Krugman writes: "I'm a few days late on this characteristically lucid Justin Fox column on why it took so long for economists to focus on income inequality. But as one of the economists who did write about inequality - especially the rise of the one percent - pretty early, I think Fox has missed one important aspect."
Paul Krugman. (photo: NYT)
10 January 16
’m a few days late on this characteristically lucid Justin Fox column on why it took so long for economists to focus on income inequality. But as one of the economists who did write about inequality — especially the rise of the one percent — pretty early, I think Fox has missed one important aspect: it’s a hard issue to model.
Let me back up a bit. There are, broadly speaking, two kinds of income distribution analysis you might want to conduct. One involves the factor distribution of income — capital versus labor, and highly educated versus less educated labor. Economists never lost sight of that issue, which is a classic concern — it’s actually a major theme in David Ricardo, and can be modeled in terms of good old marginal productivity theory. In my original home field, trade, debates about the effects of trade on the education premium were a major concern all through the 1990s.
The other involves the personal distribution of income and wealth. Why are investment bankers paid so much? Why did the gap between CEOs and the average worker widen so much after 1980?
