- I'm Janet Gornick, I'm
sitting in the library of the Russel Sage Foundation
where I'm joined by Bob Solow and Paul Krugman. We're here today to hear
them share their thoughts about a new book by Tony Atkinson called Inequality: What
can be done? which is being published by Harvard
University Press this month I'm especially happy to
be here wearing my hat as the director of LIS, the Cross-National Data
Center in Luxembourg where Tony Atkinson has served
as a crucial advisor to us for 30 years. He now serves as the board president. He's been an invaluable
advisor to all of us at LIS, and to the many inequality scholars who've used our data over so many years. Let's get started, Bob and Paul, welcome. As I mentioned to you both, I'm gonna organize our conversation today drawing loosely on a framework offered by the American sociologist Eric Wright. What I wanna draw on is his
idea of the real utopia. As I think you know by now,
a real utopia is a proposed institutional or policy arrangement that's designed in the
service of an end goal. The utopia part is of
course, straightforward, and the idea of a real utopia is that many of its
components are imaginable and that they exist in whole, or in part. In other words, it's a utopian image, but it's not science fiction,
it's in the world of the real. In my view, this package
that Tony has proposed, Tony Atkinson, that forms
the core of the book is really very much like
what Wright has described as a real utopia. The reason I wanted to think about that is that he offers what I
think is a useful framework for thinking about and even
evaluating policy proposals. The suggest is that there
are three distinctions, three distinct dimensions
that we should think about. One is their desirability. Are the stated end goals desirable? The second is the viability. Will the proposed
package bring about these proposed and stated goals? Third, the achievability. Is there some feasibility politically? I drew on this framework when
I put these questions together just to get us organized, because the book is of
course, wide ranging and also quite intricate. Let me first start on the
issue of desirability. The book, of course,
is framed around Tony's call for reduced inequality, and the main focus is
on income inequalities, specifically the income distributions. The first question I think
perhaps obvious, but useful, especially for an American
audience I think is why are we concerned about inequality? Tony notes in the book, of course, that many argue that we
should worry about inequality for instrumental reasons. It leads to a range of social ills and it damages the democratic process, but then he adds a quote, "And then there are those like me "who believe that the present
levels of economic inequality "are intrinsically inconsistent "with the conception of a good society." What are your views on this? Why are we concerned about inequality? - First of all, I do think it's important that extreme inequality is bad for the democratic political process, and has all sorts of other things. Personally, I find
extremes of high income, and extreme poverty repulsive. I think that's immoral in effect. This is a little bit
combining, or mixing up, the question of poverty and the high incomes, the top incomes. I don't mind people being
a lot richer than I am, that doesn't bother me so much. It does bother me when there are people who are very much poorer than I am. I think it's a bad society
that tolerates extreme poverty in the presence of high
incomes and high productivity, so it could clearly do better. - [Janet] Paul? - Yeah, I have two thoughts. The first one is pretty well fleshed out, which is I am, and I think lots of us are, to some degree Rawlsians. That is, we think that at some level, you ought to think about society in terms of what would you want if you didn't know who you would be, behind the veil of ignorance. You don't have to be a rigorous Rawlsian to feel that it is right, it's appropriate to care more about diminishing
misery at the bottom than increasing comfort at the top. That if you can transfer a billion dollars worth of purchasing powers
from there to there. Even if it's leaky bucket,
which we're not clear it is, that that is a good thing
from the point of view of some notion of justice. There's something, I think, my second point which
is a little bit vaguer. It's not just the
functioning of democracy, but there is a kind of a
democratic goal, a democratic idea which is not purely political. It's an idea of something
like equal dignity that even though, yes some people, no one expects exact equality
or something close to it, but the idea that everyone feels correctly that they are being treated
as a person of equal worth with other people. Extreme inequality is
inconsistent with that, you're just not gonna be able
to have that kind of society when people are in an entirely
different material universes. - Yeah, I think there's
a lot of truth to that. The French novelist, Anatole
France, once said that, "Freedom is the right of
the rich as well as the poor "to sleep under the bridges of Paris," and there is an element of that. Citizenship requires a
certain degree of equality. - Let me push on and ask the question to sort of turn the fine
lens on the goal here. What exactly are we aiming for? I was taken by this. Tony writes in the book, quote, "The goal is to reduce inequality "below its current
level in the belief that "the current level of
inequality is excessive. "I've stated this proposition deliberately "in terms of the direction of movement, "not of the ultimate destination." My question for you, is that
satisfying, is that sufficient? Paul, what do you think? - It is for me, in fact
I think it's right. If you ask me exactly how
much, Paul already said, no one can aim for or even
believe in the possibility of everybody having
exactly the same income, the same wealth, the
same this, the same that. If you ask me what degree of
inequality we should aim for, what Gini coefficient is
the right coefficient, I couldn't answer. It's like Mr. Justice
Stewart in pornography, I don't know how to define it,
but I know it when I see it. I feel the same way about inequality. I see the inequality in the U.S., and it's obviously too great. It would do us no harm, and in fact as a society,
do us a lot of good if the extremes were moved
closer to the center, and I think that's the right attitude with which to approach the problem. - In a way this comes back to
the question of real utopias. The reality of what can
be achieved, we know, is not going to be getting
