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Factoids of rich and poor

October 25th, 2002

Arnold Kling presents a range of commentary on economic and technological issue that is always provocative and usually sensible. In
this post, however, he falls for a fallacious argument based on a confusion between price and income effects. He says:

” In my view, it is difficult to dispute that the rich are getting richer. However, it is equally difficult to dispute that the poor are getting richer. For example, W. Michael Cox and Richard Alm in Myths of Rich and Poor have pointed out that in spite of the rise in inequality a poor household in the 1990’s was more likely than an average household in the 1970’s to have a washing machine, clothes dryer, dishwasher, refrigerator, stove, color television, personal computer, or telephone. ”

The common feature of all the items listed in this quote is that their price has fallen dramatically relative to to the general price level. This means that even if incomes were exactly the same as in 1970 we would expect to see a big increase in consumption of these items.

Conversely, the income data, which show no significant increase in income for workers with high-school education since 1970, imply that consumption by the poor of some goods and services must have decreased. The obvious candidates ar e those goods that have increased in relative price, such as housing. Although it’s difficult to assess, the proliferation of prefabricated homes (aka mobile homes, aka trailers) supports the view that the poor are worse off in this respect.

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