Here’s the entire interview and below is a blurb on how economists generally think about inequality:
The default position of economists is that inequality reflects the unequal human capital or productive capabilities of different workers. If you start with that premise – that what people earn is commensurate with their contribution to their employer, and also perhaps to society – then greater inequality tells you something about how people’s productivities have evolved over time. This is by no means what every economist believes, but it’s a common view. Economists have cut their teeth on inequality by looking at things like the increase in the college premium over the last 30 years in the US and other economies, as well as the increase in the gap between relatively high earners – the 90th percentile of income distribution – versus the bottom 10th percentile. We’ve seen a big increase in inequality, measured in various ways, and this reflects the fact that the top people, the more educated, high earners have become more skilled. Technology has favoured them, globalisation has favoured them, and inequality has increased for that reason.
Orley Asenfelter has a new review of the Sylvia Nasar’s Grand Pursuit. His abstract is here:
I describe how the book is really an economic history of the period from 1850-1950, with distinguished economists’ stories inserted in appropriate places. Nasar’s goal is to show how economists work, but also to show that they are people too–with more than enough warts and foibles to show they are human! I contrast the general view of the role of economics in Grand Pursuit with Robert Heilbroner’s remarkably different conception in The Worldly Philosophers. I also discuss more generally the question of why economists might be interested in their history at all.
You should read the whole thing, but here are a few excerpts:
What was the root cause of the financial crisis? Greed? Deregulation? No. It was ignorance of financial history.
Last week the world’s central banks—including the American Federal Reserve—acted in concert to try to prevent history from repeating itself. Their critics on both sides of the Atlantic showed a dangerous ignorance, and not for the first time.
In normal times it would be legitimate to worry about the consequences of money printing and outsize debts. But history tells us these are anything but normal times.
We teetered on the edge of this same precipice 80 years ago, in 1931. A succession of major European banks went bust. Bailing them out was beyond the resources of fiscally overstretched governments. Failure to agree on orderly debt reductions led to disorderly defaults, tariff wars, and a further worldwide collapse of production and employment.
I have posted on household de-leveraging before and the most recent data suggest the rapid rebuilding of household balance sheets continues. Household financial obligations are now down to 16.09 percent of disposable income, which is the lowest level we have seen since 1993 and is well below the average 17.2 percent (since 1980).