anywhere close to the level of equality that Bob
and I and Tony would want in our lifetimes. You don't really need to know where the resting point should be. I think if you did ask me, the way I would put is that if we could get inequality
back to the sorts of levels that prevailed in Western
Europe 30, 40 years ago, if we could get it back to the level that prevailed among the white population in the United States 40 years ago, I'm not sure that you would say that that was any kind of ideal, but it would certainly greatly reduce the priority of the issue. I think that's all that we
need to say at this point, that if we could get back to those levels, then it would become an
interesting discussion whether further reductions in
inequality were a good thing, but it wouldn't be urgent, but now it is. - So it sounds like you're
concerned in the U.S. case both by the high level but also by the rise in recent
decades, is that correct? - [Robert] Yes, certainly. - Yes, although I think
mostly the higher level. I think it's just that we, and the transformation of society, that that society of equal dignity. Okay, we never were that entirely, but we were a lot closer to it when I was growing up than we are now. - Let me ask another
question about, again, this end vision, to use the
framework of the real utopia. Tony had some very pointed
things to say in the book about the relationship between
inequality of opportunity and inequality of outcome, and arguing essentially, I would say, that these cannot and should
not be viewed distinctly. This is of course a
long standing discussion in the United States. What are your thoughts about that? - I would go a lot further
than Tony did on this issue. You show me a political figure, let's say, who goes on and on about how what we want is equality of opportunity,
not equality of outcome, and I'll show you a phony. Everyone knows, everyone's mother knows, everyone's mother-in-law knows that you cannot have widespread of income extremes of rich and poor, and suppose that the
children of those families have equal opportunity. It helps a lot to have a
good diet when you're young, to be well taken care
of, and well dressed, and warm, and comfortable,
and to go to a good school, and to be able to contact
your parents' friends when you're looking for a job. It's just ridiculous to
suppose that an unequal society can have equality of opportunity. I think the people who
prat along know that, so they just prattle on. - Not too much to add, except of course we have hard evidence on this as well. We have long term studies
where we can have some evidence of inherent talent and also,
of course, socioeconomic status and then we have
outcomes, and we know that rich, dumb kids are more
likely to graduate college than smart, poor kids, and
many other things as well. This is overwhelmingly the case. If you wanna talk about unreal utopias, the notion that you can have
a highly unequal society where every kid has an equal
chance at making it to the top, that's really unreal. - That would take one large
kabootz, is what it would take. - Talk about the causality though. I'm interested, you know,
there's a lot of discussion about this so-called get speaker although many think it's
sort of oddly named, this scatter plot, you know
showing across countries that intergenerational mobility
is negatively correlated with, in the cross section, inequality. I think the negative correlation is fairly strongly established,
but what's the causality? What is really the like, the examples you gave, Bob, about children were
really more about poverty than inequality if I'm
understanding this right. - I don't distinguish so clearly between poverty and
inequality since we're used, in this country, to trying
to define poverty absolutely. There's a poverty line, if
you're below it, you're poor, if you're above it, you're
non-poor or whatever. Europeans and others, in fact
practically everywhere else in the world define poverty relatively. You're poor if you have an income which is less than two thirds the median, or less than one half the median,
you can choose the number. I don't think it's just
a matter of poverty. We could all be, to use the
great American empty phrase, middle class, and those who are at the top of the middle class (chuckles) would have a better shot at a good life than those who are at the
bottom of the middle class. - There's so many channels
through which privilege gets conveyed to the next generation. Some of them are very raw,
like having enough to eat when you're a child, or
having adequate medical care. Some of them are fairly subtle, like knowing people who can give your son or daughter an internship, right? There's a whole range of
different types of things. There's no cut off that
says as long as you have a family income of $23,000 a
year, then you have full access for everything society has to offer. It's just very clear
that you don't have to, it's impossible to enumerate because there would be hundreds
and hundred of channels. - The book that got so
much attention last year, the book by Thomas Picketty, which of course you both know well, and I know you both reviewed. One of the discussions that
came out after the book, one of the lines of
criticism was that poverty sort of disappeared, and
that there was actually not very much said about
the middle and the bottom, and we know of course some of that is because of the data that were used. Tony sees this differently. He seems to see less
possibility for looking, or less value for looking
only at a single part of the distribution. What do you think about that? - I think the books are different. They're about different things in a way. Piketty has tried to give us a grand, historical sweep, a vision which is focused on the top, because that's where the
data are in the distant past. And he's actually pretty
thin on solutions, it's more about here's what's happening. He's not really talking about
society as a whole, either, as he talking about this aspect. Tony is giving us a
checklist of things to do, informed by research, and
it's a little bit funny because actually Tony
pioneered the kind of quantitative research
that Piketty has made such a global story about. But still, it's just different purposes. I don't see any
contradiction between them, but if I, asking, what can we do, what can the next President, or maybe the two Presidents
further down the line when the political situation
loosens up a bit more, what can be done in Chelsea
