John Cochrane on Inequality

Really great article on The Grumpy Economist blog this week about inequality as the minimum wage debate continues to be a main topic. John Cochrane is a world-renown Professor of Finance at the University of Chicago. Go to his page and read it since it is worth the time, but I will sum up a few of the points he, and other economists, make in the meantime.

  • Raising the minimum wage will raise wages of the poor, but also those who are second and third earners of households with incomes well above the poverty line.
  • Every time an immigrant comes ashore and does not earn the average income, economic inequality increases. Many immigrants come to America because they have zero job opportunities in their country and they come here knowing that they will be on the bottom of the income ladder. They are not victimized.
  • Why do we give federal aid to Ivy league students? Sure, some of them are poor, but their lifetime expected earnings are well above average.
  • Lotteries create large inequality.
  • Those who get married and have children earn more money than single parents, particularly those with women head of households. Single motherhood is increasing. But, here is the big question: has single motherhood been increasing on its own, or is the government keeping people from otherwise destitution?

All in all, John Cochrane basically states that our inequality comes from social dysfunction and economic dysfunction. Less marriage, less education = more inequality in wages; bad social policy such as giving Ivy students gov’t money when they will out earn us all or lotteries to fund governments = greater inequality; lastly, I think this direct quote sums it up best, “The poor are smart, and huge single parenthood rates do not happen because people are just too dumb to realize the consequences, which they see all around them.”

It is the policies of our government that encourage economic inequality, yet minimum wage always seems to be the big thing that is debated. Why?

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One thought on “John Cochrane on Inequality

  1. Most of the people who make minimum wage aren’t poor. Young people who work while they’re in school or live with their parents. Raising the minimum wage only decreases the number of jobs available to people who work low skilled jobs. It’s a terrible policy.

    There’s no solid evidence that the minimum wage helps the poor. I scratch my head every time I see someone make that claim.

    There’s a reason why rich corporations like Walmart don’t object to a federal increase in the minimum wage. It only hurts small businesses. It’s a great crony capitalistic policy to crush any future competition.

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