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Just Don’t Increase my Property Taxes, OK?

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Free Exchange, the Economist’s blog, pointed me to this paper by Alan Krueger. The paper talks about one of my favorite subjects to while away my idle brain cycles with: is economic inequality in itself a bad thing? The negative answer (“why are you looking in my pocket?” as an old boss used to put it) is fairly simple to understand analytically. The positive answer less so, except from a values point of view.

Krueger argues that one of the primary drivers behind the US’ recent increase in income inequality is inequality in education. This doesn’t say that income inequality is bad in itself, but that income inequality is concomitant with a lack of skilled workers in an age where higher education is needed to be skilled. So, even if you think income inequality isn’t an issue, you probably agree that the dearth of skilled workers is. Solve one, solve the other. Increased educational spending kills two birds with one stone feeds two birds with one piece of cake (as a sunny friend of mine says.)

An interesting point Krueger makes is that disadvantaged families have a higher implied discount rate when evaluating the decision on how much to spend for schooling. I wonder if this is a rational constraint or an evolutionary one. It would seem the latter, given Krueger’s calculations on the actual returns to the educational investment. An evolutionary ‘swing for the fences’ strategy manifesting itself as a discount rate–a measure of the expectation of variability, not downside–would be an interesting hypothesis.