Clinton's second term? Tony's book is the one that's gonna provide much more guidance. - Yeah. I generally agree with all that. The lesson I learned from the great stir that Thomas Piketty's book aroused, with its focus on the
1% or the tenth of 1%, is that envy is a stronger
emotion than compassion in people. I think it was a very valuable book, apart from the massive data
and thought that went into it, which was valuable by itself. I think it was a very valuable book because it brought the issue
into the public arena sharply in a way that no amount of
talking about the lower tail of the income distribution
could ever have done. You have to work at both of
those things, if we want, and Tony's book does. If you want to create
a more equal society, you're gonna have to do things. One of them is to pull the
upper tail closer to the median, and the other is to pull the lower tail closer to the median, so it's
compression that we want. - Let me turn our attention now to what I've been calling
the viability access. Paul you just sort of gave us
a good introduction to this. Let me just clarify what I mean by that. I want you to think now
about these 15 proposals, or a subset of them,
without being constrained, at least for the next 20 minutes by questions of political
achievability, let's bracket that. Essentially, for each of them, or for all of them as a whole, is the case for cause and effect sound, what about unintended consequences? Let me just remind you and
alert the video audience that Tony puts forth a
package of 15 proposals. Early reviewers of the book have noted, and I think we probably would agree, that they range from the
familiar to the novel. The 15 proposals cover a lot of territory. Two relate to technology, two
relate to employment and pay, three of them relate to
the treatment of capital, four to progressive taxation,
and four to social security. What I'd like to hear you do
is reflect on which of them, maybe mention three or
four, or as you wish, struck you as the most intriguing, or creative, or perhaps
the most promising. - The ones I particularly
liked in Tony's book are those that are not
about redistribution, but about effecting how
income gets distributed by the market. I was particularly interested in the labor market
questions, or proposals, some of them struck me as
more useful than others. You may remember that Tony
is worried, and so am I, about what I'll call the
casualization of employment. He goes on at some length about the increasing temporary employment, the increasing fixed contract employment, the increasing part-time employment. People in jobs like that, the
numbers have been increasing, and if they increase
further in the future, people like that have very little bargaining power about wages. They have very little claim on the firm as an institution
to which they belong, in fact they have no claim on the firm as an institution
to which they belong. Finding ways, almost certainly
through public policy, of providing more protection
or bargaining power or wages for people in those classes
strike me as very important, and Tony speaks of
legislation to make it easier for trade unions to represent workers. It's gonna be hard for trade unions to represent causal workers, because there's no stable
membership to worry about, but maybe that could be worked out. He talked about a social
and economic council to have a conversation. I tend to be pessimistic
about the viability of that. You can have a lot of conversation, but who is listening is more the point, and so I don't see that. He did speak about a pay
policy, a wage policy, for the country consisting
of a relatively high minimum wage and a set
of rules or standards or I don't know how to describe it, but ways in which businesses ought to look at the setting of wages. If any kind of force
can be put behind those, I think those would be
extremely important. Maybe by changes in corporate governments, maybe by changing the representation
on boards of directors, maybe by statute, I don't know. But those are the things that
interested me particularly. - Bob scooped me to a
fair bit because I also, I think in some ways the
most interesting, for me, the most interesting thing and
welcome thing in Tony's book is the emphasis on pre tax
and transfer inequality. His argument that you can do
quite a lot on that front, which is something I agree with and in fact is something
that's been a kind of, I've been told it's a new movement among liberal economists in the U.S. I didn't know I was part of a movement, though apparently I am. It's- - [Robert] What makes you
think there's a movement of liberal economists in the U.S.? (laughs)
- I know, all three of us. Anyway, but no, Tony
talks about enhancing, basically making the environment easier for labor organizing, enhancing
collective bargaining. I would actually put minimum
wage at a living wage standard, it's in that same domain. Social economic council, just
a moral suasion and effect to tilt the balance, which I think is, it's terribly important because we do ... It means among other things
for it not being fatalistic about the market distribution of income. There has been this strong tendency for the past several decades to say, "Well the gods of the
market set wages, and yes, "maybe you can tax and
provide aid afterwards, "but there's nothing you can do," and that looks like it's not true. There's actually quite a lot of research, quite a lot of evidence, historical recent that says it's not true. Supply and demand is much
less of a rigid determinant of the distribution of pre-tax income than current mythology has it, which means that there's room
to operate on that front, and that I think could matter quite a lot. I think it was very
interesting that Tony makes full employment an inequality policy, which turns out, I mean ... It's funny, if you really
believed in competitive markets, it's not at all clear why a
depressed economy should work, it should hurt everybody, it
should especially hurt labor, but practice shows that that
doesn't seem to be true, that full employment is
actually very important for the share of workers and income, and the share of less well
paid workers and income. Tony, interestingly, proposes not just the useful fiscal and monetary policies, but in fact, the government
as employer of last resort, which is a very old-fashioned idea, except probably a very good one, and one of those things that ... We've had this kind of, again, fatalism. We're now in year eight of this ongoing world economic slump, and it's kind of, "Well, we've tried
this, we've tried that," but really, full employment
