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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.

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


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...

Think like an economist

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.


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

Outstanding -- the instructor and the class and the online medium --- good photos, nice interface...

This was an excellent course, it help me to refocus my understanding of the flow of commerce and it reshaped how my own thoughts should be conducted

Very informative. An interesting perspective.

It has helped me gain an oversight of some of the key economic theories and thinkers, as well as where to look for relevant and reliable data and statistics.


A fellow student

I liked the correlation between party polarization and inequalty, statistics don't lie.

brendan D.

It wasn't the virus that caused the stock market to fall, it was the lack of preparation for such a pandemic. The US as I understand it leads the world in pandemic research and there were plenty of warnings by experts that such an outbreak could occur. If proper preparations re protective equipment, hospital capacity, travel, testing and contact tracing had been in place, the need to shut down the economy would have been significantly reduced. I'm not pointing the finger, we were similarly unprepared in Ireland. Now that we all know how serious these pandemics are, hopefully we'll be prepared for the next one. This pandemic also highlights the need for international cooperation to fight a common enemy. Other common enemies include Inequality and Climate Change, driven primarily by corporate greed, and these may even be worse than Covid 19.

Dante G.

Equality of outcome is not moral, equality of opportunity is. Show me the roadblock in policy or otherwise instead of stating the existence of a nebulous power out to get people for their immutable characteristics. Or, show me a rich person who made one dollar that wasn't from a consensual transaction and we can take it away from them. I'm upset when "teachers" state controversial opinions as fact. Seems a bit convenient to capitalize on ethos over logic.

A fellow student

So is no one here is questioning the causation of income inequality and political polarization?

Matt R.

The way that Paul has linked 'Income Inequality' to 'Political Polarisation' is fantastic and unfortunately, true.

A fellow student

This inequality chapter keeps on shutting down. The video is not uploading or gets stopped in the middle, suddenly I lose sound, and then sometimes it starts the following chapter. I have tried to watch it a good number of times, but can't get past minute 8

Lucie F.

I never realized how lucky I am being a French citizen and having health care, before going to the US as an exchange student. Health is so important and it is so unfair only rich people can access medical care, I think it is something America should work on, no matter how difficult it can be to implement this system.

David S.

I'm going to have to agree with the others noticing the presence of obviously biased political views which are becoming more apparent throughout this series. I am always open to discussing the three sides of a coin but I feel this presentation shouldn't have been as polarized with the subject shifting more and more towards politics as opposed to discussing linear effects within our country's economy. I respectfully agree with the accuracy Krugman's presentation holds on subjects such as the importance of social/financial inequality, and explaining in detail how the FED can positively manipulate inflation/adjust growth. However, once he leaves the realm of data you can debate that there are flaws in his beliefs. Krugman's theory for the basis of modern Social and Income inequality in the US downplays the severity of globalization and technological Innovation that is not and can not solely be controlled by only the private sector (we have a prefect example right in front of us, COVID19 traveling faster because of air travel (a relatively new innovation) and how a virus can lower the Dow by 1/3 in under 4 weeks as well as create international trade tension). Also, the overemphasis of socialized benefits incentivizing production is questionable at best, this is purely speculative. These points can be debated all day but this would become more of an ethics and Political Science class instead of Economics theory which is what we all came here for to begin with.

Wen X.

Summary: What causes inequality? Change in social norms and politics. Why is it bad? Polarization of politics, division in society. How to fix it? Government policies because relying on markets isn't enough.

A fellow student

If the stock market is the big gainer after a recession, it would seem Main St. needs to take a stroll down Wall St. and gamble on themselves. But, if Main St puts everything into the Market, how will they have enough left over to consume goods, creating a rise in sales to drive earnings? It would seem some sort of organized effort by everyday citizens could find a way to buy themselves back into that 35% income / Wealth range, but maximizing such a proposition, let alone organizing it would seem quite difficult.