Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

AI Summary. America's lowest earners experienced cumulative inflation of 13.5% over a roughly two-year period versus 15.5% for middle earners, reversing the usual pattern, as petrol prices more than doubled and used-vehicle prices rose about 50% while middle-income households spend more on fuel and cars relative to wages. Nominal wages rose 4.2% a year on average but 5.3% for the lowest-earning quartile.

Economist Staff The Economist
Date Posted:
Is Database:
Database

@TheEconomist Btw mid-2020-2022 America’s lowest earners saw cumulative inflation of 13.5% vs 15.5% for middle earners. The difference was largely driven by car prices & fuel expenditures.

Did inflation hit middle earners harder than the lowest earners?

Core argument: America's lowest earners experienced cumulative inflation of 13.5% between mid-2020 and 2022, below the 15.5% faced by middle earners, reversing the usual pattern in which inflation hits the poor hardest.

Between mid-2020 and 2022, America's lowest earners experienced cumulative inflation of 13.5%, while middle earners faced 15.5%, a reversal of the usual trend where inflation impacts the poor more severely. This anomaly was largely driven by car prices and fuel expenditures, as middle-income earners spend more on petrol and vehicles relative to their wages. During this period, petrol prices more than doubled and used-vehicle prices rose by about 50%, disproportionately affecting the middle class. Additionally, nominal wages increased at an average annual rate of 4.2% overall, but the lowest-earning quartile saw a 5.3% rise, enhancing their real income gains. This unusual pattern suggests a temporary shift towards greater economic equality, although the trend may not persist as wage growth softens and food inflation intensifies, potentially reverting to the norm where inflation hits the poor hardest.

Takeaways by Macro Roundup® AI

  1. America's lowest earners experienced cumulative inflation of 13.5% between mid-2020 and 2022, below the 15.5% faced by middle earners, reversing the usual pattern in which inflation hits the poor hardest.
  2. The reversal was largely driven by car prices and fuel expenditures, as petrol prices more than doubled and used-vehicle prices rose about 50%, while middle-income earners spend more on petrol and vehicles relative to their wages.
  3. Nominal wages rose at an average annual rate of 4.2% overall but 5.3% for the lowest-earning quartile, though the shift toward greater equality may not persist as wage growth softens and food inflation intensifies.

The Economist reports that between mid-2020-2022 America's lower earners saw cumulative inflation of 13.5% whereas middle earners saw 15.5%. The difference was largely driven by car prices and fuel expenditures.

“…Middle-income earners, not the poorest, appear to have borne the brunt of America’s current bout of inflation. Research by Xavier Jaravel of the London School of Economics has yielded a distinctive shape—an inverted-U curve—that illustrates the distributional effects of inflation in America from mid-2020 to mid-2022. For the lowest earners, inflation was about 13.5%. For those in the middle of the spectrum, inflation was closer to 15.5%. The wealthiest faced inflation of about 14%. Since 2020 nominal wages have increased at an average annual rate of about 4.2% for Americans as a whole. The lowest-earning quartile, however, has seen the biggest gains, with their wages up by 5.3% on average during the same period….”

Economist Staff, "Inflation usually hits America’s poor hardest. Not this time," The Economist, February 2, 2023, https://www.economist.com/graphic-detail/2023/02/02/inflation-usually-hits-americas-poor-hardest-not-this-time

Inflation usually hits America’s poor hardest. Not this time

It is often seen as an axiomatic truth about the pernicious effect of rising prices: the lowest earners suffer the most. The calculation is straightforward. Those on low incomes must spend a greater share of their earnings on food and rent, so when the prices for those items soar, they have less left over for everything else. The rich and the middle class, by contrast, are better insulated. This pattern has been observed over many decades, in many countries (see left-hand chart). But America’s current bout of inflation may be an exception to the rule: middle-income earners, not the poorest, appear to have borne the brunt of it (see right-hand chart).

Research by Xavier Jaravel of the London School of Economics has yielded a distinctive shape—an inverted-U curve—that illustrates the distributional effects of inflation in America from mid-2020 to mid-2022. During that time consumer prices rose by an average of 15%. Yet that average masked considerable variation. For the lowest earners, inflation was about 13.5%. For those in the middle of the spectrum, inflation was closer to 15.5%. The wealthiest faced inflation of about 14%. That the rich suffered less is unsurprising. But why have the poor also been somewhat sheltered?

The answer is in large part down to Americans’ reliance on cars. Mr Jaravel used annual expenditure shares from consumer surveys to work out who spends how much on what. Middle-income earners, he found, spend more than others on both petrol and vehicles relative to their wages. That may reflect school runs, longer commutes by car to work, more frequent trips to shops and the like. In the two years that he examined, inflation was extreme for petrol (the price of which more than doubled) and cars (used-vehicle prices rose by about 50%). By extension that hurt the middle class most. A further breakdown of the data reveals even more nuance: at all levels of income, rural Americans faced higher rates of inflation than their urban compatriots because they spent more hours behind the wheel.

A difference of two percentage points in inflation over the course of two years may not seem like much. But it comes on top of a divergence in nominal wage growth that has also, unusually, benefited Americans at the low end of the income scale. Since 2020 nominal wages have increased at an average annual rate of about 4.2% for Americans as a whole. The lowest-earning quartile, however, has seen the biggest gains, with their wages up by 5.3% on average during the same period. Slightly lower inflation makes those gains even bigger in real terms.

This suggests that the combination of a tight labour market and unevenly distributed inflation has made America a little more equal over the past few years, a striking difference with how things normally play out. Unfortunately, it may also be a blip. Wage growth has started to soften as the economy slows. Food inflation has become more severe. On both counts low-income earners are the most vulnerable. The sorry old truth that inflation hits the poor hardest still applies—just not always.

Showing 113 database articles primarily about Inflation