Some don’t like talking about it because it’s political, but the shift in wealth inequality is one of the most important economic stories of the last 20 years.
Harvard economist Greg Mankiw — one of the smarter economic thinkers of our day — wrote a thought-provoking paper on wealth inequality this week that makes an important point: No one should (and few do) look down on wealth earned by those who create valuable goods and services. Bill Gates. Mark Zuckerberg. Steve Jobs. These men became astronomically rich, but they transformed our lives for the better — and people love them for it. Mankiw’s paper broadly argues that wealth inequality is a good thing if those getting rich are the Gates, Zuckerbergs, and Jobses of the world. And he’s right, of course.
Here’s the problem, Mankiw writes:
The last thing we need is for the next Steve Jobs to forgo Silicon Valley in order to join the high-frequency traders on Wall Street. That is, we shouldn’t be concerned about the next Steve Jobs striking it rich, but we want to make sure he strikes it rich in a socially productive way.
But he glosses over the fact that this seems to be exactly what’s happening.
18% of those on the 2010 Forbes list of richest Americans made their wealth from the financial services industry. In 1985 (the earliest I could find data on), the figure was less than 1%.
In 2007, the Harvard Crimson reported that 47% of the school’s seniors were entering finance or consulting.
Even after the financial crisis, more than one-third of Princeton’s graduating class went to work in the financial services industry. That’s four times the industry’s share of the overall economy. At Harvard, the figure was 28% as recently as 2008, and 26% at Yale.
Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) spent more on patent lawsuits in 2011 than on research and development, according to The New York Times.
Or take these two recent headlines:
“Goldman Sachs receives 17,000 applications for [a 350-slot] internship program”
“Companies Claim Not Enough Qualified Americans For IT Jobs”
Goldman Sachs Group Inc (NYSE:GS) president Gary Cohn commented on the first headline: “The vast majority were highly qualified kids … The amount of resumes we get for full-time [positions] is in the 50,000, 60,000, 70,000 range.”