Business & Entrepreneurship

Steven Durlauf


Bryce Richter

In 2014, an exhaustive book about income inequality — French economist Thomas Piketty’s Capital in the Twenty-First Century — became a New York Times bestseller. According to a review in the Guardian, “Many of the book’s 700 pages are spent marshaling the evidence that 21st-century capitalism is on a one-way journey toward inequality — unless we do something.” The book has provoked debate and helped make inequality a central theme in the 2016 U.S. presidential campaign. Steven Durlauf, a UW–Madison economics professor, studies the causes and consequences of inequality, and he’s a prominent skeptic of Piketty’s work.

Inequality plays a prominent role in our public discourse these days. Are you surprised?
Not especially. There’s been a substantial period of wage stagnation for many people. So it’s not a great surprise that the absence of growth has a consequence in terms of our politics.

You’ve been critical of Piketty’s analysis. Why?
My view is that [his book] was highly irresponsible because it made a lot of unsubstantiated claims about the reasons for inequality and about policies. Social scientists have to be extremely careful in presenting theories and facts and providing guidance about what potential policies can do. The book suffers from many overclaims and misstatements, with a spurious view that inequality comes from some universal laws. Inequality needs to be understood in context. My view of contemporary U.S. inequality — what I’ve referred to as the “memberships theory” — is that a key mechanism of disadvantage is the way that various memberships influence people across the life course. One example is marriage. Intergenerational mobility is affected by the extent to which highly educated people marry highly educated people. Other important memberships are the neighborhood in which one grows up and the college one attends; role models and peer effects come into play at both stages.

Are you referring to the idea of “cultural capital”?
Culture is part of what matters, and what families do in the development of children is instrumental in the formation of norms and socioemotional skills, such as conscientiousness. And the capacity of disadvantaged families to make investments to cultivate these things is often low. That’s not blaming the family; it is a consequence of socioeconomic segregation.

What are some solutions?
Inequality has different dimensions. One aspect is the lower tail [of income distribution] — people who are disadvantaged. For the lower tail, early childhood education has very high rates of return if the programs are sufficiently intensive. And there’s evidence that policies that reduce the degrees of economic and racial segregation of communities will have desirable effects. Regarding the upper tail, the reason we worry about extreme affluence is that it spills over into domains that we don’t think it should. Politics is the obvious one. So there is a whole plethora of political reforms to reduce the amount of money in politics. That strikes me as the sensible way to think about the upper tail — the consequences of inequality outside of economics, per se.

Published in the Fall 2016 issue


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