Tomas Piketty: Inequality and Capitalism in the Long Run
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(Late) Tuesday Focus: Responses to Ezra Klein's Worries About Over Focus on Inequality, and Ezra Klein's Response...

Ezra Klein's attempt to provide some pushback and context to--well, to the mission of Equitable Growth--has gone semi-viral, or, rather, as semi-viral as things can go in this restricted technocrat-wannabe circle. So let me pick up that thread again

If I may paraphrase Ezra, or rephrase Ezra, or chop his argument into bits and reassemble the bits into something of my own liking, Ezra sees three dangers:

  1. A left that primary focuses on distribution will focus on raising taxes on the rich, and neglect issues of investment in technologies, structures, ideas, and people and so neglect growth, and also neglect aggregate demand and so neglect restoring full employment.
  2. A left that focuses primarily on growth will focus only on various forms of investment, and so neglect issues of distribution and equity and also issues restoring full employment.
  3. A left that primarily focuses on employment will focus only on boosting aggregate demand, and neglect issues of spurring growth and also issues of distribution.

Ezra thinks--I think--that what we need is a balance, and if we are going to fall off balance in any direction it should be in direction (3).

Why (3)?

Because a high-pressure economy will generate both the investments that spur growth and, by increasing the bargaining power of the marginalized who will no longer be marginal in a high-pressure scarce-labor economy, spur movement toward equity as well.

What do I think of Ezra's response? Broadly, I agree:

Ezra Klein: Full employment, not inequality, should be the top economic priority:

My Friday column arguing that inequality shouldn’t be elevated to “the defining challenge of our time” — or even the defining economic challenge of our time — has elicited a lot of really interesting responses. See Brad DeLong, Jared Bernstein, Paul Krugman, Larry Mishel, Ashok Rao, Matt Yglesias and Dean Baker, to start. I’ll add a few points.

  1. It’s perhaps useful to begin with what I was not saying. I’m not saying inequality isn’t a serious problem. I’m not saying declining social mobility isn’t a serious problem. I’m not saying that the difficulty of finding firm evidence that inequality impedes growth means that inequality doesn’t impede growth. The column is about whether inequality should be seen as the central economic problem of our age. Amidst mass joblessness and weak growth, I’m skeptical.

  2. Obviously this whole conversation is moot if inequality is a primary reason for mass joblessness and weak growth. I don’t find the evidence on that score hugely compelling. We've had nearly full employment during periods of high inequality (say, 2005) and we've had high unemployment during periods of relative equality (say, 1982). The same is true internationally: Some relatively equal countries suffer from extremely high unemployment (Portugal, for instance) while some relatively unequal countries are seeing fast growth and low unemployment (Singapore, say). But Dean Baker at the Center for Economic and Policy Research find this argument more persuasive, and you should read his case. 

  3. I’m quite convinced, however, that joblessness makes inequality much worse. As former White House economist Jared Bernstein writes, “Over the period when labor markets were tight 2/3′s of the time, incomes grew together. Over the period when labor markets were tight 1/3 of the time, they grew apart." Here's the graph: “Full employment”, I think, probably is the correct rallying cry for this age, and Baker and Bernstein’s free e-book on the topic is something you should read right now. While there are ways to reduce inequality without doing much about employment (say, by taxing the rich and using the proceeds on defense spending), it's hard to imagine full employment not doing much to reduce inequality.

  4. Basically everything I just wrote about full employment applies to median wage stagnation, too. I'm not convinced that the top one percent's acceleration is the same problem as the stagnation of median income. For one thing, median wage stagnation began in the '70s, while the top one percent only began pulling away in the mid-'80s. So it's easy to imagine policies that could "solve" inequality while doing little for median wages. By contrast, I'm much more convinced that median wage stagnation is connected to slack labor markets, and it's really hard to imagine full employment not boosting median wages.

  5. A hypothesis of the column is that worrying about inequality and social mobility is politically easier than worrying about mass joblessness. Inequality at levels we’re seeing today is morally offensive. Declining social mobility is the kind of thing that hedge fund managers feel good worrying about. If that’s right, it creates a political bias toward too much concern over inequality, much as there’s a political bias toward too much concern over the deficit.

  6. In this way, my argument is the direct opposite of Third Way’s argument: They think the problem with worrying about inequality is that “nothing would be more disastrous for Democrats.” They’d prefer more focus on the deficit. But inequality is great politics — as you can tell by the number of politicians taking up the banner — and making the deficit your central worry right now is absolutely nuts. (For more on this, read Neera Tanden at New Republic.)

