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Why are the rich getting richer?


Slices of the economic pie are more lopsided than ever before. According to recent data, the richest 10 percent of American households earn just more than half of all U.S. income. That’s the highest fraction since the federal government started keeping these sorts of records 100 years ago. And the U.S. isn’t the only place where the gap between rich and poor is growing. During the last 40 years, the richest 10 percent gained ground in Canada, Germany and Japan.

So what explains this increase in income inequality across rich countries? Economists most often point to technological changes that have made the most talented workers ever more productive. As an example, consider that the only way to listen to professional musicians at the turn of the 20th century was to go to a live performance. The most talented performers played in the largest venues and, therefore, made more money than their less-talented peers, but the difference would have been relatively modest.

Today, most of us listen to recorded music. And because an iTunes download costs the same whether it’s recorded by the top artist in a genre or by someone less popular, the most-talented performers now capture a much larger share of our entertainment dollars. Thousands of musicians still are scratching out a living, but technology has increased the gap between the most-talented and the slightly less-talented. Something similar has happened in most industries.

To understand what, if anything, can be done to reduce income inequality, it helps to look back to the 1940s, ’50s and ’60s, when income inequality actually decreased. That's because the supply of highly skilled workers increased more rapidly than the demand for their services, keeping their incomes — and income inequality — in check. This increase in supply was due to an increase in college graduates and women entering the workforce. Unfortunately, both of those trends have leveled off since about 1980.

If there’s one area where there’s still low-hanging fruit, it’s immigration. Immigrants create about half of all successful startups, but we make it hard for highly skilled immigrants to live and work in the U.S. Increasing the cap on the number of visas issued to highly skilled immigrants each year — or removing the cap entirely — would increase the supply of top talent, reducing income inequality.

Are we repeating history?
GEORGE GOLDMAN '20, History Major from Boston

A: GEORGE GOLDMAN '20 | History Major from Boston

This question reminds me of a history class I took called “Modern History of the Middle East.” In the class, we learned about the recent wave of protests and revolutions (the Arab Spring) that took place from 2010 to 2012 throughout the Middle East in countries like Tunisia, Egypt and Syria. We discussed how protests often happen in cycles; in other words, they come about as a part of a larger historical pattern in which revolts of collective action against the government rise, fall, and make way for the next cycle to continue the trend.

For instance, the Young Turks Revolution of 1908, the Egyptian Revolution of 1952, and the Iranian Revolution of 1978-79 each were a part of a distinct protest cycle in which the people rose up against the government. However, history did not completely repeat itself in each case. The methods and eventual outcomes of the protests all were very different.

American writer Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.” After taking “History of the Modern Middle East,” I learned how the Arab Spring protests were not a complete repeat of history, but instead a sort of rhyme with history. For sure, ideas, goals and traditions continued from one protest cycle to the next, but the kinds of people protesting and the results of the protests were often very different. As a history major myself, I have learned that your question is one that has kept many a historian busy.