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Edward Lazear On How To Reduce Income Inequality

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Tax policy and redistribution do not solve the underlying structural problem of income inequality. Redistribution and tax policy are only temporary fixes. For a permanent solution, we need to focus on reducing the skills gap by increasing the skills of individuals at the bottom of the income distribution.

This video’s audio is excerpted from Edward Lazear’s 2017 Hoover Institution Summer Policy Boot Camp lecture. 

The Hoover Institution’s Summer Policy Boot Camp is an intensive, one-week residential immersion program in the essentials of today’s national and international United States policy for upperclassmen and recent graduates. To learn more, click here.

Additional Resources

  • Read “America’s Economy Isn’t Overheating” by Edward Lazear, available here.
  • Read “Helping the U.S. Economy Keep Up,” by Edward Lazear, available here.
  • Read “Introduction: Firms and the Distribution of Income: The Roles of Productivity and Luck” by Edward Lazear and Kathryn Shaw. Available here.
View Transcript

 

Then finally, how do we address increasing inequality? 

My argument there would be what we need to focus on primarily is skills. 

Tax policy is not a very good way to deal with inequality. 

Tax and redistribution is at best the temporary fix. 

It doesn’t solve the underlying structural problem. 

The question is, how do you fix the problem in the long run? 

If you look at the skill distribution in the United States, there’s too big a gap between the whole lower half of the distribution is just way low relative to the top. 

That skilled gap has increased over time, that’s a big problem. 

What do we want to do? 

Well, we don’t want to kill the skills at the top. 

What we want to do is bring up the skills at the bottom and until we do that, we’re never going to deal with this inequality issue in any kind of a fundamental long-term way.