Good evening and welcome
to the Marian Miner Cook Athenaeum.
My name is Wesley Whitaker,
and I'm one of your Ath fellows this year.
Almost 10 years ago, I vividly remember sitting
in front of the TV glued to CNN
as Anderson Cooper described how the country
was quickly sliding into the biggest recession
since the Great Depression.
I may not have known anything about supply and demand,
credit markets, or what the heck derivatives were,
but it was obvious even then that this event
would profoundly shape the coming years.
According to some metrics,
the economy started to turn around
after the first year of the Obama presidency,
and his administration saw the longest sustained period
of job creation and GDP growth of any modern president.
Despite this data, as well as a soaring stock market,
many people in this country have felt
that the recovery extolled by pundits
and politicians never actually came.
No candidate capitalized on this sentiment
better than Donald Trump,
who made the economy the centerpiece of his campaign.
Our guest tonight will describe the origins
of the economic trends that helped fuel this sentiment
as well as discuss how they can be changed
in the coming years.
N. Gregory Mankiw is the Robert M. Baren professor
of economics at Harvard University.
As a student, he studied economics at Princeton University,
where he received his Bachelors,
and MIT where he got his PhD.
As a teacher, he has taught macroeconomics,
microeconomics, statistics, and principles of economics.
He even spent one summer working as a sailing instructor
on Long Beach Island.
Professor Mankiw is a prolific writer
and a regular participant in academic and policy debates.
His research includes work on price adjustment,
consumer behavior, financial markets,
monetary and fiscal policy, and economic growth.
His published articles have appeared in academic journals
such as the American Economic Review
and the Journal of Political Economy
as well as in more widely accessible forms
including the New York Times, the Washington Post,
and the Wall Street Journal.
He has written two popular textbooks
that I think some of you are aware of: (laughter)
the intermediate-level Macroeconomics
and the introductory textbook Principles of Economics.
The latter has sold over two million copies
and has been translated into 20 languages.
In addition to his teaching, research, and writing,
Professor Mankiw has been an advisor
to the Congressional Budget Office
as well as the Federal Reserve Bank of Boston and New York.
He also serves as a research associate
of the National Bureau of Economic Research
and served as chairman of the President's Council
of Economic Advisors from 2003 to 2005.
Professor Mankiw's Athenaeum presentation
is co-sponsored by The Financial Economics Institute
at Claremont McKenna College.
As always, I must remind you that audio
and visual recording are strictly prohibited.
Please silence and put away
your mobile devices at this time.
And please join me in welcoming
Professor Mankiw to the Athenaeum.
(applause)
Thank you.
Thank you very much.
It's really a great honor to be here.
There's a lot of interesting things to talk about today,
but I wanna start with this picture here.
And I'm not interested in the person.
I'm interested in the hat.
Make America great again.
This catchphrase resonated with lots of people
in the last election, and what I wanna do today
is talk about the economic dimensions of this.
What is it about the economy
that made people feel like America wasn't great?
What made the people feel unsatisfied
that they decided to elect what obviously has been
an outsider, a disrupter to really shake things up?
There's only three parts of my talk today.
The three parts, obviously facts, hypotheses, and policies.
So I'm gonna talk about what are the facts,
what are the underlying trends
that might make people feel uneasy
about what's going on in the US economy.
I then wanna give you my best guess
as to what are the economic forces driving these trends,
and then once we have some hypotheses in hand,
we're gonna talk about what policies might we pursue
to reverse some of these trends.
So that's my agenda today.
Part one is what are the facts.
Well this chart shows you the growth rate of real GDP.
I've averaged this over a 20 year period.
So the first observation here is growth from 1947 to 1967
all the way to the most recent observation
which is growth from 1997 to 2017.
So this is growth and real GDP per person.
GDP is, of course, total income of the economy.
"Real" means adjusted for inflation.
So it's basically average income of the economy,
more or less, the broadest measure of average income.
And what you see here is you see
that this recent observation
is the slowest growth experienced during this period.
We've been living through a very slow period.
A part of this is the financial crisis and the recession,
but it's not just that.
This is a 20 year average.
So I'm trying to average out over the business cycle,
and this shows you that we've been living,
really, through a very poor time.
So not only was the recession in 2008 very deep,
it was followed by quite a slow recovery.
And so as a result, the 20 year average
is really quite disappointing.
Here's another way to look at this.
This is showing you the growth
in family incomes for different parts
of the income distribution.
So this over here is the bottom fifth
of the income distribution.
This is the middle class, middle fifth.
This is the top fifth,
and this is the top 5% which is,
of course, a subset of the top fifth.
The blue bars show growth before 1973,
and here you see robust growth
in all parts of the income distribution.
So both rich people and poor people
were experiencing rapid growth in incomes.
And indeed growth seemed a little bit higher
for people at the bottom of the income distribution.
So we were becoming more equal as a society.
And then after 1973, things changed.
That's these brown bars here
where you see after 1973, growth at the top was still okay,
but a little lower than before,
but growth at the bottom completely fell out.
So people at the bottom of the income distribution
were experiencing basically no growth in family incomes
over a very long period of time.
So we're going to a period of lower growth
and widening inequality because people at the top
were growing faster than people at the bottom.
So those are the two facts that I wanna focus on:
slower growth and widening inequality.
Now when you think about inequality,
people are particularly interested in the two tails
of the distribution: the very rich and the very poor.
So here are some data on the 1%,
which got a lot of attention
in the Occupy Wall Street movement.
This shows you the percentage of the total income
going to the top 1% based on income tax data.
And what we see is that from 1913,
which is when income tax began, to the 1970's,
the share going to the top 1% fell from about 20%
of total income to about 10% of total income.
That's basically going from the Great Gatsby era
right to basically when I was in college.
And then from the 1970's to today,
that trend reversed itself,
and the share of total income
going to the top 1% approximately doubled.
Went from about 10% of total income
to about 20% of total income.
Remember that number approximately doubled,
because that's gonna be important later
when we think about possible solutions to this.
So this is the share going to the top 1%.
Now, this next chart shows you an even more rarefied group.
This is the 1% of the 1%.
To be in the top 1%,
you need a family income of about $450000.
To be in the top 0.01%, you need family income
of about 11 million dollars a year.
A married couple of a couple of successful physicians
is probably in the 1%, probably not in the 0.01%.
This is basically Elon Musk and Taylor Swift.
And what you see here, again, the same U-shaped pattern
where inequality fell and then rose again,
but the changes are much more pronounced.
Remember the previous chart we saw the share going
to the 1% roughly doubled from the 1970's.
Here, the share going to the top 0.01% increased
by roughly a factor of five.
So a very, very big change in the share
going to the very top sliver of the income distribution.
So this tells you what's going on at the top,
here's a chart that shows you what's going on at the bottom.
This is the official poverty rate, starts in 1959.
And you see that from 1959 to some time in the 1970's,
there's a pretty persistent decline in poverty.
It was during this period when John Kennedy could say
a rising tide raises all ships.
And then in the 1970's, because of rising inequality
and basically very little, low growth and low incomes,
we see that there was essentially no trend
in the poverty rate.
