The emergence of China as an economic superpower

U.S. Treasury Secretary Henry Paulson recently said that economic inequality is rising in America, and rising inequality is mainly a story about rising wages for the highly educated. He argued that nothing can be done about this trend, and that “it is simply an economic realty, and it is neither fair nor useful to blame any political party.”

Treasury Secretary’s speech aroused heated discussion between economic scholars.

Paul Krugman, Professor of Economics in Princeton University and a New York Times columnist, disagree with that, based on his own research on the subject of the long-term history of inequality in the United States, Paul Krugman claim that, it is not the high education, it is government policies such as tax rates for the rich, the level of the minimum wage, the shift in Labor Department policy from protection of workers’ rights to tacit support for union-busting, played a big role in America’s growing economic polarization.

Paul Krugman’s study has been attacked by other economists.

Andrew Samwick, Professor of Economics and Director of the Nelson A. Rockefeller Center at Dartmouth College, wrote on his blog: 

"What always puzzles me about Paul Krugman and his claims about inequality is why he doesn’t realize how silly he sounds when he refuses to acknowledge, and take some pride in the fact, that he is part of that top 1 percent.

I suspect that if you asked him why his income growth to the point where he’s in the top 1 percent, he would give some long answer, the shorter version of which is that he’s “highly educated” and he’s not lazy."

Greg Mankiw, Professor of Economics in Harvard University, also wrote: 

"I agree with Andrew that Paul is on shaky ground when trying to explain rising income inequality by politics (as opposed to technology, demography, and so on). Policy choices such as tax rates and minimum wages have not been the main causes of increasing inequality."

Is income inequality caused by government policies, or by better education? I welcome your opinions.