There’s been an interesting inter-blog conversation going on among leading econbloggers on the subject of income inequality in the United States (which has grown enormously over my lifetime). Participants include Mark Thoma, Andrew Samwick, Greg Mankiw, and Brad DeLong. The most recent installment comes in the form of an email from Paul Krugman posted by Mark here.
I think the question is important. My ideal America is one with a large number of fairly prosperous and well-educated people—something along the lines of a 21st century version of Jefferson’s idealized yeoman farmers rather than a country consisting of a rather small number of the ultra-wealthy on the one hand and everybody else on the other (which certainly looks to me to be the direction in which we’re heading). The ultra-wealthy are positioned very well for rent-seeking and I presume they’re willing to go to substantial lengths to maintain their wealth and position—that’s certainly how I explain the execrable Sonny Bono Copyright Act of 1999.
The usual prescription for solving the problem is education. I’m skeptical. This would seem to be testable: are the top .1% more highly educated than the next .99%? Are the top 1% more educated than the next 9%? My understanding is that anyone making $270,000 or so are in the top 1% of income earners. An awful lot of those are medical doctors (that’s roughly the average income of a medical doctor and the median income for an MD is something like $180,000) and in addition to docs being highly educated and hardworking there are substantial barriers to entry to the practice of medicine. Which is more important: the education and hard work or the barriers to entry? Not to mention the enormous subsidies to the practice of medicine.
The usual explanation for the increasing concentration of income (and wealth) in relatively fewer hands is that the productivity of the highest income earners is higher. I’m skeptical of that, too. If we mean something by productivity something other than the tautological the highest income earners have a higher income because they’re paid more, I don’t think that stands up to scrutiny. My experience is that in most jobs the productivity is dictated more by the job than by the level of educational attainment or the amount of effort put out by the person holding the job.
Take a look at the posts. They’re an interesting read.