Wal-Mart and Income Inequality

Very interesting post at the Freakonomics blog by Steve Levitt:

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!

I find it amazing how many economists and pundits dismiss the impact of buying power. Just look at countries like India where as recently as a decade ago, the bulk of the population did not even have telephones. Compare it to India now where even the poorest carry cell phones. And that is just one example of the buying power increase that is a direct result of globalization and cheap labor.