You see some fluctuations.
The poverty rate tends to go up in recessions,
which are these shaded bars here,
and then down during booms,
but the long-term trend since the 1970's has been flat,
basically no significant advances in poverty
since some time in the mid-1970's.
Here's a picture from Raj Chetty.
We've all heard about the American dream,
and of course that means different things
to different people, but one way
of manifesting the American dream is
what's the chance that a person is gonna do better,
in terms of income, than their parents.
And so Chetty actually has gotten data linking children
and parents, children of course once they're adults
and they are earning income,
and figured out the probability of doing better
than your parents as a function of age and birth.
If you were born in 1940, the probability
that you're gonna earn higher income
than your parents is about 90%.
You will almost certainly do better than your parents.
If you were born in the 1980's,
the chances of you doing better than your parents
is only about 50/50.
So quite a big decline in this metric
for the American dream.
This is not a new fact.
This is really another way of stating
the two facts I've showed you,
which would be we live in a period of slower growth,
so the average person is not advancing as fast,
and widening inequality,
the extent that there's growth in incomes.
A lot of it is showing up at the top.
And Chetty has done some calculations
to attribute this decline in the American dream,
and he finds about a third of it is attributable
to the lower growth and about 2/3 of it
is attributable to the rising inequality.
So both of these facts are important
and are manifesting themselves
in this particular phenomenon here,
which this is a particularly dramatic way
of explaining lower growth and rising inequality.
Okay, so those are the facts.
Those are the facts.
And those are the facts I wanna explain.
And you can sort of see why,
a typical voter surely was not studying the data
like an economist would, but if you're living in a period
where it's becoming less and less likely
that your children are being born
and are gonna do better than you,
that makes you feel bad about the economy.
You want somebody to come and make America great again.
But before we talk about how we might do that,
let's talk about what are the economic forces
are explaining these facts.
I'm gonna give you my best guesses
as to what is driving these two forces.
Well, one thing driving slower growth
is changes in labor force participation.
So labor force participation
is essentially the percentage of adults
who are working or looking for work.
So these people are in the labor force,
percentage of adults who are looking for work.
And you can see that this is far from steady.
It went from 59% in 1960 up to 67%,
and then it's fallen back down to here to about 63%.
So you see these long-term trends.
And when there are more people working,
there are more people producing,
and that income is gonna be rising,
and there's fewer people working,
there's fewer people producing,
and that's gonna tend to be a downward force on incomes.
So what's driving these long-term trends?
I think we have a pretty good handle
on the main driving forces here.
What's driving labor force participation up
during this period here?
This was largely the women's movement.
Women are entering the labor force.
A woman's role in society is very different than it was,
say, when I was born here at the beginning of this chart.
And as women entered the labor force,
the labor force participation goes up.
They start earning incomes.
That helps GDP expand.
Of course, this phenomena can't go on forever,
because women can enter the labor force,
but once they're in the labor force,
they can't enter again, can only do it once,
so therefore this force plateaus off at some point.
And then what happens over here,
this is the baby boomers starting to retire.
Baby boomers started being born in the late 40's,
and around now, they're starting to retire.
I just turned 60 a week or two ago.
I'm right in the middle of the baby boom, born 1958.
I'm not quite retired yet, but just wait a few years.
And so more of us will be retiring,
and this downward trend for labor force participation
is probably gonna continue.
And it provides a downward force on incomes
because there are fewer people working and earning incomes.
So I think these demographic forces
are one of the things driving the trend
toward lower income growth that we've seen.
Another thing driving it is productivity.
There was a book that came out
about a couple of years ago by Robert Gordon
called The Rise and Fall of American Growth.
And Gordon's hypothesis is pretty simple.
He's saying basically live in an era
which technological change is just not all that impressive.
Now, to some people that seems kind of surprising.
After all, think of all the stuff that you have
that your parents didn't have, right.
You've got a smart phone, and you have a Twitter account,
and we have Google.
And it seems like wow, we live
in an era of tremendous optical change.
But Gordon points out that yes,
these are impressive technological changes
that are contributing to growth,
but what did previous generations have?
They invented stuff like electrofication,
the internal combustion engine, indoor plumbing.
Alright, if I had to ask you which would you give up first,
your Twitter account or indoor plumbing, (laughs)
you probably wouldn't choose your indoor plumbing.
You probably wanna keep indoor plumbing.
Although I must confess,
I talked to Stan Fischer, my PhD advisor, about this once,
and he said when I grew up, he grew up in part of Rhodesia,
he said when I grew up, we didn't have indoor plumbing.
It's not that big a deal.
Personally, I'd be very hard pressed
to give up indoor plumbing.
So Gordon's view is the sort of inventions
that people are inventing now
aren't just as life changing as previous inventions.
Elon Musk is a great entrepreneur,
but he's not quite Thomas Edison, right.
It's great that we have a Tesla going around the sun
in an endless orbit, but the light bulb
was really more life changing. (laughter)
Now, some evidence for this comes from a paper
by Nick Bloom, Chad Jones, John Van Reenen,
and Michael Webb where they make a very, very simple point.
One thing we all know is that productivity growth
has been kind of slow.
But the amazing fact they point to is the number
of researchers in the economy has increased tremendously.
The number of researchers in the US economy
since the 1930's has increased more than 20 fold.
You have 20 times as many people
trying to generate new ideas.
And this is all sorts of research:
government research, private research, university research.
So we have 20 times as many people
trying to generate good ideas,
but productivity growth is kind of eh.
How do you interpret that fact?
Well their interpretation is that
ideas are just getting harder to find.
To find the next good idea,
you just need a lot of researchers.
Well when researchers are researching,
the ideas they're generating are small ideas.
They're not big ideas.
Another piece of evidence that's consistent with this view
is that this falling productivity growth story
is true around the world.
It's not just the United States
that's having lower productivity growth historically.
All economies at the technological frontier,
the major developed economies,
are experiencing slower productivity growth.
And it does suggest that whatever the explanation is,
it's not a specific thing having to do
with American policies or American institutions,
but rather a phenomenon that's worldwide.
This idea that mentors aren't doing stuff
as cool as previous generations can help explain that.
So those are the explanations, I think,
for slower growth and average incomes.
What about this other phenomenon I talked to you about
which is slower growth and productivity.
Here I think it's a little harder to know
what the right answer is,
but I'm gonna give you my best guess, or several guesses,
I have as to the forces at work driving rising inequality.
The best explanation, my single favorite explanation,
comes in this book here by two of my Harvard colleagues
Claudia Goldin and Larry Katz, and they basically
summarize their conclusion in their title,
which I just wanna, I love this book.
You only have to read the title,
and you kind of got it,
The Race Between Education and Technology.
Their story is that technology tends to be a force
causing inequality to rise.
And the reason is when technology advances,
the easiest thing for technology to do is find stuff
to replace unskilled workers,
to automate things done by unskilled workers.
So think of an example,
I have a friend who's an electrical engineer.
He programs automatic teller machines,
so automatic teller machines have basically created his job.
He's a skilled worker.
But what do automatic teller machines do?
