Wednesday, June 3, 2009

Inequality and the middle class

Here is an excellent article over at Forbes by Thomas Cooley.

Students of development econ will appreciate the power of the Solow model (stability of alpha and importance of the tech change parameter) highlighted by Cooley, though he does not discuss the model directly. The importance of human capital formation (education) is another key point.

1 comment:

  1. I think this is another issue where there's a political problem regarding short-term vs. long-term gains. Because of recessionary pressures, many states are lowering their education budget in order to support programs that encourage job creation and subsidies to struggling industries. Although this may prove to give a temporary boost to the economy through additional fiscal spending, it's not the long-term solution.

    As the article hints, human capital investment is the key. Therefore, it would make more sense to increase the education budget for long-term growth. Most schools claim that they are aiming at cutting only the the things that don't effect students (eg. faculty pay, campus programs, ect.), but this is only short-changing the education of people who are trying to bridge that inequality gap. If these cuts cause the top faculty to leave for other schools, then the students who come to that school to invest in their human capital may not be able to gain the knowledge necessary to "catch up." They have a lower return on investment than those who came before them.