“The extent of and continuing increase in inequality in the United States greatly concerns me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then. It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”
This excerpt from a speech given by Federal Reserve Chair Janet Yellen last week in Boston highlights the theme of her presentation – the link between income and wealth inequality, economic opportunity, and economic mobility. Her speech contained plenty of shocking facts – like that the wealthiest 5 percent of American households held 63 of all wealth reported in 2013, while those in the lower half of the wealth ladder held only 1 percent (and the gap between these figures has been growing since 1989). But she also pointed to the influence that economic opportunity has on economic mobility and inequality over time. She called out four “building blocks for opportunity”: resources available for children, affordable higher education, business ownership, and inheritances.

She supported her selection of the building blocks with evidence, including a nod to research showing that low-income kids who have a quality early childhood education are more likely to graduate from high school, attend college, hold down a job, and make more money, and are less likely to go to jail or receive on public assistance  She also noted that families who have greater resources can better afford to pay for things that research shows leads to increased future earnings and other economic advantages as adults. In addition, she noted the importance of the social safety net in offsetting disparities in family resources for kids, and the importance of college as an economic opportunity for most people.

Many agreed with Yellen’s statement. Lawrence Mishel from the Economic Policy Institute expanded on the link Yellen made between income and wealth inequality and opportunity. He notes that children who grow up poor face many challenges related to their poverty level that often limit their ability to succeed in the classroom, and that these disadvantages should be addressed in the services provided to them, while at the same time helping their families to move out of poverty by focusing on wage growth.

As could be expected, not everyone loved Yellen’s speech. Michael Strain from the American Enterprise Institute even said that Yellen’s remarks put her “in danger of becoming a partisan hack.” However, a new poll found that an overwhelming 79 percent of Americans – including a majority of Democrats, Independents, and Republicans – favor increasing federal funding for programs that address children’s needs in areas like early childhood education, healthcare, nutrition and well-being.

Yellen should be applauded for taking seriously her responsibility to keep the economy and job growth strong by making the case for programs that help, whether everyone likes them or not. And she should be applauded for embracing the job creating, unemployment-reducing mission of the Fed, and doing so in a way that sees reducing inequality as a vital part of getting to full employment and greater prosperity.