They replace hundreds of thousands of people
who are tellers.
When I was a child, who now would wait in line
for a human being to get some money from the bank?
That's a crazy idea.
We just go to the machine.
It's a robot, basically, is doing it for us.
Similarly, we're inventing other things.
I went to a restaurant at an airport a few months ago.
I think of a waiter as a job that,
it's a pretty good job for a relatively unskilled person.
Well at this restaurant,
they'd replaced most of the waiters.
You sit down at your table.
Your menu's on an iPad.
You type into the iPad what you want,
then a real human being brings out your food,
but even when you pay the bill,
no waiter shows up again.
There's another machine at the table
that you just swipe your credit card
and you pay your bill that way.
So they replaced 2/3 of the tasks the waiters do
with a machine.
Think of what's gonna happen to all the Uber drivers
once self-driving cars come into being in a few years,
or all the truck drivers when self-driving trucks come in.
So we're constantly finding new ways
to replace unskilled workers with technology.
We're gonna reduce the demand for unskilled workers
and tend to depress their wages.
Goldin and Katz say that the other participant
in this tug of war, the other end of the rope,
is education, because what education does is
it turns unskilled workers into skilled workers.
That's presumably why you're here, right,
students, not the professors.
Why you students are here, right,
you're trying to turn yourself from an unskilled worker
into a skilled worker so you can get the benefit
of the skill premium.
But when we educate more people,
it's also good for the unskilled workers
because when unskilled workers become skilled workers,
there's fewer unskilled workers competing
for the unskilled jobs that remain,
and that tends to raise the wages of the unskilled.
So when you become a skilled worker,
you're not only benefiting yourself
when you become a skilled worker,
you also benefit the people you leave behind
in the unskilled labor pool by reducing the supply.
So that's the story.
It's a constant race between technology and education.
And according to Goldin and Katz,
early in the 20th century,
education was winning the race,
and recently we've let technology win the race.
Here's a picture from their studies.
This shows you years of schooling by year of birth.
So if you were an American born in 1870,
you probably had about seven years of schooling.
If you're an average American today,
you have about 13 or so years of schooling.
And there's been a pretty steady increase of this.
Pretty steady, but not completely steady.
In particular, recently it's slowed down,
and you can see that if we kept going at the previous pace,
the average American today would have a year
or two more schooling than in fact they do.
And it's that slow down, according to Goldin and Katz,
that has allowed technology to start winning the race
between education and technology.
Here's a chart from David Otter, a professor at MIT.
This shows you growth in earnings,
this is men on the left, women on the right.
Scores are similar but not exactly the same.
It shows you growth in earnings
since 1963 by educational obtainment.
So here you see a high school dropout.
See a high school dropout today is earning a little bit less
than a high school dropout would have earned in 1963.
You see a college graduate today is earning about 40% more,
and someone with a graduate degree
is earning about 90% more than their counterparts in 1963.
Again, similar stories for women.
So it's great that you're here in college,
but consider graduate school. (laughter)
This is completely consistent
with the Goldin and Katz story.
This combination of skilled bias technological change
has allowed the skilled to take off from the unskilled.
And notice, by the way, when this happens.
We had growth in sort of all of these categories.
We see growth in all of these categories
from '63 to the 1970's,
and it's exactly the 1970's
when we saw inequality start increasing
when these start fanning out.
So these start fanning out in the 1970's
precisely when inequality starts rising.
So in my mind, this is the single most important explanation
for rising inequality, the race between education
and technology, but it's not the only force at work.
So let me mention three other forces
that I think are contributing to rising inequality
in addition to this one.
Oh before I get to that, let me talk about the election,
get back to the election for a second.
This shows you who voted for Trump
and who voted for Hillary.
Among college-educated people which is up here,
Hillary won by nine percentage points.
Among people without college educations,
Trump won by eight percentage points.
There's a huge gap in how college
and non-college educated people voted.
Notice that this huge gap is very different
from previous elections.
In previous elections when you asked the college educated
and non-college educated to vote,
they would have reached the same conclusion.
In this election, college educated
and the non-college educated
reached completely different conclusions.
Of course there's different ways to interpret this.
If you're a real Hillary supporter,
you'd say I knew those Trump people were idiots.
But another explanation is that
the people who didn't have college degrees
were experiencing a different economy.
They were experiencing an economy
where wages were not growing,
where the American dream particularly seemed to be fading,
and those are the people who wanted to shake things up.
Those are the people who really felt
they needed to make America great again
because they've been living a different experience
than the people with college degrees.
Okay, so that sort of connects the Otter evidence
to the Goldin and Katz story and the recent election.
Let me go on to some other explanations
for rising inequality.
I think globalization is part of it.
The United States is a country that tends to have a lot
of skilled workers 'cause we tend to export things
that have a high skill content.
We tend to import things that are produced
by unskilled workers because unskilled workers
are abundant abroad.
That pattern of trade means that the demand
for unskilled workers in the United States falls,
and the demand for skilled workers rises when trade expands.
So globalization, increases in trade,
probably has contributed to rising inequality.
On the other hand, we should be careful
not to be too hard on globalization because we know,
I think, from basic economics,
in fact it's chapter three if you remember. (laughs)
We know from basic economics
that trade allows countries to be better off on average.
So while some people may end up with a smaller slice of pie,
the overall pie is getting bigger.
And I think that's how most economists think of it.
This is actually a poll of economists.
Basically the first question asks economists
trade with China makes most Americans better off,
and absolutely every single economist they asked agreed.
It was a poll of several dozen prominent economists.
But then they asked the same economists
aren't some Americans worse off because of trade with China?
Now again, virtually everyone agreed.
So I think the basic story about trade is yes,
trade is good for the average person,
but it's not necessarily good for every single person.
I think that's something to keep in mind
as we think about policy responses.
I wanna pause, digress for a moment on that graphic up here.
This particular graphic's taken
from the most recent edition of my textbook.
You can see that graphic we have, which is new,
has Alex Trebek there in a little Jeopardy pose
with three contestants which you can see on the left
are Adam Smith, Milton Friedman, and John Maynard Keynes.
(laughs)
Okay, superstars.
There's a great famous paper by Sherwin Rosen
in the early 1980's in the American Economic Review,
and it said that there's certain professions
that technology allows superstars to develop.
And a superstar is basically somebody who's at the top
of their game and as a result
can command a huge share of the market.
So this is Robert Downey Jr. in The Avengers.
He played Iron Man in The Avengers.
For that one movie, for the movie The Avengers,
Robert Downey Jr. was paid 50 million dollars.
Took him a few months to film it,
and he was paid 50 million dollars.
To give you some sense of how much money that is,
the average American worker, to make 50 million dollars,
would have to work for more than a thousand years.
That's a long time.
So 50 million dollars is a lot of money.
How did he do it?
Here's the basic economics of it.
He had a share of the revenue.
Roughly 200 million people worldwide saw The Avengers.
Everybody who bought a ticket to see The Avengers
had to pay basically 25 cents to Robert Downey Jr.
My guess is when they left the theater,
if you had asked them, they would've said
yeah, it was a good performance.
