Tuesday, December 25, 2007

Income gap: widened or not?

The Economist has again focused on the topic of income and consumption gap. Unlike the argument of Paul Krugman, a professor from Princeton University, that contemporary America's widening income gap is ushering in a new age of invidious inequalities, other economists, like Jerry Hausman of MIT and even the Nobel winning economist Robert William Fogel, have aruged that the official statistics do not capture the benefits the poorest have actually gained due to the lowered food prices after Wal-Mart's moving into the grocery business, and that nominal measures of economic well-being often miss such huge changes in the conditions of life.

According to another study, by Dirk Krueger of the University of Pennsylvania and Fabrizio Perri of New York University, consumption inequality has barely budged for several decades, despite a sharp upswing in income inequality.

"...Refrigerators are now all but universal in America, even though refrigerator inequality continues to grow. The Sub-Zero PRO 48, which the manufacturer calls 'a monument to food preservation', costs about $11,000, compared with a paltry $350 for the IKEA Energisk B18 W. The lived difference, however, is rather smaller than that between having fresh meat and milk and having none. Similarly, more than 70% of Americans under the official poverty line own at least one car. And the distance between driving a used Hyundai Elantra and a new Jaguar XJ is well nigh undetectable compared with the difference between motoring and hiking through the muck. The vast spread of prices often distracts from a narrowing range of experience.

After all, "...a widescreen plasma television is lovely, but you do not need one to laugh at 'Shrek'..."

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