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Business, Politics & Society

Inequality: The Growing Gap

Paul Krugman

Lesson time 11:34 min

The growing income gap poses a danger to the well-being of our economy. Learn the history of economic inequality, how race is always related, and the economic effects of growing up boomer vs. growing up millennial.

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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.
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We have a problem of inequality. An awful lot of the gains from economic growth have gone to a small number of people, at least within rich countries. And that's a bad thing, I would say on multiple fronts. It's a bad thing partly because it means that regular people aren't getting that much, partly it's because extreme inequality I think distorts our politics, distorts our society. So trying to find ways to mitigate that, to get back to something that's more like a middle class society, that's a big economic challenge. [MUSIC PLAYING] If you're watching this, I don't know, what age you are. I was born in 1953. So I was born right in the middle of the baby boom. I grew up during the great postwar economic expansion. And the America I knew when I was growing up was one that was, it was a middle class society. There weren't big differences. We thought somebody was rich if they had a split-level ranch, as opposed to just a ranch house like we did. And that all shows in the numbers, that we had this relatively flat distribution of income, and the growth after World War II was shared just about equally across the whole economic spectrum. If you're a younger person, you grew up in a very different America. You grew up in one in which a small number of people are extremely rich, in which even at the upper fringes of the middle class, you feel like you're struggling, you've been left behind. When I was growing up, you didn't think-- you wanted to work hard, you wanted to succeed, you didn't worry too much about whether you were going to make it, because everybody was going to make it. That's what we thought. Now it's like, for a 20-something, it's like one of those old war movies, where the tough Marine sergeant says look at the man to you're left, look at the man to your right, only one of you three is going to make it. And that's what a highly unequal society does. There's a rat-race feel to America now that wasn't there before. And I think it's a source of great anxiety. And of course, if you lose in that race, bad things happen. [MUSIC PLAYING] How do we know what we know about inequality? How do we know how incomes are distributed? A lot of it comes out of this project that Piketty and Emmanuel Saez at Berkeley have been pursuing. They've tracked top incomes, how one of the incomes-- what share of the income generated is going to the top 10%, the top 1%, the top 0.1%, all of which follow pretty much the same pattern. And it looks like this. We're going back to World War I. And this is the top 10%. But the truth is, it's going to be the same shape, although even more extreme, if you look at the top 1%, or the top 0.1%. So we have an early on period where almost half of total income went to just 10% of the population. Then something happened, the drastic drop on the eve of World War II. We come out the other end of World War II and we are a middle class society. Wartime policies, the rise of unions have a whole lot ...


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.



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

Great overview. Being more inclined to Austrian economics, I don't necessarily agree with many of the premises, but I learned a lot. Paul is an excellent teacher.

This has been one of the most engaging and insightful journey through economics. All through, I felt at one with Krugman - almost as in a conversation - learning and being challenged at the same time. Certainly got more than my money's worth. Thank you!

Loved Mr. Krugman! Such a calm and capable voice. Loved his insight into a world I (used to) know nothing about! Now I do! Thanks!

I learned so much especially how much I don't know. Mr. Krugman is so intelligent and wells-spoken. I do try to read his columns and watch him on the cable news stations and always find him level-headed and able to explain things. Not sure most of my circle would find this subject compelling but I feel it broadens my understnading of our current situation.


Comments

zelmira S.

Can anybody help me decipher what is the real issue with inequality? Is inequality an issue if the middle-class increases and poverty is reduced? Shouldn't we be focusing on poverty figures and poverty reduction more than inequality and inequality reduction? I do not really care if some people are getting much richer than I am as long as more and more people are getting out of poverty and living middle-class lives, how much more than that do we need?

Cory

Race is always the issue??? Seriously, what if it was education. This is a parroting of socialist ideology. The rich guys stole from me. What type of solutions do you offer for the wage gap?? Hire antifa to attack people and businesses, riot? Fund black lives matters so they can demand money from white people???? Don't bring race into this and try and stir up division.. Peole like this "make money" off the rise and fall of nations. They "bet" against nations. Socialism is a way to crush economies and economists then make out billion..

Keith P.

With Wealth mostly being a inheritance, how do people of color or people who are not inheriting anything from family members before them get to the other side while facing such disadvantages daily? Also will there ever be a crisis that evens the field back to where it's more equal? This makes me understand that in order for my kids to be in a position of wealth I have to make good decisions with my finances to better position them, but how do we ever get to that point when we are scratching and clawing to live a decent lifestyle?

A fellow student

For more on this, read my book,"Economic Inequality: Is it the Real Issue?" Also, about the New Deal, read my book, "Liberals and the New Deal: How Liberals Have Misinterpreted the New Deal Era."

A fellow student

The unemployment rate in America in the 1950's was 25%, hardly an ideal time. Also, the important issue is not inequality per se, it is if the poorest are taken care of. Also the New Deal era was not idyllic: the social programs were too limited compared to what the Europeans would develop. Still, Paul is one of my favorite people and I enjoy listening to him.

Anthony K.

I find it interesting that wealth inequality is treated significantly in economics without the consideration of personal finance. If you can grow wealth faster than the growth of the economy - anyone that has money to invest can grow faster and the key is to then attain wealth. We see that since the 1970s investment by generation has substantially fallen and savings have fallen. Obviously a threshold exists in which one could not realistically save, but this is low and the average family makes above this level. The average person who builds wealth over a lifetime is saving 30% to 40% of income and re-investing it to grow faster than the economy. The allowance of growth faster than the economy gives people the freedom to grow wealth, it then becomes a choice of personal finance - requiring those who want to grow to live below their means, save money, and invest it into these assets.

A fellow student

I don't really know about that graph - feels pretty misleading. The change over half a century is from around 34% to 51% but the graph is framed to make it look like a much larger change.

Tashi N.

Is there are a possibility of the next crises, how can economist predict it. What should a novice economic student do to understand the future economy?

A fellow student

I really liked this lesson, great Content. Thank you Paul A note to IT; I like to take notes and copy from the video from time to time. So I hit pause on the video to capture the words or graphics. But when I pause the video, two pop ups come up blocking the view of the slides (download pdf, and link to next lesson). Can you move those to the corners so I can read the slides while paused? Thank you.

A fellow student

Inequality is inherent in our structure, no matter how we set up the system, look at the nature. If you dig up historical graveyard, wealth also seemed to had gravitated toward the 1%. I think it is better to accept the fact rather than wanting to flip the system upside down. What's most important is to bring together even the lowest of our society (the dispossessed) to have opportunities for gradual progression towards a better life, meaning that for the weakest to be able to collect wealth and have a proper safety net so they can come back and keep trying. Problem occurs when the society decided to force the poor to become rich instantly.