It was worth 25 cents
because it was a good performance.
So nobody felt really ripped off.
And he only charged them 25 cents.
Well 25 cents doesn't sound like very much,
but 25 cents is a lot of money
if you can figure out a way to have 200 million customers.
Most people in most occupations
cannot have 200 million customers.
If you're the world's best plumber,
you may be in high demand,
but there's no way you're gonna have 200 million customers.
You're the world's best barber.
There's no way you can have 200 million customers.
But if you're the world's best actor,
you can because technology allows him to make a movie
and send it around the world at basically zero cost
so literally everybody can enjoy it.
Now similarly, think of singers.
The average singer doesn't get paid anything for singing.
They sing for free in the shower,
and they annoy their spouse doing it.
But Taylor Swift, because she can sing a song
and send it basically around the entire world
like Robert Downey Jr. sends his movies,
makes, I don't know, 70 million dollars a year
or something like that.
So technology has allowed superstars
to develop in some markets.
And I think there's been a growth of superstars,
although it is hard to measure.
Oh and finally, I think one of the things going on
is with the women's movement and assortative mating.
You're here at this elite school.
This is not only a great place to get a great education,
it's a pretty good place to find a life partner.
Let's talk about why that's important.
Here's some data I pulled from a sociology journal.
And what this shows you is the correlation
of husbands' incomes and wives' incomes.
If you look over here, you see today
there's a positive correlation
between husbands' incomes and wives' incomes.
And that's not so surprising, right.
The successful doctor, lawyer, banker
marries another successful doctor, lawyer, banker,
so therefore you get a positive correlation
between husbands' and wives' incomes.
But notice here back a long time ago when I was a kid.
There was a negative correlation
between husbands' incomes and wives' incomes.
You students are too young to remember that,
but you've probably seen Leave It to Beaver.
So think of it this way,
now we're in the Leave It to Beaver era.
And what happens when Ward Cleaver comes home,
and he says June, I got a raise.
She says that's great.
I don't need to work anymore.
I can now stay home with the kids.
And this is basically what's going on here.
The more successful the husband,
usually the husband was the primary worker back then,
obviously not true today in many cases.
But the more successful the husband,
the more likely it was
that the woman would drop out of the labor force.
And as a result, there was a negative correlation
between the income of the husband and income of the wife.
What has this done?
Well, if you have two incomes in a household
and there's a positive correlation between them,
the high income household is gonna pull away
relative to the low income household.
So the negative correlation was a stabilizing force
in household incomes, and the positive correlation
is a destabilizing force, pushing people apart.
Okay, so those are my hypotheses,
and I think there's some truth to all of them.
The question is what do we do about these trends?
Well one thing we might wanna do,
now that we understand the forces at work,
let's address the root causes.
The first thing you recognize is that many
of these root causes are very, very hard to change.
It'd be great to tell Elon Musk
stop just sending Teslas revolving around the sun.
Why don't you go and invent something really cool
like Thomas Edison did?
But he's really doing the best he can.
It's probably not his fault that he hasn't quite,
he's obviously a tremendously creative guy,
but the fact that Paypal is not quite as great
as the light bulb, that's not his fault.
He's really doing the best he can.
So we really can't tell people to invent better stuff.
We're not gonna tell women to enter the labor force again
because they can't.
They've already entered once.
They can't enter a second time.
We're not gonna tell the baby boomers don't retire,
got to keep working because we're worried about GDP growth.
We're kind of getting old and tired.
It's our turn.
So those demographic forces are hard to change.
Skilled bias technological change is hard to change.
We're not gonna tell inventors
stop replacing unskilled workers.
Why don't you invent some stuff
to make unskilled workers more productive?
Why don't you invent some stuff to replace skilled workers?
But they can't really control what they invent.
They invent what they can invent.
It's just easier to invent, automate stuff
that unskilled workers are doing,
'cause it's more easily automatable.
So you really can't do that.
We're not gonna tell people
to stop doing assortative mating.
We're not gonna say I know you're an investment banker
making a lot of money,
but what if you don't marry another investment banker.
That's gonna make inequality worse.
Go marry yourself a poet.
That's to solve the inequality problem, right.
We're not gonna stop that.
So a lot of the forces at work are really beyond control.
Now we could change globalization,
but as I said, that's not such a great idea either
because globalization does make the overall pie bigger,
even if it does contribute to inequality.
So reversing globalization might help the inequality issue,
but it's gonna make the growth issue worse.
So what can we do?
Education, that's one thing I talked about
that maybe we can change.
And I think education is the thing
that we should really focus our attention on
because more human capital can both promote economic growth,
because human capital is an input into growth,
and it can also ameliorate inequality
by changing the mix of skilled and unskilled workers.
A couple caveats,
patience is required.
Jim Heckman, Nobel prize winner
from the University of Chicago,
has said that the best way we can provide more human capital
people is probably better preschool
for kids who are from underprivileged families.
Let's suppose Jim is right.
It's controversial, but let's suppose he's right.
And let's suppose we intervene
with the absolute best preschool program ever imagined,
and it's completely successful.
Well these three and four year olds who are benefiting
from these preschool programs
aren't gonna enter the labor force for 20 more years.
So you're not gonna see any of the economic benefits
of this for a couple decades.
So yes, we need to focus on education,
but it's not a quick fix by any stretch of the imagination.
The other caveat I call might Bryan Kaplan be right.
There's a new book that just came out a few weeks ago
called The Case Against Education,
and those of you who ordered my textbook,
you know that there's really two views of education.
One is the human capital view,
which is what I've been promoting through most of today.
The other is the signaling view.
The human capital doesn't really make people
more productive, it just helps employers sort
between productive and nonproductive people intrinsically.
Kaplan basically in his book argues
that basically it's all signaling,
and therefore most of education
is a waste of time and money.
I hope to god he's wrong.
I think he's wrong, but I will entertain at least
the possibility that I'm wrong and he's right.
So I'll leave that as a caveat.
Now one thing we can do to increase the educational content
of the labor force is to allow more skilled workers in.
The debate over immigration is infinitely complicated,
and it's got a lot of facets,
and I'm not gonna go into that today.
The debate over skilled immigration is,
I think, relatively straightforward.
Think of all the downsides that people point out
about unskilled immigration really just don't apply
to skilled immigrants.
My own view is that if you're a foreign student,
you graduate from an American university,
as you get your diploma, we should be giving you
a green card with it, encouraging you to stay.
(applause)
Now, the other thing we can do,
the other thing we can do is
not worry about the root causes.
We can say okay, fine,
we have slow growth, rising inequality.
Let's use a tax system to do something.
All the data, by the way,
I gave you on incomes is all before-tax incomes.
So we could focus on the tax system.
Here's some data on the progress of income taxes.
These are tax rates paid by, this is the lowest quintile,
the middle class, and the top 1% since 1979.
So you see today, well it's not quite today,
the most recent date is 2013.
The middle class pays about 14% of their income in taxes.
The top 1% pays 34%.
And you can see that there are fluctuations.
You can see a couple things.
One is we've always had an aggressive tax system.
