Inequality

Raghuram G. Rajan of The New Republic is rightly concerned about the effects of inequality on our economy. The poor are getting poorer and the rich are getting richer. Raghuram is a very smart fellow and he has a prescription for solving the problem.

Here’s what I’d like to see instead: the United States improving the capabilities of all of its working-age population and then providing exactly the creative and knowledge-based services that growing emerging markets need. As the demand in these markets expands, the dynamic U.S. economy will grow alongside, banishing current fears about unsustainable debt and unfunded entitlements. But to reach this future, America needs to accept it has more than a cyclical problem. It has to give more Americans the ability to compete in the global marketplace. This is much harder than doling out credit or keeping interest rates really low, but it will pay off in the long-run.

Unfortunately, Raghuram is solving the wrong problem.