Podcast: Darren Acemoglu on inequality and the financial crisis

After reading Darren Acemoglu, MIT economist, in the Harvard Business Review the other day on the topic of threats to growth in the United States, I ran across this podcast with him from earlier this year. In it, he takes on Raghuram Rajan's main argument that

growing income inequality in the last part of the 20th century created a political demand for redistribution and various policy changes. This in turn created the push for higher home ownership rates and led to the distortions of the housing market that in turn led to excessive risk-taking in the financial market. Acemoglu suggests a simpler story where the financial sector through its political influence distorted the rules of the game, benefiting executives in the industry, which in turn led to outsized rewards and ultimate instability in the financial industry. The conversation discusses ways of distinguishing between these two arguments and what might be done to change the incentives of politicians.

The clarity with which Acemoglu explains his argument is worthy of the hour spent listening to the podcast, in itself. Add to that, the argument that Acemoglu is putting forward and its focus on political institutions rather than consumer behavior is much more in line with some of my concerns regarding the crisis. Well, I should be less sensationalist here. Acemoglu takes on the idea of differentiating between the two (political institutions and consumer behavior) rather than one of the other. None the less, in the never ending stream of punditry and waxing on and on about the financial crisis, I found this to be one of the better hours I spent.