persons: when one person is not afforded a proper living, we have all failed. Catholic teaching gives certain moral authority to government precisely because it is the institution which facilitates the responsibilities of each person to rights like a just wage, or to proper health and education.

    We cannot let pure redistribution of wealth dominate this discussion: indeed, the most critical needs a government can provide for are institutional in nature: schools, hospitals and jobs. However, our redistributive programs should and often do recognize that, for example, a child ought not pay for the failure of their parents, that no one should fully bear the brunt of occasional misfortune, and that certain basics ought be afforded to the migrant, to the disabled, to the poor precisely because they are human persons.

    Proper government allows space for generous individuals, for the private and corporate charity of others. Indeed, government which creates the incentives and the social capital for these organizations to thrive serves its interests well. But we all – regardless of creed or even charitable will – bear a moral obligation to the least of these, to the creation of a safety net necessary for the thriving of the human person, the family and our community. If government is not yet reflective of the “better angels of our nature,” than the knowledge that it can, that it must be to protect justice, must inspire us to action.

  • Alice Roddy

    Chase, government will not be perfect until all individuals are perfect. In the mean time it is every bit as likely to to be subject to our “baser instincts” as to the “better angels of our nature”. I find the historical record to suggest more of the former than the latter.
    You and I shall have to agree to disagree because I do not believe the it is government that creates “the incentives and social capital”. I see these as coming from the human spirit, or not. Nor does government create jobs. Human need and freedom to meet these needs does.
    Peace.

  • Alice Roddy

    Chase, government will not be perfect until all individuals are perfect. In the mean time it is every bit as likely to to be subject to our “baser instincts” as to the “better angels of our nature”. I find the historical record to suggest more of the former than the latter.
    You and I shall have to agree to disagree because I do not believe the it is government that creates “the incentives and social capital”. I see these as coming from the human spirit, or not. Nor does government create jobs. Human need and freedom to meet these needs does.
    Peace.

  • Blackadder

    Matt,

    If your income doubles, but you still use up all your income buying fancier cars and a nicer home, you are certainly better off. If, however, your income doubles and the price of the things you were buying before also doubles, then you aren’t any better off. That’s Levitt’s point.

  • Blackadder

    Matt,

    If your income doubles, but you still use up all your income buying fancier cars and a nicer home, you are certainly better off. If, however, your income doubles and the price of the things you were buying before also doubles, then you aren’t any better off. That’s Levitt’s point.