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09 November 2009

TED Talks and Income Inequality

Note: It's always kind of nice to know that you can change your ideas based on better evidence. The combination of the first TED talk here and the accompanying two articles have altered the way I view perceived value and income inequality.

Ad man Rory Sutherland. Definitely a must see (after all this text).

The point of his that I found most interesting was the idea of perceived value. This is generally something I tend to bemoan the existence of. Perceived value is the idea that a good, say a purse, can be bought for $10 or over $1000 if it has the right label on it. I've written about it before but I'm bad at labeling my posts. Regardless, Mr. Sutherland proposes the rather simple, if not ingenious, idea that we essentially have two choices in this area. We can either have lots of stuff and be rich or have very little and be poor (if nothing is getting produced no one has a job). The alternative is that we can own less but the goods we do own have an element of added perceived value. Think Europe.

The really interesting part is that this has already been noted by economists. We all know that income inequality has been growing in the US, but some economists have said it's really just an artifact of the way we measure the data. As Stephen Levitt puts it:

"Their argument could hardly be simpler. How rich you are depends on two things: how much money you have, and how much the stuff you want to buy costs. If your income doubles, but the prices of the things you consume also double, then you are no better off."

The study basically says that being rich got more expensive while being poor got cheaper (Walmart). This fact according to these economists can explain away between two thirds and all of the "growing" income gap. I feel dirty just saying that. Then on the Becker-Posner blog they collectively agree that rising income inequality is good because it means that people are securing more skilled jobs vie se vie rising higher education costs. It's a good read but a bit dry.

Dutch artist and engineer Theo Jansen makes... creatures.

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