This is all federal taxes
including payroll taxes, income taxes.
So we've always had a progressive federal tax system.
The degree of progressivity does vary a little bit
depending on who's in power.
So you see that Ronald Reagan cut taxes on the rich.
Bill Clinton raised taxes on the rich.
George W. Bush cut taxes on the rich,
and Barack Obama raised taxes on the rich,
and I presume this is coming down a little bit
under the recent tax bill,
although the data is not available for that yet.
I'm not gonna sit here arguing
about Barack Obama versus Ronald Reagan's tax plan,
but I do wanna point out one thing.
What's the difference between Ronald Reagan
and Barack Obama's tax plan?
It's basically the difference between 27 and 34%
tax rates for the top 1%.
So that's about a seven percentage point difference
in taxes paid by the rich.
That's not insignificant,
but remember earlier on when I said,
we were looking at these changes in the top 1% income.
The top 1% income went from 10% of total income
to 20% of total income.
They doubled their share of total income.
That's huge compared to this 7% tax rate.
We can debate about Barack Obama versus Ronald Reagan,
but that difference is small
compared to the huge differences in before tax incomes
that we've seen in previous data.
Now one of the most difficult problems
that we face is this one here,
this famous book by Arthur Okun,
Equality and Efficiency The Big Trade off.
He could have called this
Equality Versus Growth The Big Trade Off.
And the basic idea here is that yes,
we can use the system of taxes and transfers
to try to achieve more equality, but if we do that,
we're gonna blunt incentives,
and that's gonna make the economy less efficient,
so we're gonna lose economic growth.
Or we can try to reform the tax system
to make the tax system more efficient
to get better incentives, but one side effect
of that might be reduced equality.
And so in Okun's view, that was sort of
the big trade off faced with policy.
I think this is particularly important to keep in mind now
because remember I said we face two big problems:
slow growth and rising inequality.
Using the tax system to address one
is gonna make the other problem worse.
I think focusing on education can ameliorate both problems,
but if we simply use the system of taxes and transfers,
we could do it to focus on inequality.
We could do it to focus on growth,
but we can't probably use the tax system
to do both at the same time.
Now we have a recent tax cut.
Donald Trump when he was asked what he wanted
to call the tax cut said he wants to call it
the Cut Cut Cut Act.
The House of Representatives thought
that wasn't dignified enough,
so in fact they called it The Tax Cut and Jobs Act.
And my reading of that act is that
in its equality efficiency debate,
they were really more focused on efficiency than equality.
They were more focused on trying to get economic growth up
than on combating rising inequality.
And let me just say a few words about it
since it's been in the news lately,
there are some good things about it I like.
I like the fact that it's got a lower corporate tax rate.
I like the fact they've reformed the nature
of the corporate tax to be territorial rather than global.
I won't go into detail on that now,
just in the interest of time.
I like the base broadening,
reducing the mortgage interest deductions,
reducing the state-level tax deduction,
even though it really screws California, by the way.
You guys in California are really screwed on this act.
I'm sorry to say, but it's true.
So I think there's some good things in it.
The worst thing in it, to me,
is that it loses much too much revenue.
The budget deficits are getting too big,
and I'm really worried about that.
I'm worried about the long-term fiscal imbalance.
And these are some ugly provisions of it.
I think this is gonna invite a lot of gaming.
These are all different tax rates
for different kinds of income now,
and it's gonna be a field day for tax accountants
to try to game the system.
So I think it's kind of a mixed bag.
When people say whether I like it or don't like it,
I really have trouble giving a simple answer
because there's some things I like and some things I hate.
If I were to try to reform the tax system myself,
sometimes people ask me that,
I would've cut all income taxes much more than this
and replaced them with another kind of tax
that I think is much less distortionary.
Think of something like a consumption tax,
like a value added tax, or a carbon tax.
I have a whole other lecture I could give you
on climate change, but I'm taxing your patience already,
so I won't go into that now. (laughs)
Yes, it was a pun. I'm sorry. (laughs)
Now I always feel at this point in the talk,
I start feeling kind of bad
because I feel like I'm gonna leave you depressed.
And I feel like because I said oh,
we have these two problems, and most of the force
that's causing these problems are things we can't fix.
And one of the tools we have, like education,
are really hard to do and really slow acting.
And the tax system really is not very useful
at fixing both problems simultaneously.
And if I just stopped right there,
I feel you should just go home and wanna slit your wrists.
So I wanna end with some good news.
I wanna end with some good news.
So here's the first piece of good news
I wanna leave you with.
This is showing people living in deep poverty.
So poverty, when we talk about world poverty
is a very different thing
when we talk about poverty in the United States.
This is people living on less than $2 a day.
And you see that the percentage of people living
on less than $2 a day has fallen precipitously
during our lifetime.
That's incredibly good news.
Why is that happening?
It's happening largely because of growth in parts of Asia,
particularly China and India.
Probably more people have been pulled out of deep poverty
because of growth in China in the past several decades
than any event in human history.
So this is extremely good news.
Now most American voters, if you tell them yes,
we have these problems,
I'll get to questions in just a second,
most American voters will say yes,
we have these problems in the United States.
If you tell the voter yes, we have problems,
but don't worry.
China's doing really great.
That's really not a message that you would give
if you're a politician.
But since we're cosmopolitan citizens of the world,
we should take solace in the fact
that growth has been pulling more people
out of poverty ever in human history.
So that's one piece of good news.
But even if you want some good news about the United States,
let me leave you with this.
Suppose you're an American living at the poverty line,
something like $15000 a year.
You're an American living at the poverty line
in the United States.
That means you're poorer than 85% of other people
in the United States.
But you are still richer than 85% of people in the world.
So even being poor in the United States
is being rich by world standards.
And as you compare yourself not just to other people
in the world now, if you compare yourself
to the people who have ever lived throughout history,
you're probably richer than 99% of humans
who've ever been born on this planet.
So you're extremely fortunate,
even if you're maybe not as fortunate
as the people living down the street.
So to get back to my topic, this hat.
If I could revise this hat, I would just change one word:
make America grateful again.
Because while we have our problems,
we should remember that we are really, extremely fortunate
by the standards of human history.
Let me end there,
and I'm happy to take questions on anything I said.
Thank you so much. (applause)
It was, it was I think was,
we had a question over here but before you,
I think we (mumbles) talk into the mic.
It's right there.
Right over here.
Okay, yeah so we'll open it up to questions.
If you have a question, please raise your hand
and either Wesley or I will come and hand you the mic.
Priority goes to the students.
I was just wondering if your poverty graph
was to real dollars?
Yes, it was to, yes it was real dollars.
Absolutely yes.
It's all adjusted to inflation (mumbles).
Hello Dr. Renicky and thank you so much
for coming to our college today.
We really appreciate it.
Thank you for this amazing presentation
and I have a lot of maybe off-topic question but
still it is very hot topic today
so describe the currency market,
the current point of time for 153 billion dollars
about a number ago,
is bigger than the largest US bank
which is owned by Mitsubishi Financial Division
and you know, it's moving somewhere.
And I would like to ask you where is it moving?
Thank you.
