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Q:
Why are the rich getting richer?
A:
JAY CORRIGAN, PROFESSOR OF ECONOMICS

A: JAY CORRIGAN | PROFESSOR OF ECONOMICS

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.

Q:
Would transitioning to renewable energy hurt the economy?
A:
ROB ALEXANDER, PROFESSOR OF ECONOMICS AND ENVIRONMENTAL STUDIES

Unmitigated climate change poses an existential threat to our way of life.

A major economic study projects a long-term 20 percent reduction in global gross domestic product from climate change. To avoid such unprecedented declines, we must reduce our greenhouse emissions in the U.S. by 80 percent by 2050. This goal is realistic, but a major undertaking that requires deliberate action.

Numerous economic models demonstrate that transitioning to renewable energy is likely to result in a net economic gain for our society. That does not mean that every individual will benefit, nor that the transition with be without pain, but it does mean that the transition is likely to result in more jobs and a more efficient and resilient electricity system. A recent study by the Risky Business Project provides a framework for an approach that is both technically and economically feasible. It is based on three principal transitions: shifting from fossil fuels to electricity, generating electricity from low- and zero-carbon sources and using all energy more efficiently.

The shift from fossil fuels to electricity includes the gradual adoption of electric vehicles, electric and geothermal heat pumps, and electricity in industrial processes. The shift to renewable electricity production requires a rapid transition to zero-carbon sources, like wind, solar, geothermal and nuclear, along with an expansion of energy-storage technologies and a redesigned grid to reduce the variability impacts of wind and solar. The potential for increased efficiency in energy use is significant, as we lose about half of all electricity generated in the U.S. to system losses. A redesigned distributed generation grid could dramatically reduce those losses.

The cost of this particular plan would be around $320 billion a year from 2020 to 2050, but the returns over the life of the transition would be substantially larger and would continue indefinitely. The savings would start at around $65 billion a year in the 2020s, increasing to over $700 billion a year in the 2040s. Around 1 million additional jobs would be created during the 30-year transition, with many of the largest gains being in the domestic construction and utilities sectors. While other approaches may offer greater or fewer costs or benefits, the important point is that the renewable energy transition can be a win-win proposition for our economy.