Friday, December 2, 2011

Some Examples of Why Income Immobility is Persistent

The NY Times has a nice article on using home equity loans to start a business.  I don't have much to add, except that this shows just how much of an advantage it is to having assets to leverage.  Some potential entrepreneurs have ideas that can be started with little money, most don't.  If someone has entrepreneurial talent, but no assets, they wouldn't be able to do what these people do.

The entrepreneurship angle is a fairly small part of this, educational issues are probably far larger, but it is worth giving some examples of some concrete ways that income inequality and mobility trends tend to be self-reinforcing.  Growth in income inequality is likely to accelerate over time if market forces are left to do their work, eventually lowering growth as we move further away from a meritocratic system where the person with an idea can start a new business as they will be increasingly unable to compete with the favorable access to credit of someone with greater existing assets.  This is why these issues are so important.

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