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Economics

How the Elites Built America’s Economic Wall

July 20 (Bloomberg) -- For a century, incomes became increasingly equal across the U.S., as poor states such as Alabama caught up to rich places like California.

Economists have long taught this history to their undergraduates as an illustration of the growth theory for which Robert Solow won his Nobel Prize in economics: Poor places are short on the capital that would make local labor more productive. Investors move capital to those poor places, hoping to capture some of the increased productivity as higher returns. Productivity gradually equalizes across the country, and wages follow. When capital can move freely, the poorer a place is to start with, the faster it grows.