The Great Gatsby Curve is a scatter plot thatdisplays income mobility from several countries in the world across generations(Y-axis) and inequality in the mid-1980s (X-axis) (Krueger, 2012).
It shows theconnection between wealth at one point of a generation and the growth ofchildren in the next generation. The curve shows that it is easier for childrenof high-income families to progress up the economic ladder into adulthoodcompared to those of low-income families in society. Krueger’s speech mentions thatthere are three potential consequences of income and wealth inequality. Heillustrates how low-income families do not have the same opportunities as thoseof wealthy families and how they are not as likely to improve their economicand social status when they grow up to become adults because of the inequalitydisplayed in society. Children who are raised with wealthy parents have more ofan advantage to succeed than those who are raised with poor families. It ismore obtainable for wealthier families to provide their children with a betterenvironment, health care and good quality education.
As stated in the week twointroduction lecture, individuals coming from a wealthy background also have anadvantage to success in the sense that because they already have that highentry level into their education and profession, they have access to educatedprofessionals and are able to gain connections. Another consequence presentedby Raghuram Rajan and Robert Reich, is by encouraging low-income families toborrow more than they can afford to try to maintain their consumption to thenreducing the total consumption. In addition, policies are made that do notallow for economic growth and it would be more stable if income wasadministered in an equal manner. John Powell from the Haas Institute came upwith six policies to reduce economic inequality in the United States and Ifound three of those policies to be a great aid to the rise in inequality. Oneof the policies that I found can have a positive effect on reversing the risein inequality is increasing the minimum wage. According to Powell, researchshows that higher wages for the lowest-paid workers has the potential to help4.
6 million people out of poverty and add approximately $2 billion to thenation’s overall real income” (Powell, 1970). In other words, neitheremployment nor economic growth is being harmed by increasing minimum wages. Twoother policies suggested by Powell were building assets for working familiesand investing in education in early childhood (Powell, 1970). It is importantthat policies encourage high savings rates for working middle class householdsto provide a better sense of security for them. There are working individualswho are continuously struggling and at the end of the day do not feel secureabout their future or the future of their families. Having programs that canaid them in saving for the long run would be a great step towards buildingwealth.
According to Powell, “New programs that automatically enroll workers inretirements plans and provide a savings credit or a federal match forretirement savings account could help lower-income households build wealth(Powell, 1970). In addition to these programs that can aid lower and middleincome Americans, investments in education starting in early childhood canincrease economic mobility (Powell, 1970). I believe this policy is importantin assisting children for successful futures because in today’s society qualityeducation is important to get into top schools and gain employment with highpaying salaries.
Those who grow up into wealthy families do not necessarilyhave the same struggle of those growing up financially insecure and havingthose programs that can help with investments will positively contribute to theinequality being displayed across generations.