The Rise in Economic Inequality: Causes and Cures

Greg MankiwApril 2016

Today’s Surprising Politics

“an economy and a political system that has been rigged by Wall Street”

Facts

GDP Growth over Past 10 Years

0

1

2

3

4

5

6%

Source: Goldin and Katz from census data.

The One Percent(Threshold is $423,000 in 2014)

Top 0.01 % Income Share(Threshold is about $9,750,000 in 2014)

Source: Piketty and Saez.

An Aside on Mobility

• If your income is at the 99th percentile, at what percentile should you expect your children to be?

• Nature or nurture?

Source: Chetty et al., 2014.

Hypotheses

Why Slow Growth?• The future ain’t what it used to be

Why Rising Inequality?

• A tug of war: Education versus Technology

A Slowdown in Educational Attainment

Source: Goldin and Katz.

The Rising Return to Education

Source: David H Autor, Science 2014;344:843-851

Other Reasons for Rising Inequality

• Globalization

• Superstars

• Women’s movement & assortative mating

Trends in the correlation between husbands' and wives' earnings

Source: Earnings Inequality and the Changing Association between Spouses’ Earnings, Christine R. Schwartz, American Journal of Sociology , Vol. 115, No. 5 (March 2010), pp. 1524-1557.

Policies

What can we do?

• Many root causes are nearly impossible to alter• Except:

• Treating the symptoms

33

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13

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Optimal redistribution?

• Normative, not positive.

• The Utilitarianism of Jeremy Bentham (1748-1832)

• The role of diminishing marginal utility

Questioning Utilitarianism

• Is utility interpersonally comparable?

• What about differences in tastes?

• Revolting(?) implications: Trolley problems

• “Tagging” and the optimal taxation of height

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCJbF74LL-8cCFYiCPgodzmEH8Q&url=http://www.amazon.com/Equality-Efficiency-Tradeoff-Brookings-Classic-ebook/dp/B00U1V3EA6&psig=AFQjCNHe3lKisLGQOJePZtSVBkQBbfvtFQ&ust=1442493993254825

One final thought• Americans living at

the poverty line are poorer than 85% of their fellow citizens.

• But they are richer than 85% of people in the world.

Thank you!