Enabling more to catch up to the top 1% with educational reform and increased entrepreneurship

What explains the growing class divide between the well educated and everybody else?

Noted author Brink Lindsey, a senior scholar at the Kauffman Foundation, argues that it’s because economic expansion is creating an increasingly complex world in which only a minority with the right knowledge and skills–the right “human capital”–reap the majority of the economic rewards. The complexity of today’s economy is not only making these lucky elites richer–it is also making them smarter. As the economy makes ever-greater demands on their minds, the successful are making ever-greater investments in education and other ways of increasing their human capital, expanding their cognitive skills and leading them to still higher levels of success. But unfortunately, even as the rich are securely riding this virtuous cycle, the poor are trapped in a vicious one, as a lack of human capital leads to family breakdown, unemployment, dysfunction, and further erosion of knowledge and skills. In this brief, clear, and forthright eBook original, Lindsey shows how economic growth is creating unprecedented levels of human capital–and suggests how the huge benefits of this development can be spread beyond those who are already enjoying its rewards.

Brink Lindsey’s book Human Capitalism has recommendations for increasing high-skill human capital by providing a fertile environment for its development.

1) maintain economic growth by encouraging entrepreneurship,
2) reform K-12 education by unleashing competition,
3) compensate for disadvantaged environments through early childhood interventions,
4) combat social exclusion of low-skilled adults,
5) improve higher education by limiting tuition subsidies,
6) remove regulatory burdens to entrepreneurship and upward mobility.

A Congressional report reviews the 2008-2009 Recession and the current weak economic recovery

When the fall of economic activity finally bottomed out in the second half of 2009, real gross
domestic product (GDP) had contracted by approximately 5.1%, or by about $680 billion. At this point the output gap—the difference between what the economy could produce and what it actually produced—widened to an estimated 8.1%. The decline in economic activity was much sharper than in the 10 previous post-war recessions, in which the fall of real GDP averaged about 2.0% and the output gap increased to near 4.0%. However, the decline falls well
short of the experience during the Great Depression, when real GDP decreased by 30% and the output gap probably exceeded 40%.

Given the unusually large deterioration of the balance sheets of households and businesses, the possible reduction of the U.S. economy’s level of potential output, the fragile state of the global economy, and uncertainty about fiscal policy, projections of the U.S. economy’s near-term path carry a higher than normal degree of uncertainty.

In regard to the long-term debt problem, in an economy operating close to potential output, government borrowing to finance budget deficits will in theory draw down the pool of national saving, crowding out private capital investment and slowing long-term growth. However, the U.S. economy is currently operating well short of capacity and the risk of such crowding out occurring is therefore low in the near term. Once the cyclical problem of weak demand is resolved and the economy has returned to a normal growth path, mainstream economists’ consensus policy response for an economy with a looming debt crisis is fiscal consolidation—cutting deficits. Such a policy would have the benefits of low and stable interest rates, a less fragile financial system, improved investment prospects, and possibly faster long-term growth

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