Wealth Inequality and the U.S. Economy: Steven Durlauf with Youth Journalist, Jaden Jefferson
Stone Center Director Steven Durlauf sits down with award-winning youth journalist Jaden Jefferson to dive into a conversation about wealth inequality, educational attainment, and American capitalism. This feature is part of the Stone Center’s efforts to amplify youth voices and bring their perspectives to the forefront of critical conversations.
Defining and Understanding Wealth Inequality
Wealth inequality is a complex idea. In their conversation, Durlauf and Jefferson define income and wealth. Durlauf begins by explaining the difference between the two. Income disparities are straightforward, easily calculated as “the difference between [the] annual income of different people.” Wealth, however, is complicated: “It has to do with [the] overall resources one has a claim to.” Wealth is not just an individual’s earnings; it also includes their assets. These can consist of homes, investments, or, as Durlauf mentions, human capital. This makes wealth extremely difficult to measure.
Educational attainment is a significant component of human capital and, therefore, is crucial to understanding inequality. “[There are] extremely large gradients” between individuals who have “gone to college and completed it versus not,” Durlauf remarks. In fact, “the [wealth levels] you might see are on the order of four times as much […] per person.” These insights underscore how deeply education and family investment shape patterns of wealth in the United States and beyond.
You can refer to our research papers for more details on how the experts measure wealth.
Reforms to Wealth Inequality in the U.S. Capitalist System
Policy and economic systems can shape wealth accumulation. Jefferson and Duraluf consider the role that systems play in determining the extent of inequality in a country. In their discussion, they explore potential reforms of the United States’ economic system.
Durlauf cites the lack of progressivity in the U.S. tax system as a main contributor to current levels of inequality. One way to balance this is “through the tax and transfer system […] it’s capitalism either way, but with more versus less progressive taxes.” The U.S. tax and transfer system refers to the combination of taxes collected and public benefits distributed to individuals and households.
A second area for improvement is within educational attainment. In the U.S., there are massive disparities in educational quality. “School districts play an important role in generating resources,” a fact that surprises many of Durlauf’s University of Chicago students.
The conversation then turns to the capitalist system. Durlauf and Jefferson ponder the question: What would it take for government intervention in the free market system to address wealth inequality?
Both agree that capitalism can take many forms. Durlauf believes “Everyone [should be] able to fulfill their potential.” He emphasizes that the United States’ economic system both supports and undermines this ideal, and that achieving it requires more than markets alone. A crucial role of the government, he argues, is to “ensure equalities of opportunities.” Far from being anti-capitalist, such interventions are what allow “the virtues of capitalism to flourish.”
For Durlauf, the most productive economy is “the one that has the entire population fulfilling its potential.” When barriers prevent certain groups from doing so, “it is inefficient and antithetical to the logic of a capitalist economy.” The discussion then turns to strategies for maximizing U.S. capitalism’s productivity, with a focus on the government’s role in enabling broad participation.
Turning Wealth Inequality Insights into Impact
Even though many academics, policymakers, and economists agree that addressing wealth inequality can be a net positive, for an outside observer such as Jefferson, there seems to be no concerted effort to do so.
As an expert in the field, Durauf is distinctly qualified to tackle this question: “It is one issue to say that overall, things would be better under a [certain] policy. That doesn’t mean it is better for every [unique individual].” It remains an ongoing effort among scholars and policymakers to develop inclusive and politically popular solutions. Durlauf adds another layer of insight by asking Jefferson, “How does our system produce policies that are [both] equality and productivity enhancing?” There’s not a simple answer—and that’s exactly why shaping public policy is an ongoing conversation.
Jefferson concludes by describing the conversation as “wide-ranging, an exchange of economic, political, and even psychological theory.” As Durlauf observes, “income inequality begets wealth inequality,” a relationship that lies at the heart of understanding broader social disparities. Understanding this relationship is key to tackling inequality and designing effective solutions.
Zoe Cobb is a Junior at the University of Chicago Laboratory Schools and a Communications Assistant at the Stone Center at the University of Chicago. She is a flutist, student-athlete, leader of the Black Students Association and RU (Representing the Underrepresented) in Science, and an avid creative writer, always exploring new ways to express ideas and connect with others.
