China, Wal-Mart, and Inequality

Here’s a letter that I sent recently to the Washington Post.

E.J. Dionne uncritically quotes Rep. Barney Frank’s assertion that
freer trade makes incomes more unequal: "Free trade has increased
wealth, but it’s been monopolized by a very small number of people"
("Capitalism’s Reality Check," July 11). Rep. Frank and Mr. Dionne
ought to study recent research by the University of Chicago’s Christian
Broda and John Romalis. These scholars find that official measures of
income distribution – which do show increasing inequality in recent
years – greatly overstate inequality because they fail to account for
the differential impacts of trade and big-box retailing on the
purchasing power of the poor relative to that of the rich.

Data
from 1994 through 2005 show that trade with China along with the
retailing efficiencies of Wal-Mart have lowered the prices of the goods
that poor people buy much more than they’ve lowered the prices of the
goods that rich people buy. The result is that, as Prof. Broda reports
on his blog, "real inequality in America, if you measure it correctly,
has been roughly unchanged."