The past 40 years have seen labor’s share of US corporate-sector income (or value added) fall five percentage points vs. the share going to capital, from 62.9 percent to 57.9 percent. This decline in labor’s share has not only fueled calls for higher taxes on the wealthy to stem growing inequality but has also led to dire warnings about the future of democracy should this trend persist, a lá Thomas Piketty’s 2014 Capital in the Twenty-First Century.

Capital gains tax rates have varied over the years, from well over 30 percent in the 1970s to 15 percent in the early 2000s to 20 percent today, which is roughly half the highest rate on taxable income. The reason capital gains tax rates have varied so much is because of the intense political debate surrounding their impact: Some maintain that low rates encourage entrepreneurship and capital formation, while others doubt that such benefits outweigh the equity and fiscal costs of lower rates.

The Great Recession of 2007-09 raised several issues about the relationship of housing markets to economic activity. One issue concerns the impact of housing prices on the development of new and young firms. Another involves how housing market ups and downs affect local economies.

From their earliest days, children are asked what they are going to be when they grow up, not what they are going to do. Later, as they enter college or otherwise plan their careers, they are told to follow their bliss, and to do what they love—the money will follow. Even as adults contemplating a job change or advancement within a company, they are coached to pursue their passions and find meaning in their work.

Building a mathematical model of the economy is always difficult. But it becomes much easier if you assume that all households are the same – that they all earn the same wages, spend their incomes at the same rate, and all have the same amount of wealth. Abstracting from wealth inequality leads to simple assumptions about how households consider purchasing decisions. For example, in a world where everyone is the same, households put more weight on the future value of money, and less weight on their disposable income, than do typical households in reality.

The Great Recession of 2008-09 officially lasted 18 months, but the lingering effects of the downturn still hang heavily on the economy. After a century during which average per capita GDP growth was about 1.5 percent per year, income fell sharply in 2009 (see Figure 1).

Kevin Murphy talks with Steve Levitt, the William B. Ogden Distinguished Service Professor of Economics at the University of Chicago and Director of BFI's Price Theory Initiative, about economics toolkits, the legacy of UChicago economics, understanding incentives and more.