This research will contribute to our understanding of two economic phenomena, neither of which has been satisfactorily explained to date. The first is why the prices of primary commodities such as rice, tin, copper, etc. have trended slowly downward over time, in spite of vast increases in demand. For many of these goods, it is thought that supply disturbances are the most important determinants of price; the coffee harvest fails in Brazil, or there is a miners' strike in Zaire or Chile. If so, it is hard to explain why it is that booms and slumps in prices last so long, instead of coming and going with the fluctuations in weather or political events that cause them. Another widely canvassed explanation looks to the behavior of speculators whichy can prolong slumps and booms. However, previous research has shown that speculative activity, even in conjunction with supply shocks, cannot explain what is observed. This project will focus on wage trends in developing countries as a possible explanation for falling commodity prices and industrial demand as an explanation for shorter-term fluctuations. If these explanations are correct, it will switch attention away from speculators and storage as the main source of commodity price fluctuations. The second topic analyzes saving and wealth accumulation, with a particular focus on explaining disparities between people in their living standards and wealth. Many industrialized economies have experienced sharp increases in inequality during the 1980s. There are many potential explanations for this increase including technological shifts, demographic changes, and increasing competition from developing countries, but the dynamics of inequality remain mysterious. Recent research has drawn a link between asset accumulation, time, and inequality. Because different people are differentially lucky in their earnings and income, and because differences in luck cumulate over time, inequality in living standards is likely t o increase with time for any given group of people. This appears to be true for the United States, with much greater earning and consumption inequality among older than younger Americans. This research will look at whether this is also true for wealth, and whether, as the theory suggests, wealth inequality increases particularly rapidly over time. More generally, the links between earnings inequality and wealth inequality and the role played by saving will be analyzed.
