Wednesday, December 21, 2011

Economic Models and Inequality

     Can any economist imagine a model of the economy where 1% of people earn 16% of the aggregate income and own 35% of its wealth?  What would that model have to assume about individual intelligence, the nature of politics, economies of scale in management, signaling, and the like?
     I can form explanations, but if we started with an economy where 1% of people owned 3% of the wealth and I was then asked what would have to change for 1% to own 35%, I would probably reply that it is inconceivable, and no reasonable model would predict such an outcome.

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