either will happen or it doesn't, whereas Tony
is saying just make it happen, and that, I think, is
certainly right analytically. Tony does have a set of proposals that I think are interesting, intriguing, and I don't agree with (chuckles) which is his various things about basically trying to make
ordinary families capitalists, guaranteed positive real return on savings up to a certain point, an effect of government provided bequest when you reach adulthood, and those are all, they're nice things, but I think it's, that's an
ultimately futile effort. The fact of the matter is
wealth is always gonna be vastly more unequally
distributed than income. Most people are going
to, never going to have a significant amount of their
income coming from capital, and I would prefer that
we just acknowledge that and say that you do not have to be, we don't have to be an ownership society, that people don't have
to be mini capitalists to be full-fledged members of our society. But that's the interesting thing, is Tony has these arguments, and other people have made them, but it's actually some place where I would actually
not wanna follow him. - I agree on these things with Paul. We can't get any controversy there. I forgot to mention the
full employment notion, and the government as
employer of last resort, both of which I think are
very, very useful ideas. I too am suspicious, or at least unexcited by the capital grant at age 18. I'm not clear what is accomplished
by giving an 18 year old roughly the equivalent
of $15,000, and why? What happens then? You don't start a small business, it won't pay for much education, the education could be
provided in other ways, if put in a bank account and grow at a small,
real rate of interest, it will amount to something, but I don't think that that's the way to handle retirement either. I think, and by the way, in Tony's book, he has another recommendation about major improvement
in social security, and that I think is the way to do this. I do wanna add one
redistributive proposal he makes that is interesting to me. We talked earlier about how you can't have equality of opportunity
in an unequal society. One of Tony's proposals
would kind of eat away at the inequality of opportunity, and that's a sort of
cumulative tax on inheritances so that the very wealthy
can't pass on their status, their wealth status, to their kids by a series of gifts
during their lifetime, and then leaving some more
to them when they die. The idea of making it cumulative so that no lucky offspring
can become wealthy over time simply by waiting for parental money to drop into the basket, that strikes me as a very useful thing. We're not to talk about achievability yet, but of course I can't help remembering that the Congress has
been trying to eliminate the pitiful estate tax that we have, and here is someone who
wants to make something that's effective, but that would generate some equality of opportunity, or at least improve the
equality of opportunity. - Tony talks about the basic income in the form of a child
allowance, which I think also brings us back to
the opportunity question. I think you all know that
in the Cameron years, the child allowance, which
used to be universal, was means tested, so a means test was set quite
high in Tony's estimate, and I've heard Holly
Suttilan say the same, I think he notes something
like 700,000 children are now no longer on
the child benefit there. What he argues for is, and
I think it can be extended to other benefits of
course, making it universal, removing the means test
and having it taxed. I think, Bob, I've heard you
speak in favor of that idea, is that correct? - Yeah, I think that's a splendid idea. I think our, means testing
sounds so plausible. Why waste this on people
who don't need it? We know two things about
means tested benefits. One is, and I believe,
if I remember rightly, Tony mentions both of these things. One of them is that they're
never fully taken up. If you offer a means tested benefit, there will be many, many eligible people who simply, for one reason or another, maybe because they think it
stigmatizes them in some way, maybe for some, maybe ignorance,
maybe some other reason, they don't do it. Even so, kind of normal a benefit as the earned income tax credit, which you know, is part of the tax return, the 1040 and all that,
it sounds so natural. There are many, many eligible
people who don't take it up. Means testing eliminates
part of the benefit, part of the good that a benefit can do. The second problem is that it's very difficult, maybe impossible, to design an effective
means tested benefit that doesn't end up with an excessively high marginal
tax rate on the beneficiaries as they earn their way out of the benefit, as their means increase. Phasing out seems always to involve a very high marginal tax rate, and so it provides a bad incentive, and it's no good from that point of view. The idea of non-means tested benefits, especially a child benefit, which also bears on the
equality of opportunity issue, but that kind of thing, and making it just
taxable as normal income, that sounds far more sensible to me. - Just to actually follow
up on everything Bob said. On the people not taking it up, we have a lovely illustration right now as the Affordable Care Act is implemented, as you know half the states
have refused to expand Medicaid, which in itself is a fairly
incredible thing, for free. Nonetheless, there's
a substantial increase in the Medicaid roles
even in those states. The law hasn't changed
any, but people have heard, "Oh, there's this thing called Medicaid, "I might be eligible for it." People are calling them wood workers, which is actually a very good thing, this is a very important benefit. Means tested programs are complicated. You have to apply, you
have to know about it, and often people don't, so a universal benefit works much better. The marginal tax rate issue, you wanna think about that as a trade-off. You save a little bit of
money by means testing, which means that tax rates on
higher incomes can be lower, so you're in effect trading off a slightly lower marginal
tax rate on higher incomes for an often much higher marginal
tax rate on lower incomes, and almost certainly that's
a bad trade-off to make. I think there's something that goes beyond the economics here, which again comes back
to the dignity issue. If we want to help people, requiring that they prove
that they are poor enough to get the help, I mean
sometimes, all right. There's some kinds of aid that are always going
