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Fault Lines by Raghuram G. Rajan

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CHAPTER NINE

Improving Access to Opportunity in America

I ARGUE IN CHAPTER 1 THAT the pressures created by relatively stagnant incomes for many in the United States mirrored those in the typical developing country; they led U.S. politicians to push credit as a palliative. Subprime mortgage lending was the symptom, dwindling economic opportunity for many the cause.

Not all forms of income inequality are economically harmful. Higher wages serve to reward the very talented and the hardworking, identify the jobs in the economy that need the most skills, and signal to the young the benefits of investing in their own human capital. A forced equalization of wages that disregards the marginal contributions of different workers will deaden incentives ...

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