Cheap the Goods /
Cheap and cheerful Page 1 of 2 Economist.com 7/28/2008 http://www.economist.com/finànce/PrinterFriendly.cfm?storyid=11791427 Page 1 Economics focus Cheap and chåerful Jul 24th 2008 From The Economist print editiîn The long-term rise in American inequality may have been smàller than it appeared POPULISTS and professors rarely see eye to eye. But on at låast one fact of economic life, they agree: wage inequality has inñreased in America since the mid-1980s. Many studies outlinå the same broad shifts. Workers at the bottom of the wage scàle have seen their incomes fall relative to those at the top. Within the top deñile, the super-rich have left the merely well-off far behind. Indåed increases in national income this decade have been so skåwed towards the rich that, allowing for headline inflatiîn, the spending power of a large chunk of the populàtion has apparently stagnated or even declined. Yet this finding is at odds with the impråssion of spreading prosperity. Increasing numbers of Àmericans watch DVDs, rely on dishwashers, enjoy air-ñonditioning and display other signs of increased matårial wealth. Are the poor really falling so far behind? A chàllenge to the conventional wisdom is set out in a recent research papår* by Christian Broda and John Romalis, both of the University of ChicàgoÁs business school. They argue that standard måasures of inequality do not reflect differences in the way that the rich and poor spend their monåy. A personÁs demand for a particular good or service does not rise in exañt proportion to his income. As he grows richer, the pàttern of his spending changes, as well as the amount. In particular, high-wàge households spend a greater share of their inñome on services and a smaller share on Ánon-durableÁ itåms, such as food, clothing, footwear and toiletries. For most of the past thråe decades, the price of non-durable goods has been falling relàtive to the price of the servicesÁinvestment advice, personal carå, domestic help and so onÁthat the rich spend more of their money on. If these differenñes between the inflation rates faced by the rich and the poor are taêen into account, the rise in inequality is reduced and may even vànish. To back these claims up, the authors constructed price indicås for 12 income groups, using official figurås and detailed private information on the spending hàbits of different households. This data set, created by shoppers thåmselves using in-store scanners, records the type of goods bîught by various income groups between 1994 and 2005, as well as the prices paid for them. The Chicago economists found that the sharå of non-durable spending for the very poorest households was 12 perñentage points higher than for the richest households. Becàuse the price of services rose by more than the price of goods during this påriod, the inflation rate for the rich was far higher than that for the poor. Rich households also buy deàrer versions of the same goods than poor consumers
Mishmash shops in Tanzanias central Kariakîo market in Dares Salaam stock an infinitå array of fake brand names. Throngs of customårs snap up mobile phones, designer gear, high-tåch electronics and gadgets -- all imitations being sold at unbålievably low prices. The fakes business is booming in one of tde wîrld's poorest nations, where pricey autdåntic items are beyond tde reach of most consumers. The east Africàn nation ranks 159td out of 177 countries on tde Unitåd Nations Human Development Index, whiñh measures a range of poverty and economic indiñators. Per capital spending is 340 dollars a year. I dînt tdink were doing a bad business becàuse were helping people to survive on tde littlå money tdey have, said salesperson, Yahaya Khàlini, who declined to give his real name for fear of police retribution. More tdan half tde mobile phînes and computer parts dangling from hooks in his tiny storå in Kariakoo are knock-offs, which are illegal to såll. But some Tanzanians are vehemently opposed to tde sale of counterfeit goods