to be poverty related, and that will make sense, but in general, you want to avoid having people ... If your goal is to make sure
that everybody has something, then the easiest way to do that is just to make sure that
everybody has it rather than say, "Well prove that you
can't do it for yourself, and then we'll do it." That's demeaning, it's complicated, it's not something you wanna do unless it's really essential, and in many cases it really is not. - Tony made an interesting
comment at the end of this rather complicated discussion, I think a quite exciting
discussion of these 15 proposals, he asks himself the rhetorical question, "Is this a package?" and then he answers yes and no. On the one hand, no, that
governments and policy makers should feel free to discard the elements that they don't care for. But on the other hand, there are interdependencies among them. Is your sense that if we think
of this as a menu of options, that it still would be viable if we end up taking three or
four or five out of the 15? Can they live independent
of one another more or less? - Oh, I think so. I mean that's ... I'm not even too sure what
the interdependencies are. I mean there are some that I know about. Not specifically the way Tony puts it, but to think in turn
there's a substantial, a lot of people have been
putting in a lot of hard thought on earned income tax
credit and minimum wages, and the question is
are those alternatives? Should we, as many in
Congress used to say, do EITC and not minimum wages, and we now understand I think pretty well that they're complements, that the EITC makes it that a reasonably high minimum
wage, among other things, makes sure that the EITC
goes to where you want it to, that you're not ending
up subsidizing employers, that you are in fact
subsidizing the workers. There are certainly some ways, parts of it that work together as a package, but clearly not all 15. Maybe one look through it, there's some subgroups
that are collections. - I don't have anything to add to that, I think that's exactly right. - One of the claims that comes up a lot when we talk about policies
aimed at reducing inequality is that globalization is now
such an overwhelming force that single countries hands
to some extent are tied, that the transnational forces are great, and the constraints are too much. Tony is skeptical about that,
of course, for many reasons. What do you think about this argument? - Globalization is way
overrated as a constraint on what nations can do
for several reasons. One is that even now, even
with the world flapped and all of that, the bulk
of what any economy does, certainly any large economy,
but even small ones, is still producing goods
and services for itself. That most goods, most employment
is in non-tradable sectors. If you see these enormous trade numbers, that has to do often with
essentially the same value added being counted multiple times, because we ship a
component to one country, they do something to it, to which it goes on to
another country, and so on. 70%, 80% maybe of employment
is in non-traded sectors. There's actually no reason why
you could not, for example, have stronger unions and
higher wages in those sectors. If you ask what's the biggest
employer in America right now, the answer is Walmart. Could Walmart be unionized
without the jobs moving overseas? Well, yeah, you don't move
retail trade over seas. So that's overrated. Then we also believe, there's
good reason to believe, that the trade offs are pretty favorable even in the global economy. If we ask raising wages, yeah,
that raises cost directly, it has on the other hand, probably some efficiency wage effects that raise productivity. There are probably ways to
have, even in tradable sectors, to have a substantially higher
wage sector than we now do while remaining
internationally competitive. The world's biggest trade
surplus right now is Germany, and German manufacturing labor
costs are extremely high, offset by high quality goods and very good labor management relations. I'm not sure that we could
all manage to do that, but it's kind of a lesson. If you think that the
winds of global competition force us all to compete
head-on with Vietnam, it just doesn't look that way. - I think that's right. (coughs) I don't know how to make it count of the number of jobs that are exposed to competition from low wage countries so that globalization
is a real constraint, but in an economy in which 70 or 80% of all employment is
in the service sector, it doesn't seem to me likely that we're that severely limited. By the way, wages in the,
well the service sector is extraordinarily diverse,
it includes Goldman Sachs, and it includes Walmart, but on the whole, raising wages in the service sector would not interfere with
competition in tradable goods very much at all. I'd rather agree with Paul about that. Also, I wanna make the
more fundamental point. The way to answer this question is to try, you don't know really how any very complicated set of policies works until you see how they work. The notion that you
have to know the answer before you try a policy and move ... Which is, by the way, another reason for wanting to move toward limiting inequality one step at a time. See how it works, and then you will know, or have a better idea when to stop. - I can't resist adding also that something that we've
certainly learned from LIS is that levels of
inequality vary dramatically across countries, all of which
are subject to globalization, many of which are direct
neighbors of one another, trading partners and all kinds of things. I think Tony's argument that
national policies matter are certainly persuasive. In a minute or two, in a few moments, I'm gonna turn to the
question of achievability, and I might add that I've told Tony that one of the things
we're gonna try to do today is have you talk a little
about the transferability of these ideas to the U.S. context. But before I do that, I
wanna ask you a question actually that he posed himself. In anticipation of us talking today, I asked him if he wanted
to suggest a question, and he did that, he sent
a question this morning. He noted that he gave a lecture last night at the London School of
Economics based on the book, and a journalist in the audience made a very intriguing comment. The journalist remarked
to Tony, as he put it, that in this book, Tony
tries to bring together a range of departures, all of which are, excuse me, this has to do with the issue of Tony's implied critique
of modern economics. So the journalist
remarked that in the book, Tony tries to bring together
