Masters in Business

Daron Acemoglu on Inequality's Foundations

Understanding the role institutions play in contributing to inequality.

This week on our Masters in Business podcast, we sit down with Daron Acemoglu, economic professor at the Massachusetts Institute of Technology, and co-author of "Why Nations Fail: The Origins of Power, Prosperity, and Poverty."

Acemoglu, winner in 2005 of the John Bates Clark Medal given annually to rising economists under age 40, explains why institutions are the key to understanding a society’s economic success or failure. They are why some countries tumble into dictatorship while others become robust democracies. The failures of legal, educational and governmental institutions all contribute to widening wealth and income inequality in the U.S.

This is a nonpartisan approach to analyzing the underlying basis for inequality. It is notably different from the approach taken by other economists, most notably Thomas Piketty. Analyzing the structural rather than political basis for inequality helps to explain why Acemoglu is one of the most-cited academic economists among his peers.

He also disagrees with the default position of economists that inequality reflects unequal human capital or productive capabilities, and what people earn is commensurate with their contribution to their employer. He believes this thesis is wrong due to the impact of both technology and institutions.

You can stream/download the full conversation, including the podcast extras, on iTunes, SoundCloudOvercast and Bloomberg. Our earlier podcasts can all be found on iTunes, SoundCloud, Overcast and Bloomberg

Next week, we speak with Ned Davis, technician and founder of Ned Davis Research

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Barry Ritholtz at britholtz3@bloomberg.net

    To contact the editor responsible for this story:
    James Greiff at jgreiff@bloomberg.net

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