Brad DeLong on inequality

…On the global level, it is difficult to argue that inequality is one
of the world’s major political-economic problems. It is hard, at least
for me, to envision alternative political arrangements or economic
policies during the past 50 years that would have transferred any
significant portion of the wealth of today’s rich nations to today’s
poor nations. I can easily envision alternatives, such as Communist
victories in post-World War II elections in Italy and France that would
have impoverished nations now in the rich North.

I can also envision alternatives that would have enriched poor
nations: Deng Xiaoping becoming China’s leader in 1956 rather than 1976
would have done the job there. But alternatives that would have made
the South richer at the price of reducing the wealth of the North would
require a wholesale revolution in human psychology.

Nor should we worry a great deal that some people are richer than
others. Some people work harder, apply their intelligence more
skillfully or simply have been lucky enough to be in the right place at
the right time. But I don’t see how alternative political-economic
arrangements could make individuals’ relative wealth closely correspond
to their relative moral or other merit. The problems that can be
addressed are those of poverty and social insurance-of providing a
safety net — not of inequality.

But on the level of individual societies, I believe that inequality
does loom as a serious political-economic problem. In the United
States, the average earnings premium received by those with four-year
college degrees over those with no college has gone from 30 percent to
90 percent over the past three decades, as the economy’s skill
requirements have outstripped the educational system’s ability to meet
them. Because the required skills acquired through formal education
have become relatively scarcer, the education premium has risen,
underpinning a more uneven distribution of income and wealth.

Ceci Rouse and Orley Ashenfelter of Princeton University report that
they find no signs that those who receive little education do so
because education does not pay off for them: If anything, the returns
to an extra year of schooling appear greater for those who get little
education than for those who get a lot.

A greater effort to raise the average level of education in America
would have made the country richer and produced a more even
distribution of income and wealth by making educated workers more
abundant and less-skilled workers harder to find — and thus worth more
on the market.

Likewise, America’s corporate CEOs and their near-peers earn 10
times more today than they did a generation ago. This is not because a
CEO’s work effort and negotiation and management skills are 10 times
more valuable nowadays, but because other corporate stakeholders have
become less able to constrain top managers and financiers from
capturing more of the value-added.

Similar patterns are found elsewhere. Within each country, the
increase in inequality that we have seen in the past generation is
predominantly a result of failures of social investment and changes in
regulations and expectations. It has not been accompanied by any
acceleration in the overall rate of economic growth. For the most part,
it looks like these changes in economy and society have not resulted in
more wealth, but only in an upward redistribution of wealth — a
successful right-wing class war.


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