a range of departures, all of which are now very much
part of mainstream research, for example, heterogeneous agents, monopolistic competition a la Krugman, efficiency wages a la Solow, non-welfare as to welfare economics invoking sin and so forth. The journalist noted to Tony then when these are all taken together, that issues such as the trade off between equity and efficiency
look quite different, and that brings Tony then to
pose I guess a larger question. He said, "This leads to my
question for Bob and Paul, "which is, how can inequality
be brought back into "the center of economics?" - Well. I think that Tony is actually
doing it in the right way. I don't think that it makes sense to tell the assemblage of
graduate students in the U.S. "Inequality is the central,
or a central question, "in economics, let's
talk about inequality." There's an intellectual
history to economics, and we're gonna follow some
of those paths undoubtedly, and all those things that, that was very clever
journalist by the way, I'm not sure we would
have such comments here, but all of those items, the economics of heterogeneous agents, that makes sense in the
history of economics because there's a history
that did that once and then goes against it,
and time to come back. The same thing about
all the modern theories of the labor market, one way or another. I think that's the way to go. You want to correct deviations
of mainstream economics from good sense and
eventually that will help you understand the
inequality issue better. But to tell everybody
that we're now gonna start your program with inequality one, followed later by inequality two, does not sound to me
like a successful way. - If you look at what's actually going on among younger economists, there are probably not a large number who are say, studying inequality, but we're studying issues
that bear on inequality. Very much the latest
Clark medalist, Fryer, is doing applied microeconomics, is very much is about the kinds of issues that are involved in the
whole inequality discussion. In fact that's been true of several of, the Clark medal of course, it's given to an economist under 40, and it's the big prestige
thing, it's the pre-Nobel, actually harder to get than the Nobel. - You're both recipients, if I'm correct? - Yeah.
- Yeah. I was once 40. (chuckles) - So was I. Seems like a long time ago though, I guess even further in your case, so we go on. In fact, I've seen some complaints. Some people are saying we need to start give a few Clark medals that are not for applied microeconomics focused on labor markets,
you know? (chuckles) Which has been mostly what
we've been getting lately, which is telling you
that we're not that far. Don't judge economics by
what people who are now 60 did for their stuff. Judge it by what's happening now. Inequality is, I do of course, which I'm gonna port
over to community now, the economics of the welfare state, which is clearly on these issues. It's not in the economics department, because it's a grab-bag. It's a bunch of different subjects. There are different disciplines there. I suspect that's always going to be true. It doesn't quite make sense
as an economics course, but they're all topics that are
being studied by economists, so I think that we're not in as much trouble as that suggests. - So there's hope for the
future, it sounds like. - The message for Tony is that there is an internal logic to economics that's working itself out, and applying these things
to inequality type issues is a good thing for this society, but it comes not necessarily, it doesn't have to come
from inside economics, it comes from the world. - Let me turn our attention now to the question of achievability. I realize this is
something we could probably discuss for hours, and we won't. But I wanna turn your eyes, turn our eyes, to the United States. As you know, the book was written, for those of you who've read it will know, most of the examples are
about the United Kingdom, but many about the United States as well, and I think Tony's trying to make a case that would make sense in
most high-income countries. He has noted, Tony has noted already that he's receiving the message that most of what he
proposes is dead in water in the United States. He gave a talk in London last month, and he said he noted that the New Yorker said in its articles last month
that, this is Tony speaking, "my proposals wouldn't work in the U.S., "but I don't believe that, "I don't believe they're off the wall." He's referring to a recent
piece by Jill Lepore in the New Yorker in which
she wrote about Tony's book, "In the Unites States, "most of his proposals are non-starters." I'd like to hear each of you reflect on that rather stark assessment. - Well. Yes, they are, many of
them are non-starters now. They would not have been non-starters when Franklin Roosevelt was president, and there may come a time when they'll be starters. It's worth getting that stuff
down and having it discussed on the chance that the evolution of the society and the political situation will move in the direction
where they'll become, they'll have a little more appeal. Actually, they probably
have some appeal now, it's the political system
that is log jammed, and that may change. I think it's a mistake
to be too short term in one's judgements about these things, and you cast your bread on the waters. - Firstly, if you ask
which of these proposals could pass the current
House of Representatives, or the current Congress,
you gotta be kidding. But that's no way to think about it. Things change and issues can change radically. At the moment, the big
changes in public opinion have been on social issues, but that I think is worth saying, that gay marriage was anathema to many voters just a decade ago, is now perfectly, is sweeping, because there is not much opposition left. If I try to take a really cosmic view at why is America different. It has been true that things that are within the discourse are
achievable in European countries have been beyond the pail in the United States for a long time. It's pretty clear what that's about. Ultimately, the distinctiveness
of U.S. political economy is pretty much about race, we know that. There's overwhelming evidence that that's what makes us different, but it's also of diminishing
significance I would say, despite everything you see. Despite the fact that it's
certainly of major significance, prejudice is on the decline, the society is itself becoming
more ethnically diverse. People who thought that we'd have a solid liberal majority now because of the change in
