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Income Gap Shows Need for Better Education, Diamond, Chao Say

Sept. 13 (Bloomberg) -- The widening income gap in the U.S. and the struggles of middle-income Americans would be best addressed by bolstering the education system, Nobel prize-winning economist Peter Diamond said.

“What we need to do is increase the quality of education, that has to start with preschool all the way up,” Diamond, professor emeritus at the Massachusetts Institute of Technology, said at the Bloomberg Markets 50 Summit in New York today.

Elaine Chao, labor secretary in President George W. Bush’s administration, said the country must put greater emphasis on job training in the private sector as well as on “relevant” and “dynamic” government job-training programs.

She agreed with Diamond that high-quality education, especially in kindergarten through high school, is “extraordinarily important” for U.S. economic competitiveness.

Both were responding to a Census Bureau report yesterday that showed the income gap between rich and poor Americans grew to the widest in more than 40 years in 2011 as the poverty rate remained at almost a two-decade high. Median household income fell 1.5 percent last year to $50,054 -- the lowest level since 1995 when adjusted for inflation.

On the issue of job creation, Diamond said the country needs to invest in neglected infrastructure.

“Infrastructure matters for how well the economy runs,” he said. “We should be investing in infrastructure, because we need it.”

Hiring Teachers

Maury Harris, chief economist for UBS Securities LLC, said government can address the challenges by rehiring teachers before spending on infrastructure. He also said permanent tax cuts for middle-income people would boost demand.

Chao said small businesses are holding off on hiring because of uncertainty over more taxes, the federal deficit and regulations.

“There’s an anxiety there,” she said. “There are all these burdens on the employers in terms of creating jobs.”

Chao also said she expects that lawmakers in Washington will come to an agreement on averting the so-called fiscal cliff of year-end expiring tax cuts and spending reductions slated to start in January.

“It will be handled,” she said.

A status-quo election in November in which President Barack Obama keeps office would more likely lead to a longer-term solution in Congress this year, she said.

If Obama loses, “you are going to see very dispirited Democrats who probably will not want to tackle this very large problem,” she said. Congress will do something short term and “throw the bulk of the burden” into next year, she said.

To contact the reporter on this story: Catherine Dodge in New York at cdodge1@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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