Acemoglu on Inequality and the Financial Crisis

Daron Acemoglu talks with host Russ Roberts about the role income inequality may have played in creating the financial crisis. Raghuram Rajan argues in Fault Lines that growing income inequality created a political demand for redistribution. Acemoglu suggests a simpler story: 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.