Business, Community & Government

Inequality: Our Divided Society

Paul Krugman

Lesson time 14:43 min

Learn the social and cultural costs of our inequality, and ways to advocate for a more equal society.

Students give MasterClass an average rating of 4.7 out of 5 stars

Topics include: The Cultural Catalyst • Inequality Drives Us Apart • Equality Starts With Policy • Advocating for Equality


Economists don't necessarily understand everything that's going on. So if you want to ask, why did inequality take off? The answer is, that's an interesting question. We have a bunch of stories-- there are-- there's probably some truth in all of them. Some of it is probably technology. It's probably true that technology reduced the demand for regular laborers, increased the demand for people with lots of formal education. Although, even college graduates haven't done so well since about 2000. Another answer-- a little bit is globalization. Certainly, some significant number of blue collar jobs were lost-- imports from China, and that sort of thing. A lot of it, though, seems to be changes in institutions and social norms. Why do I say that it's cultural and not economic, or not purely the underlying economic story? We can, to some extent, measure the impacts of things like technology and trade. And they're not enough. They're not big enough to explain what we're seeing, you know, and-- which says, well, it's got to be something else. And cultural and political shifts are a natural place to look. Part of it is timing-- this big turn corresponds pretty closely to the election of Ronald Reagan, right? You can see that that's happening. Partly, it's history. We know that this great compression-- that was clearly political. So if the great move towards equality was political, then it's a pretty good bet that the significant part of the movement back towards inequality is also political. Got to say, all of this is a little bit of, you know, we're doing a fair bit of hand waving. But, sometimes, if that's where things seem to point, you say, look, this looks to me like it's not-- for once, it's not just supply and demand and the invisible hand. That there's something going on about social norms and politics. Used to be that when corporations were deciding on the CEO's paycheck, right? Who decides how much a CEO is paid? Well, there's a compensation committee. Who appoints the compensation committee? Actually, the CEO appoints the compensation committee. So you might say, well, of course, they're always going to vote gigantic paychecks for CEOs. In fact, they used to be inhibited about that. They used to say, well, let's-- we can't, you know-- it'll hurt worker morale if we pay this CEO too much money. And the union will protest. But these days, unions have been vastly reduced in influence. The notion that-- you know, the norm that says that outlandish pay to the CEO while the workers are poorly paid kind of went away. And a lot of that probably comes back to politics. The decline of unions-- a lot of that decline took place during the Reagan years because Reagan administration had strongly anti-union policies. And so on, down the line. So it looks like there's kind of a turning point politically, institutionally, around 1980 that turns us into this highly unequal society. And it hasn't fully played out yet. That's, am...

About the Instructor

For Nobel Prize-winner Paul Krugman, economics is not a set of answers—it’s a way of understanding the world. In his economics MasterClass, Paul teaches you the principles that shape political and social issues, including access to health care, the tax debate, globalization, and political polarization. Heighten your ability to read between the lines and decipher the underlying economics at play.

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Paul Krugman

Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.

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