Katz vs Krugman

Someone should get Paul Krugman and Larry Katz to debate the causes of growing inequality. They are both smart economists, they have both written a lot about trends in inequality, and yet they arrive at apparently opposite conclusions.

Here is Paul's view:

Recently, Henry Paulson, the Treasury secretary, acknowledged that economic inequality is rising in America. In a break with previous administration pronouncements, he also conceded that this might be cause for concern.

But he quickly reverted to form, falsely implying that rising inequality is mainly a story about rising wages for the highly educated. And he argued that nothing can be done about this trend, that “it is simply an economic reality, and it is neither fair nor useful to blame any political party.”

History suggests otherwise. I’ve been studying the long-term history of inequality in the United States. And it’s hard to avoid the sense that it matters a lot which political party, or more accurately, which political ideology rules Washington.

Here is Larry's view, from a new paper coauthored with Claudia Goldin:

We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into a century-long historical perspective to understand the sources of change. The majority of the increase in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing educational wage differentials.

I should note that Paul and Larry have similar politics: Larry worked in the Clinton administration, and Paul is clearly aligned with the Democrats as well. So there is no large ideological divide. Nonetheless, they seem to have polar opposite views of economic history. Why?

Thanks to Andrew Samwick for the pointer.