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Lecture on Inequality Econ 10350 Principles of Macroeconomics

Kevin R Foster, Colin Powell School, the City College of New York, CUNY

Economics of Inequality

 Sometimes hear commentators say inequality is “because economics”

 As if market forces inevitably determine the degree and types of inequality

 Completely false!

 Economic theory explains how differences in starting points become differences in outcomes

 History and international comparisons show many different possibilities

 Although Thomas Piketty brought new attention, his work builds on much of traditional economic theory & empirical work

 Emmanuel Saez & Gabriel Zucman doing great work

“A little learning is a dangerous thing; Drink deep, or taste not the Pierian spring.” – Alexander Pope

Inequality

 Rising over most of globe

 whether look at top 10% or top 1% or top 0.1% or 0.01%

 Careful to distinguish income from wealth (although both are unequal) – again stock vs flow

 In US, this dovetails with inequality between race/ethnicity groups

much of this section follows Alvaredo, Chancel, Piketty, Saez, Zucman World Inequality Report 2018

Wealth & Income

Inequality

Inequality in US

Lecture on Inequality part 2 Econ 10350 Principles of Macroeconomics

Kevin R Foster, Colin Powell School, the City College of New York, CUNY

Trends from different growth rates

Recall about growth rates: • 420% over 40 years is

4.2% per year • 79% over 40 years is 1.5%

per year • 50% over 40 years is 1%

per year • 20% over 40 years is

0.45% per year

from https://www.nytimes.com/interactive/2020/04/10/opinion/coronavirus-us-economy-inequality.html

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Age & Race

Not just $$

Recall at beginning of class, talked about how GDP in different countries correlates with other measures of well-being

Lecture on Inequality part 3 Econ 10350 Principles of Macroeconomics

Kevin R Foster, Colin Powell School, the City College of New York, CUNY

Inequality – what policy?

Change in wealth driven by changes in saving (due to attempts to keep off inequality of consumption?)

What is right level of tax?

Building a Better America−−One Wealth Quintile at a Time Michael I. Norton and Dan Ariely Perspectives on Psychological Science

https://www.economist.com/graphic-detail/2019/04/13/american-inequality-reflects-gross-incomes-as-much-as-taxes

Policy

 Fiscal policy effectiveness depends on Marginal Propensity to Consume – do rich or poor have different MPC?

 Worry about persistence over time – high inequality/high mobility vs high inequality/low mobility

 Political power follows economic power

 US history of racial oppression is vital part

 Policies that promote mobility (eg public education) get less support with rising inequality

 Progressive taxation can ameliorate inequality

 Acemoglu & Robinson distinguish policies to get a larger share of fixed pie vs grow the pie

Inequality & Educational Opportunity  In US, at Ivy League & similar, more students from top 1% of families than from bottom 50%

 CUNY & especially CCNY lead the USA in social mobility

 from Equality of Opportunity, by Raj Chetty, John Friedman, Emmanuel Saez, Nicholas Turner and Danny Yagan

 all the more surprising since it looks at people in the Slow Period of mobility (born around 1980) past the era of Jonas Salk, Andy Grove, Colin Powell & 10 Nobel Prize winners

Inequality & Educational Opportunity

recall last year’s news about bribes for college admit…

Inequality & Educational Opportunity

parents with more income are more likely to send their kids to college

those kids, in turn, are more likely to have higher incomes