Obviously, I’m not the only one who gets annoyed by pieces pointing to purchases of consumer goods as evidence that rising inequality isn’t really a problem. But, as an economist, it particularly annoys me when this claim is put forward by people who claim to understand markets. I’ve been going on about this for yearsand years.
The most important thing that happens in markets is that relative prices change. If prices change, but income and preferences don’t, what we expect is that people will consume more of the goods and services for which prices have fallen and less of those for which prices have risen. So, when Jeff Taylor tells us that
With price points dropping below the $1000 mark, high-end TVs are moving down-market fast with Wal-Mart leading the way.
we can all cheer this renewed verification of the Law of Demand. But, of course, this tells us precisely nothing about what’s happening to inequality.
More importantly, since we know that prices are increasing (and, for most US workers, increasing faster than wages over the last few years), it’s obvious that if TVs are getting cheaper, other things must be getter dearer in real terms. With this hint, it’s not hard to find examples – college tuition and health care are obvious candidates.
So, if you want to show that increasing inequality isn’t really a problem, looking at sales figures for consumer durables won’t cut it. You need to look at the proportion of the population without health insurance or the accessibility of college education to the working class.
Of course, the big decline in US national savings means that consumption has grown more strongly than income for most goods and services. This raises a lot of complex issues.
It’s possible to make a case that the income stats overstate the growth in inequality. But it’s unlikely that someone who doesn’t understand the basics of relative prices is going to do a good job of making this case.