Acemoglu on Inequality and the Crash

This excellent podcast interview with MIT's Daron Acemoglu examines the role of income inequality in the crash. Raghuram Rajan famously argued in his book Fault Lines that rising inequality called forth a political response--notably, housing subsidies--which in turn inflated the housing bubble. Acemoglu argues instead that politics was the root cause of both the increase in inequality and the financial crisis. He puts the argument very clearly, both in the interview and in this set of slides from the Denver AEA meeting, where he and Rajan were on a panel together.

If you listen to the interview you should also read Rajan's response to Acemoglu's position. Acemoglu makes many good points, but I don't entirely buy his version. To my mind, the role of Fannie and Freddie, though certainly not the only thing going on, was much more important than he allows. More generally, depending on exactly how they are framed, these two broad explanations are not mutually exclusive. Both causal chains could perfectly well have been at work simultaneously. Why insist on choosing one over the other?  

Presented by

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Video

What LBJ Really Said About Selma

"It's going to go from bad to worse."

Video

Does This Child Need Marijuana?

Inside a family's fight to use marijuana oils to treat epilepsy

Video

A Miniature 1950s Utopia

A reclusive artist built this idealized suburb to grapple with his painful childhood memories.

Video

Why Principals Matter

Nadia Lopez didn't think anybody cared about her school. Then the Internet heard her story.

More in Politics

Just In