Where is the cryptocurrency market moving?
I have no idea.
(laughter)
I will say that I have a, I know my position with Bitcoin,
I monitor very closely.
It's exactly zero.
(laughter)
It's always been zero.
(laughs)
(applause)
And I wouldn't recommend anybody
choose a different position.
'Cause it does seem like one big bubble to me.
I'm always preparing to believe I'm wrong.
Certainly there are people that made a lot of money in the
but I fear the whole thing
is gonna collapse.
So I wouldn't put in any money in it.
And maybe I'm just an old fuddy duddy.
And I don't really see any virtues, riches of this.
Thank you.
Thank you so much for talking.
I was happy to hear that you spend your summers
on Long Beach Island.
I also spend my summers on Long Beach Island.
Oh really?
Very good.
Small world.
Greatest coastline in New Jersey.
Did you ever go to Theory Sailing?
What's that?
Did you ever go to Fury Sailing?
Do you know where Fury Sailing is?
I've never,
well I've never gone sailing (mumbles).
It's a small sailing rental place
on Long Beach Island called Fury Sailing.
That's where I got my first job teaching
give me sailing lessons actually.
What's street is it on?
Or like what town?
(laughter)
It's (mumbles) and Terrace I think.
Okay.
It's in the middle of the island.
From North Beach Inn.
Oh, okay.
So my question actually pertains
to two different theories I heard about,
like declining real wages.
So the first would be declining from dynamism
in the United States.
And then the second theory I heard about
is declining waiver share of productivity.
So I was wondering if you could talk
maybe a little bit about your evaluation
of those two theories
and maybe why you choose not to factor them into
your presentation today.
Yeah, I know.
I think there are other forces at work.
People have to have been talking about
and who's a firm dynamism.
Some people believe, it's very hard to judge
but some people believe that
it's harder to enter markets,
create new firms than the past.
And some evidence that sort of from creation
it's lower than it has been
in previous periods of time.
If you think that's true
and (mumbles) that's drive by policy
like regulations,
and maybe some of the deregulatory policies
the Trump administration is pursuing
might make some sense.
It has been declined in the labor share.
I don't think it's the main driving force
of rising inequality.
I think it's well,
it's more recent and a smaller phenomenon
than some of the data that I showed you.
But that is an interesting phenomena that people have been
studying.
One explanation that some people have put forward
is rising monopoly power.
And which could be consistent
with (mumbles) dynamism.
And the questions were and if that,
first of all it's the question whether that's true.
Or markups bigger than they have been in the past?
Is it because (mumbles) more market power
and if so, why is there more market power?
And so, all of these are sort of open questions
that we don't really know the answers to.
Interestingly that the Senator Schumer
the leading Democrat in the Senate
obviously comes to the view that
it's policy driven because part of his
new better deal plan
that he announced maybe six months,
a year ago, was including variety of provisions
but one of them was more active anti-trust enforcement.
His view was that the policy administrators
had allowed mergers to readily
and that would reduce competition.
Maybe that's right.
Another possibility is differences
in the nature of products
that we're producing
compared to what's happened in the past.
There's a lot of products now
that are basic, information based products.
Things like making a movie.
Robert Downey Junior makes a movie.
Microsoft makes, writes software.
I write a textbook.
Listen to me,
all of that, all of that activity
is very, very fixed cost and
very, very low marginal cost
by it's nature.
Or pharmaceutical companies.
They invent the drug.
A lot of research in the drug.
Once it's invented,
producing the drug is pretty cheap.
All those things are big fixed costs,
low marginal costs.
This is intrinsically will have large markups.
And it's possible that we're moving more towards
that kind of product as well as the old traditional
products that of which normal competition include,
prevails.
And as well, that was all very speculative unless
(mumbles) could be important
but I'm less sure so I see what gave you things
that I'm pretty sure part of the story
as opposed to things that might be a part of the story.
Yes?
Hi thank you for speaking with us.
I'm curious as to why you still believe
that skills-based technological
change is the best explanation for rising American
income and equality despite a lot of criticism
that the theory has received in recent years
including the fact that all the factors that would lead to
skills-based technological change
have occurred another developed countries
but with the exception of the UK
to a much smaller extent.
Those countries haven't experienced a rise
in income inequality than within group income inequality
hasn't really increased in the same period
despite the fact that we would think
if you have an education
but you're of the same income group
there should be a divergence from people
the that same income group who don't
based on the SPTC thesis.
And also the fact that the vast
vast majority of the increase in inequality
has been concentrated
at the very, very top
rather than just a divergence of kind of the two halfs
of educated and uneducated away from each other.
Yeah, I think,
as I said I think skill biased technology
change is part of the story.
I don't think it's the overall story.
Trying to understand the differences across countries
is important but I don't think we fully understand that.
It is true that a lot of this
has happened at the very top as I showed you
the people at the very top
are taking (mumbles) top 1% or top .01%
I'm not as convinced
that it's not skill biased technological change.
It was even among people
who are same level of formal education,
there's different levels of skill.
Twp people may have an MBA from the same business school.
That doesn't mean they're both
gonna be equally suited to be CEOs.
They're gonna have different levels
of skill.
One is gonna become a CEO
other (mumbles) stuck as the Vice President.
And that could still be a skill biased
technological change theory.
Now CEO pay is sort of one example
of this.
It's a very small part because obviously
there's only 500 CEOs
of Fortune 500 companies.
So it's, there's not that many of them
but there's a literature on CEO pay.
CEO pay is much higher
in the United States than it is in say, Japan.
Why is that?
Well there's a couple theories as to why
CEO pay is so high.
One is that the CEOs here are
taking advantage shareholders by putting their friends
on the Board of Directors.
And their friends are giving themselves
excessive pay.
That sort of what I think of sort of the left wing
explanation for those evil CEOs
overpaying themselves.
I actually don't buy that.
I don't buy it for the following reason.
If you're a private equity firm
taking over a company,
and you're hiring the CEO for your company
you own, your now the shareholder,
usually the private equity firm.
You're not gonna overpay the CEO
because it's your money you're overpaying him with.
But in fact, private equity firms
pay CEOs in the United States
a lot just as the public companies do.
So I don't actually think it's a principle agent problem
on the Board of Directors.
There's another theory of CEO pay
which is due to (mumbles) Gebecks.
Which is that as companies get bigger and more dynamic,
the value of having the right CEO
is more important.
And so his view is it's the nature
of American capitalism is drive and see who'll pay up.
So the story that I'm
I don't know particularly emphasize CEO pay here
because it's only a small part of the story
but the Gebecks explanation
for CEO pay I think consistent
with the kind of skill biased technological change story
that I'm pushing here.
Thank you so much for coming tonight.
I had two questions.
Both of what your prescriptive text on.
The first concern your concerns about the rising defecit
in the US.
I was wondering what you see as the--
(mumbles) what?
I was wondering what you see
as the long run,
upper bound for the capacity for the US to borrow
given both a set of, (mumbles)
all of the US economy.
And the sort of bedrock
role played by US government debt
in the financial world
that might sort of create long run race
sticky demand for large amounts
of US government debt.