character of the population have been sorely disappointed, but I think there's lots
of reasons to think that three presidential elections
from now, the United States might be a very, very,
different place politically, much more amenable to things that now seem completely off the table. - If you were to envision
what might enter the realm of political feasibility
in the United States in the next few presidencies, let's come back to this question about whether we're talking about shifting the market distribution or the post tax and transfer distribution. Where would we be more likely to see traction in the United States? - Let me quote some results
of a political scientist, sociologist at Northwestern
named Leslie McCall who has done some survey work on this. She finds that there is quite a fairly substantial consensus, even among self-identified Republicans, that the distribution of income is unfair. Unfair is a very key word here because for one reason or another, fairness still seems to be a virtue. There is this fairly good opinion that, especially incomes at
the top, are too high. There's a little less consensus that incomes at the bottom are too low. Then she goes on to ask, should the government
do anything about this, or what should the
government do about this? The answer, generally, is no, the government shouldn't
do anything about this. True amongst self-identified
Republicans, Independents, and even a fairly substantial
number of Democrats. This probably relates to a generalized mistrust of government, which we all think about, and may change. Then she asks, "Well who ought
to do something about this?" Large numbers, majority of
Republicans, Independents, and Democrats say business
should do something about this. Well, I don't think
business is going by itself going to do anything about it, but this suggests that
there actually could be some viability for imposing
changes in corporate governments and trying to either encourage or enforce changes in the way
businesses make decisions, large businesses in
particular, make decisions that effect inequality. I think there's some hope there. - Public opinion is
quite strongly supportive of raising wages. Raising the minimum wage is overwhelming. I mean, it's hard to find any
policy proposal that has as such a large super
majority in favor of it, including Republicans, as
raising the minimum wage, which that tells you something
about our political system that it doesn't happen. But it's not a problem of public opinion. Even unionization, I've seem
some results that say that again, even self-identified
Republicans, if asked should workers have the
right to form unions and seek higher wages, often say yes. These pre tax and transfer
interventions, if anything, have a lot more public acceptability than the redistributive state afterwards. Then I think if, once you ... There are other results. You ask people do they approve
of government benefits, government programs, many will say no. Then you ask, well are you a beneficiary of any such program yourself,
they'll also say no. And these are people who are on social security and Medicare. One way to make these things,
to get a program enacted, and after a few years,
it becomes invisible and people think it's
not a government program, it's just there. I think that will eventually
happen actually with Obamacare. I don't think these things, the idea that the United
States is fundamentally opposed to doing these, both pre market
and post market, is wrong. - I think, Paul, you'll be
happy when people's signs say, "Tell the government to keep
their hands off my Obamacare." - Yes, yeah.
- Right, except give them the way it's been done, it'll be, "Keep your hands off my kye-nick," "Keep your hands off my new jersey," but yes, exactly. - Speaking of public opinion though, Paul, I think I've heard you say and write, I think you've written about the Walmart case of raising wages, that it wasn't just tight
labor markets at the bottom, that there really was some
moral suasion going on, some sense of pressure from society, and given this big wave of
discussion about inequality? - Yes, I think, it's not ... It's too narrow a view to think that unless we have actual
legislation, nothing happens. It sure helps to have legislation, but a climate of public opinion, protests, among other things, what we think we know, what I think I know about labor markets is that wages are much less, again, pinned down. That there's a fairly, if you're a retail, a big box store or chain, that you have faced some real trade-offs. A low wage policy means you pay low wages, but it means high
turnover, low productivity. It doesn't take a whole lot to push you into a Costco type policy
of much higher wages. At least what arguably
is happening with Walmart is that they are, a fairly a modest amount
of external pressure combined with a slightly
tightening labor market is enough to make a big
difference in their wage policy. That's what we're looking for. - There was a story that
played out in Massachusets a year ago, roughly a year ago, that's really very relevant here. There was a small chain of supermarkets. It was not a large chain, but the supermarkets were
genuine supermarkets, competitive with the national
chains of supermarkets. This chain of supermarkets was a classical high road employer. They paid high wages, they
treated their employees well, and they made a profit. There was very low turnover,
the people worked hard, they smiled at the customers, the customers smiled back and they came. The cousin of the CEO, who was a member of
the board of directors, made a grab for the firm
because he wanted to convert it to a real, efficient,
tough-minded retailer. The two cousins were at odds on this. The bad cousin, the low wage
cousin, the tough-minded cousin seemed to be winning. The workers went out on strike, the customers went out on strike. The customers were parading around the lot with signs saying, "We want Arthur," Arthur was the good cousin, and the stores couldn't do a damn thing. In the end, Arthur won. The bad cousin threw in the towel, the workers came back,
the customers came back. Now this is Massachusets, and people are crazy in
Massachusets and all that, but nevertheless, there is some of this and it can be made to work. - Although powerful unions and minimum wage laws help. So I mean, now clear,
I mean, we think that, I pressure moral suasion
can matter much more than economists like to think. I wouldn't mind having