  7. Anecdotally, I find that people in politics simply find joblessness, at this point, frustrating and sad. They want to move on from it because they don’t see worrying about it further to be either politically advantageous or obviously productive. Most voters are employed, and there aren’t the votes to do something new about joblessness anyway.

  8. Since new measures to combat joblessness or inequality are similarly implausible, it’s fair to ask why this conversation matters at all. One answer I proposed is that it focuses intellectual resources on one problem rather than the other. Krugman replies, “We know how to fight unemployment — not perfectly, but good old basic macroeconomics has worked very well since 2008…The causes of soaring inequality, on the other hand, are more mysterious; so are the channels through which we might reverse this trend.” That’s a good point. In particular, there should be a lot more research on the possible connection between inequality and financial crises.

  9. A second point Krugman makes (and that’s also been made by political scientists Jacob Hacker and Paul Pierson) is that inequality is a driving force in our politics, and as such, is a key impediment to better economic policymaking more broadly. On this, I'm more skeptical....

  10. That said, worrying about political inequality leads you to different policy emphases than worrying about income inequality. In particular, massive campaign-finance reform should probably be the top priority if you're worried about wealthy individuals and corporations buying off our politics. That's not the direction this conversation seems to be going in here in Washington, though.

  11. Within the general rubric of "inequality," income inequality gets a whole lot more attention than wealth inequality. But wealth inequality is much more concentrated and, in various ways, much more dangerous for the social structure....

  12. All that said, income inequality and social mobility really are startling trends that people should be very worried about and that the political system should be working aggressively to solve, or at least ameliorate. I don't have many policy disagreements with the folks focusing on inequality. But politics is about prioritization, and what politicians end up doing is in part driven by what problems their political coalitions are most worried about. Next time someone like Jared Bernstein is advising the president of the United States about what her top economic priority should be I'd prefer if the answer was full employment rather than inequality, and I'd prefer if her political advisers agreed.

Let me say that I remain neutral on (1), think on (2) that inequality may be a major factor harming employment and growth and that we need to find out, agree with (3), dissent with (4) because I think that median stagnation and plutocrat acceleration are closely linked albeit not the same, dissent from (5) because all seem equally politically difficult now, dissent from (6) because if fighting inequality were politically easier than restoring full employment that would be a powerful argument for focusing on inequality and only somebody making a #slatepitch would argue otherwise, agree with (8), dissent from (9) and (10) because I find the research linking high inequality to more poisonous politics compelling, and agree with (11) and (12).

And others:


Evidence is mounting that people at the bottom are increasingly stuck without skills or pathways to rise... mobility is more than twice as high in Canada and most of Scandinavia than it is in the United States. This is a major problem, and advocates of free enterprise have been too slow to recognize it.... We need schools that serve children’s civil rights instead of adults’ job security... to encourage job creation for the most marginalized... declare war on barriers to entrepreneurship... revive our moral appreciation for the cultural elements of success....

Free enterprise... [means] championing policies that truly help vulnerable people and build an economy that can sustain these commitments... leveling the playing field so competition trumps cronyism... self-government and self-control. And it certainly doesn’t imply that unfettered greed is laudable or even acceptable. Free enterprise... creates more paths than any other system to use one’s abilities in creative and meaningful ways, from entrepreneurship to teaching to ministry to playing the French horn. This is hardly mere materialism, and it is much more than an economic alternative. Free enterprise is a moral imperative. 

To pursue the happiness within our reach, we do best to pour ourselves into faith, family, community and meaningful work. To share happiness, we need to fight for free enterprise and strive to make its blessings accessible to all.

And Kay at Balloon Juice reacts to this last:

The American Enterprise Institute Identifies the Problem: I’m all about... “what works” as they say in the punditry trade, so I read... to the solutions offered....

Those dastardly second grade teachers want to get paid, AGAIN?! Is there nothing they won’t stoop to to ruin America?

Apparently teachers unions were invented on or around 1982, and once that happened, we were all s----ed... public school teachers... inexplicably and ridiculously... entered that profession... to violate the civil rights of children.

But... if they’re defending on income inequality... they know it’s a political problem. That’s good news. Shifting blame for income inequality to public schools and public school teachers means they think they have to explain income inequality away... casting around for an excuse that doesn’t implicate conservatives, conservatism, or anyone who is at all wealthy or powerful...

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