And then secondly, you advocated a shift
away from income taxes which mean more progressive
towards consumption taxes which are often more regressive.
And I was curious about what you thought about the
rent of incidence.
All those consumption taxes across the population.
Okay, so we start off with the deficit.
I am very worried about the deficit
and not just because of this tax bill.
I'm worried about the deficit
because of structural fiscal problems
that existed long before Mr. Trump
that he inherited,
hasn't really focused on.
In particular, my generation
of baby boomers has promised ourselves
a certain level of benefits
when we retire from the social security
and Medicare and some degree, Medicaid
to extend the pace for nursing homes.
So we promised ourselves a certain level of benefits.
We haven't figured out ways
to pay for that.
We obviously promised to the next generation
you students are gonna pay for benefits
with promised ourselves.
As a result, even before this recent act
CBO projections of fiscal and balance
it's getting worse and worse.
Keep rising as a shared GDP.
And this tax cut only made things worse.
So I'm very concerned.
I don't have a magic number that
after X percent of GDP
all hell breaks loose.
I think that's probably based on market psychology.
At what point does the, (mumbles) bond market
look at the United States and say,
"Oh, you know, you guys aren't (mumbles) from Greece."
I think it's, there is a point in which that could happen
and will happen.
I don't think we're there yet,
but it concerns me.
I think the most likely scenario
is that we're going to end up raising taxes
in the future and I suggested a couple taxes
but I think I we should focus in on.
Now you mentioned the progressivity of taxes.
How, when you think about the progressivity of tax
you have to think not only
about how the money's raised
but how the money's spent.
And so wanted give you for example,
of a carbon tax,
in my other lecture I have a,
in my other lecture in carbon taxes
I talk about a plan that I proposed
with George Schultz, Hank Paulson,
Jim Baker and Marty Felstein
and our plan was through a group called
the Climate Leadership Council
and the plan that we proposed
to the carbon tax was to put a carbon tax on
to deal with climate change,
roll back lots of regulations
that are no longer necessary
once you put a price on carbon
and then use the carbon tax revenue
to rebate lump sum back to people.
So since you know, richer people
have bigger cars, bigger houses to heat
and so on, they have bigger carbon footprint
so they're gonna pay more of this tax.
Everybody gets the same rebate.
So the whole plan could be
progressive even if the tax part itself
is proportional.
Similarly, if I were designing the world from scratch,
if I were saying, "Okay, a brand new society.
"I have no history.
"I can design the tax, the fiscal system
"(mumbles) what would I do?"
I personally think the optimal system
would be a value, raising a revenue
through evaluated tax,
a consumption tax.
Maybe a carbon tax, too.
Those (mumbles) aside for a moment.
A flat consumption tax and you summon
the flat consumption tax to give people
lump sum rebates in the form of like a
universal basic income.
So that would have flat marginal tax rates
but have progressive average tax rates
which are take into account
the lump sum rebate.
Thank for your talk.
I'm wondering what you are thoughts are
on career and technical education
in that it seems to more directly address
the caveats for education
and that there's more immediacy
and it would provide a distinction
that would address Kaplan's concerns.
Yeah, I mean Kaplan is
big into that actually.
Kaplan book.
Kaplan's arguments, a lot of Kaplan's arguments
to me strick me as hopelessly,
I don't wanna choose an adjective that's too insulting.
But let me give the nature of some of the arguments.
He says things like,
"What will all these people go to high school
"or study Latin?"
Whoever uses Latin in their day to day life?
Nobody talks Latin anymore.
Or if he says,
"Think about trigonometry."
A few people use trigonometry.
But almost nobody uses trigonometry.
How about fraction (mumbles)
trigonometry.
But they all go to school to learn trigonometry.
What a waste of time.
And it's true that if you think of that
a-ha, we're supposed to learn specific things
and apply them directly to our job
and that's what education is about
then a lot of the things the academic skills
we learn seem hopelessly unusable.
My own view of education
is it's training your mind to think
in ways to solve problems
to express itself,
and the more ways we train that mind,
by learning Latin and trigonometry
even when you come to problems
that aren't either Latin or trigonometry
your mind will be better prepared for it.
So I am, I'm more open and sympathetic
to sort of pure academic stuff.
Let me sort of, give, right out of
a psychology experiment
that somebody, somebody did recently.
You're training people to throw,
this may be a bit of stretch
by the way.
You're training people to their beanbags into a bucket.
And we're to split the class up into two groups.
One group is gonna have the bucket
always three feet away.
And throw the bean bag into the bucket three feet away.
That's the only thing I practiced doing.
The other group is gonna practice
two different things.
Sometimes they're gonna throw the bean bag
into a bucket two feet away.
And sometimes they're gonna throw the bean bag
and the bucket four feet away.
That's why they're practicing two different distances.
After we spend given the moth doing this
gotta be the worst experiment ever to be a subject
but anyway, you have to have a month doing this practice
we're then gonna give them a test.
And the test is gonna be
how well can you throw a bean bag
into a bucket three feet away?
The exact thing,
the first group is only practicing
the second group never practiced that.
They only did two and four feet
and believe it or not,
it's the second group that did better.
Is there a practicing diverse set of skills
two and four feet
and as a result they're skills developed better
than doing the same test
over and over again.
So I actually think that sort of your brain
and so I'm now gonna jump
from throwing bean bags
into your brain,
but I think I when you actually learn things
your brain changed in ways
that makes you, your ability to learn
other things better.
And so I don't, I don't think
the time we spend teaching trigonometry
and Latin is really wasted.
I don't think we fully understand
how the, and learned enough
to fully understand why it's important
but in my heart of hearts
I really believe it is
and I think this is why Bryan Kaplan's arguments
sort of left me a little cold.
Hi, thank you so much for your talk.
So I'm interested to hear your thoughts
on both the recent debates about NAFTA
and the results of the administration's actions
about TPP and also just what your thoughts
are about how the American government
can use economic institutions,
international economic institutions
to continue to reduce the rate of global poverty.
Yeah, I actually, I actually, I think of all the things
the Trump administration has done with perhaps exception
of prompting North Korea to a nuclear war.
But that aside, I think the retreat
from the global consensus of free trade
is one of the most regrettable and that comes,
that comes with the recent tarriffs,
the recent announcement that it were thinking about quotas
instill the pulling out of PTP.
So it's why I think of all that stuff
is very regrettable.
I should point out by the way that the populism
that Trump tap into is not new.
I don't know if people remember this back when Barack Obama
first got elected.
He talked about what to renegotiate NAFTA.
I remember his economic advisor, Austin Goolsby
got a little bit of hot water during the campaign
because Austin Goolsby went up to Canada.
He said, "Don't worry about it.
"We're not going to do that."
And it has to do with considered very,
'cause he basically announced during the campaign
that (mumbles) was all just politics.
It was just taken, just taken seriously
but obviously Barrack Obama thought he had to appeal
to that popular sentiment during the campaign.
Now, as it turned out Goolsby was right.
Once he got elected he didn't actually renegotiate NAFTA,
didn't do much at all.