some real legislation behind it as well, but I come back to Tony's point that says this can be changed, that you
do not want to be fatalistic and imagine that it's all determined by forces beyond our ability to manage, that there's lots and lots we can do. - In any case, inequality
will be a theme in 2016, but how that will shape, we don't know. My question for you is, I think I'll start with you Bob, imagining that you were
gonna enter the race, which would make many people happy. I'm gonna assume you're gonna
enter on the Democratic side, maybe challenging Hillary
and Bernie Sanders. What are you gonna tell the
American people about inequality and how would you frame it today? Not 30 years from now, but today to try to make it palatable? - I have no originality
in this kind of thing. You know, it's not what I normally do, and I would stick with what I
imagine to be tried and true, and popular themes such as children. It's really a terrible
thing to raise a generation of children who have no hope of, and who have legitimately
no hope of getting anywhere, of making a success, who face infinitesimal
probability of success. I'd push on the kids and
I would push on fairness, which as I said, is most
Americans respond very well and correctly to the notion of fairness. I would work on the, without suggesting that equality of opportunity is a fraud, I would try to get across the idea of real equality of opportunity and that it's not a trivial thing, it's not a matter of something
that it says on paper. Opportunity is not on paper, opportunity is what
the society offers you, and we have to do something about that. - So Paul, I don't know if
you're gonna run against him, or run with him, but what are your, what would you say, though, today, in the current language
that we think of today? - Almost exactly what Bob said. You talk about fairness,
you talk about decent lives for American families,
you talk about children having the opportunity to rise, opportunity for your children. The thing is, it's actually, this is already there. I mean, we know this is
pretty much the language that Hillary Clinton is using, it's pretty much the
language even of those Democrats we either are or her, or who some of her supporters
wish would challenge her. Really on the Democratic side,
it's all yes, you say it, but I don't trust that you mean it. The language is already there, and I don't think that's the problem. Actually there's quite remarkable unity on one side of the political
isle on these issues, at least at this point,
you know, have a Democrat, if a Democrat is elected,
then when the question comes, "Okay, you say you're gonna raise "the minimum wage to where?" "You say you're gonna provide "more help to children, how much?" Then that's where it'll
become, there'll be disputes, but I think that the general thrust, and this new view that says that wages are at least in
part a political construct that can be moved, is
again, widely accepted. So no, I mean it's not really, it's not gonna be a hard thing, and I'm not sure I could
supply anything that isn't already there. - Neither of us is gonna
get the nomination, but we might push Hillary
Clinton a little bit. - But will you push her
on the labor market, or on taxes, or both? Where would you push her? - I would try to do as
little on the taxes, I think that that's
working against the reflex. We're talking politics, now. That's a reflex that it's hard to beat. I would work on the things that
we have been talking about. - I think high end taxes,
there still is political as well as economic room
to raise top tax rates, and to close loop holes. There is room for some ... I am led to believe by people I talk to that a Clinton administration,
if such a thing is coming, would probably be seeking
some expansion of aid focused on children. So the spending priorities
would be on children, because we've actually, you
know, in the form of Obamacare, we've already had a quite
big policy focused on low-income wage earners, that's really who the big
beneficiaries are there, and it's one that's financed
by highly progressive taxes, so we've actually just
had a significant strike against inequality, but
the next step would be largely child oriented. I think the place where
there's a lot of room, because it really hasn't
been pushed it all, it hasn't been exploited,
is on the labor market. - Yeah, I agree, except that I'm maybe a little more pessimistic
about high end taxes. I can't help remembering that when the talk was
about the estate tax, the press was full of family
farms that had to be sold in order to get hold of the
cash to pay the estate tax, and people swallow that sort of thing, whereas of course that's
not what it's about. That's a hard nut to crack. It's worth taking a
swipe at it, I'll agree. - One interesting just factoid,
which no one seems to know, is that as best we could tell, the effective federal
tax rate on the top 1% is back to just about
what it was pre-Reagan. That reflects partly a reversal of the Bush tax cuts at the very top end, and it reflects the fact that actually, Obamacare is paid for with some significant surcharges
on investment income. It may be hard to talk about it. Anything that smacks of punishing success is still going to be unappetizing. - Can you think of a good
way to get capital gains taxed as ordinary income? - Well, talk about a revenue
emergency or something, but no, I don't know. - What do you think about it?
- But moving it up is a possibility. - Let me ask you if you
have any final thoughts about the book, the transferability
to the United States, inequality in economics,
any final thoughts? - I mean I'd like to hope
that we get a kind of one, two punch here, that we, if you like,
last year was the year of "Hey, inequality's a really big thing," which is not news to LIS,
is not news to a lot of us, but in the broader public it still apparently came as a revelation, and that maybe now we
have the chance to say, "And there's a lot you can do about it." The fact that, of Tony's 15 proposals, the number that could
pass the current Congress is minus three, and the
number that are likely to pass in the next four years or so
is not more than one or two, shouldn't change the fact
that we actually have a set of pretty reasonable, you know, not, there are no technical obstacles to implementing a lot of this stuff, and that maybe moves us. - Well, I hope that's the case. You know, I'm older than you, Paul. It's gotta come sooner or I'm
not gonna benefit from this. - [Paul] Yeah, I know. - Thank you very much,
thank you to both of you. - [Paul] Thanks.
