Well, if you look at the Congressional Budget Office report from last fall, it shows that about half the rise in income inequality is accounted for by the divergence of the 1 percent from everyone else. That part is NOT about education and returns to skills — the next 19 have about as much education as the top 1, or if you prefer, hedge fund managers and high school teachers have roughly comparable education levels. So something else is driving at least half the rise in inequality, and probably more.
That doesn’t mean that market forces play no role, but it says that it’s nowhere close to the whole story, or even most of it — a point that people like Mankiw refuse to acknowledge.
By all means let’s expand access to higher education — but I’d say that the biggest reason to do that it is not so much to reverse inequality as to stop the ongoing decline in social mobility. Horatio Alger has left the building; it’s getting ever harder for Americans born into the lower half of the income distribution to move up. And more aid for college would help make climbing the ladder easier.