Income Inequality

INCOME INEQUALITY….David Adesnik pulls this quote out of a Business Week article:

From the ages of 18 to 65, the average male college grad earns $2.5 million over his lifetime, 90% more than his high school counterpart. That’s up from 40% more in 1979, the peak year for U.S. manufacturing.

This goes to the heart of whether you think increasing income inequality is a problem. I think it’s quite true that as our economy has become increasingly reliant on brainpower it has naturally rewarded smart college graduates far more than any other group. There are two basic reactions to this:

  • This is just the free market at work. People are paid what they’re worth, and smart people are worth a lot these days. That’s the way it goes.

  • This trend is likely to continue, and since not everyone can go to college we will eventually end up with an enormous class of ill-paid (or unemployed) workers who are going to be pretty pissed off about things.

The free market does indeed reward certain classes of people far more than others, and it’s not just the risk-taking entrepreneurs. The question is, do you think this trend toward increasing inequality should be allowed to play itself out naturally? Or do you think it’s going to lead to some pretty serious problems?

UPDATE: Dan Drezner’s take on income inequality is here. He gets the “income mobility” argument right, I think, but is much too sanguine about the health of the middle class. Sure, more kids are going to college, but that’s never going to be more than a minority of the population. And while resentment toward the rich may indeed be muted in America, will it stay that way if current trends continue? I have my doubts.

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