Daron Acemoglu on How Inequality Weakens Nations

Q: Why do nations fail?

A: Nations prosper when they have economic institutions that create incentives for investment and innovation, and that create a level playing field so that the talents of its population can be broadly deployed. But these sorts of institutions, which we call "inclusive" institutions, are the exception throughout history. Instead, most societies are under "extractive" economic institutions where they have been designed by a small group, the "elite," to extract resources from the rest of society. Those extractive institutions suck the energy out of the system. They don't create incentives. They don't create a level playing field. And they don't generally lead to sustained economic growth.

Q: What makes you concerned about the future of the United States?

A: The United States, to be sure, is still an inclusive society. Not only do we have institutions that are generally open. But also those institutions have created great innovation over the last century, particularly the last few decades.

But there are worrying signs about the United States. They start with the economic picture. If you look at U.S. wages, they have been largely stagnant. The medium income doesn't earn much more than it did 40 years ago. And at the same time, the top 1 percent has become very rich. For example, they take home almost a quarter of the entire national income of the United States.

But more worrying than the economic inequality is the implications of the economic inequality for political inequality. Because when economic inequality leads to political inequality, then the economic institutions start sliding even worse. The people who monopolize political power will start to change the rules in their favor and at the expense of the society at large.

Q: What makes you optimistic about the future of the United States?

A: This is not the first time where economic inequality has shot up and where economic inequality has been associated with incipient political inequality. We had exactly the same picture during the gilded age and its aftermath. If anything, the robber barons of that day were more unscrupulous and more ruthless than our political elites and the very wealthy today. But despite that, the United States managed to withstand that challenge, and it did so on the strength of its institutions by mobilizing the average American, first during the populist movement, then during the progressive movement. And then, presidents such as Teddy Roosevelt, Taft, and Woodrow Wilson, who subscribed to the views of the progressive movement, started passing legislation and changes in institutions that strengthened the inclusivity of the United States and stopped the tide of inequality.