Head of the Fed Adds Her 2 Cents to the Discussion about Economic Inequality

Janet Yellin, Chair of the Board of Governors of the Federal Reserve System (the Fed), comes out about economic inequality and its relation to inequality of opportunities. Here’s some of what she has to say:

“Some degree of inequality in income and wealth, of course, would occur even with completely equal opportunity because variations in effort, skill, and luck will produce variations in outcomes. Indeed, some variation in outcomes arguably contributes to economic growth because it creates incentives to work hard, get an education, save, invest, and undertake risk. However, to the extent that opportunity itself is enhanced by access to economic resources, inequality of outcomes can exacerbate inequality of opportunity, thereby perpetuating a trend of increasing inequality. Such a link is suggested by the “Great Gatsby Curve,” the finding that, among advanced economies, greater income inequality is associated with diminished intergenerational mobility (See #3 below). In such circumstances, society faces difficult questions of how best to fairly and justly promote equal opportunity.”

#3. Alan B. Krueger (2012), “The Rise and Consequences of Inequality in the United States (PDF),” speech delivered at the Center for American Progress, Washington, January 12.

For more on the Great Gatsby Curve, you might want to read “What Is the Great Gatsby Curve?” by David Vandivier, who posts to the White House blog.

The Great Gatsby Curve really isn’t a curve at all.

GreatGatsbyCurve

Paul Krugman, economist and columnist for The New York Times, explains the Great Gatsby Curve in this way:

“On the horizontal axis is the Gini coefficient, a measure of inequality. On the vertical axis is the intergenerational elasticity of income — how much a 1 percent rise in your father’s income affects your expected income; the higher this number, the lower is social mobility….America is both especially unequal and has especially low mobility. But he also argues that because we are even more unequal now than we were a generation ago, we should expect even less social mobility going forward.”

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