Must-Read: Marshall Steinbaum: What Explains Rising Wealth Inequality?

Must-Read: Marshall Steinbaum: What explains rising wealth inequality?: “At the University of Chicago… they sell a t-shirt that says…

…‘that’s all well and good in practice, but how does it work in theory?’ That… captures the state of knowledge about rising wealth inequality, both its causes and its consequences…. Mariacristina de Nardi of the Federal Reserve Bank of Chicago attempt[s] to match theory with reality…. People want to secure their children’s wellbeing through bequests…. Entrepreneurs need capital to finance otherwise-constrained new businesses…. Economists typically highlight individual or inter-generational mobility within the wealth distribution as both a reason not to care that the distribution itself is unequal and as an argument that having wealthy parents (or not) doesn’t matter that much for children’s outcomes…. But… there’s scant evidence that parents leave larger inheritances to stupid children. Nor is there much evidence that native ability is the major determinant of earnings…. Why are some people rich while others are poor? What economists are just finding out (while others have known for awhile now) is, essentially, ‘because their parents were.’

May 13, 2015

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