Income inequality is not the real problem, this is: Tyler Cowen

Lauren Lyster
Yahoo Finance

Mayors of the 30 biggest cities in the U.S. met in New York this week, pledging to fight inequality, while another report blames the record income gap for weakness in the housing market. But Tyler Cowen, an economics professor at George Mason University and author of Average is Over, tells us all of the focus on inequality has somewhat obscured the actual problem.

"The top one-percent is earning more ... because they're doing well in global markets," he tells us in the accompanying video, asserting that's largely a good thing. "The other issue is that people on the bottom are seeing smaller or slower gains and that is the real problem." 

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He argues the latter issue can be addressed through changes to education and deregulation of the economy in some ways (e.g. building restrictions/zoning). He says we need to make housing, education and healthcare cheaper for the average American.

Some, like Paul Krugman, have made the argument that high inequality itself is a drag on growth and redistribution can be good for the economy. Krugman cites reports from the Standard & Poor's and International Monetary Fund as supporting this view.

Related: It's the economy, stupid: Why income equality matters

Cowen disagrees. "We need for top earners to be able to earn a lot of money to have an incentive to produce," he contends. "In any world where American iPhones are sold in China and not just in the U.S., Apple shareholders are going to be earning more. There's nothing wrong with that. It's not a drag on growth, that is part of growth.

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So how would we address the problems facing those who earn less, and can't afford to live in cities with opportunity or improve their skills, if not through some kind of redistribution mechanism? Cowen argues you can make some of the changes without spending any money at all. Check out the video to find out how.

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