I actually believe, I think what Hillary Clinton did,
Hillary Clinton having helped negotiate EPP
as Secretary of State during the campaign said,
"Oh, wasn't good enough."
Now I actually believe if she had gotten elected
she would've pulled, done the same thing
that Obama did which is say,
"Oh, I want to change this comma to a semicolon.
"Now, it's perfect."
So I don't think, I actually don't believe
that it was a heartfelt.
So but both Clinton and Obama as campaigners
tapped into that anti-trade populist sentiment
that Trump tapped into,
the difference being that I think Trump
actually believes it.
And so I think he's actually doing,
falling through on what he said.
And to me that's heading in, heading in the wrong direction.
I've, in fact, I've written that several,
I've written several New York Times columns
on that, the most recent one just two weeks ago
which you can, which you can find
on The New York Times Website.
Hi, thank you so much
for coming to speak with us.
You're better situated than most to speak
to the dynamic between the council of economic advisors
and the rest of the administration.
Could you talk about kind of the recent events
surrounding (mumbles), the Trump Administration
and kind of how that dynamic has been playing out
and its impacts and influences for the rest
of economic policy.
Yeah, that's great.
I spent two years as a Chairman
of the Council of Economic Advisors
working with such great economists as Tom Kniesner.
Actually, that was the first time I was there.
I just, I spent three years
in the Council of Economic Advisors,
first working with Tom Kniesner back
in Reagan Administration and the second time working
for George W. Bush.
The Council of Economic Advisors has no responsibility
other than give advice.
We have to write this annual economic annual report
of the president.
That's not all that big a deal but it's really important
what we do is give advice at meetings.
If you're ever in the business of giving advice
what you know is you're advice is useful
only if people listening to it care.
Now I, when I worked for George W. Bush
I never felt like he didn't care.
I got along very well with him and the rest
of the economic team, Steve Freedman
at the National Economic Council, John Snow
at the Secretary of Treasury and we were, we were,
I think we were quite close knit, well working group.
And so I never felt like giving good advice didn't matter
because I think people did care.
I have no idea whether Donald Trump cares
or he tells us that he's got this big stable brain
and so he doesn't seem, he doesn't seem to want advice
in the same way that most politicians do.
I was (mumbles) for Mitt Romney during the (mumbles)
when he ran for president twice.
I, and I think he was interested in talking to economists.
So I never felt like I was wasting my time
working with Mitt Romney.
I don't know if I worked for Donald Trump
whether I'd feel like I was wasting my time.
I have not seen a lot of Kevin Hassett in the public.
That is an, but that because we're very little
about what's happening behind closed doors.
So it's very hard for me to judge
to what extent the Council of Economic Advisors
is having a big impact in this administration.
I'd be shocked if they we're behind a lot of the trade stuff
because I know Kevin has it well enough to know
that he's sort of a traditional economist
and issues like trade.
But that doesn't mean he's not being listened to.
He just probably lost out on this one.
You need, whenever you work in government
you don't expect to win every battle you fight.
And I, it's hard to know what's going on for outsiders.
At some, at some point we'll get some nice juicy tidbits
when these people of the administration
are worth their memoirs but I haven't heard anything yet.
Hi, thank you for your talk.
I was just interested in the tax cuts act
that was recently passed.
By most metrics, the economy right now is at
or near full employment.
It's doing pretty well and your textbook
and many conventional economists would say
right now it's the wrong time
to introduce a fiscal stimulus.
Right now it'd be better to raise taxes
instead of cut them.
Do you see cutting taxes now as a bad move
and do you see the economy facing inflationary pressures
in the near future as a result of the tax cut,
specific although the economy right now doesn't seem
to have high inflation.
I, as I mention,
I'm worried about the deficit implications
of the tax cut.
I would've much rather have seen a deficit
neutral tax reform
and I would've been happy to give them some suggestions
on how to do it.
I had to (mumbles) own for tax systems.
So yes, I think a large increased budget deficit
in this particular point of time
is probably not the right move.
Is inflation heating up?
I think there's a little bit of evidence
that inflation is heating up.
One of the big puzzles about that,
I don't really know the answer to this,
but over the past 10 years inflation has been
amazingly stable.
It didn't really fall much during the big recession we had
in 2008.
It hasn't really risen much during the very,
during the recovery we've had since then.
Both of those things are a little puzzling
from the standpoint of traditional (mumbles).
So I don't really know the end,
I don't really understand that.
There is some evidence now that wages is starting
to accelerate and that will eventually translate
to somewhat higher inflation.
But it's still preliminary evidence
and not tremendously conclusive,
but other things equal yes.
A tax, a fiscal stimulus when you're at full employment
and the Feds raising interest rates
is probably other things equal to
be a little but inflationary.
Hi, thank you for coming today.
I had a question.
So, when would these (mumbles) your presentation,
was that education is the key to a happy future.
So my question is have you given thought to like what kind
of education we need and like if there's any certain courses
that needs to be introduced or if you think (mumbles)
time for education that we should have and yeah,
I'm curious (mumbles) that.
Oh that's a good, that's a good.
I don't.
But I'll say something about it anyway.
There's a lot of a great economist who study education.
My favorite education economist
is Caroline Hucksbith Stanford.
If you haven't heard (mumbles), we should.
She's fantastic.
Sh would, so I'm sure she would have very specific ideas
to where we should spend money
and how we should move resources around.
There's a lot of people who study, who study that.
It's important, it's tremendously important
I think at all levels but we got to focus on
(mumbles) preschool important to anything that's higher
and important.
I think it's both.
The other question is how we finance more education.
There one of my favorite ideas floating around
is financing education is,
and this is an idea that Marco Rubio talked about
when he ran for president, is to get more private investors
involved in education.
Right?
You guys are studying finance here know
that when you have venture, business venture,
there's two ways to finance it, is debt and equity.
But when you go get a college degree,
there's really only one way to do it.
That's debt finance.
So what Marco Ruby basically says, he, this is not the way
he puts it by the way (mumbles) the way I'm putting it.
He says, "How about we do some equity financing people.
"Let's get some investors to come in and say,
"'I will pay for your education in exchange
"for some equity in you.'"
What does that mean?
That's like I'll pay for your four years
at this great private college which is probably,
I don't know, I haven't looked at tuition rates here,
but I'm guessing it's expensive right?
It's expensive?
Alright, I'll pay for your four years as private,
great private college and you give me two percent
of your income for the next 30 years.
And what does that mean?
Well that spreads the risk.
Right?
It spreads some of the risk of the education
between you and the investor right?
Debt leaves the business man with all the risk.
Equity spreads the risk around between the investor
and the entrepreneur.
So that's what, that's one thing it does.
But it also means that that investor now has an interest
in you and your success.
So he might say, "You know what would be great
"if this summer
"you got an internship.
"Let me help you find you, find you one."
Says, "Let's look at what courses you're taking.
"Yeah, our history does look like fun
"but what about economics?"
That might have a slightly higher rate of return.
So that would provide a mechanism
where there would be some outside person
helping you decide what's the best way
to use your four years here at this great school.
Hi.
Thank you for your talk.
It's also based on education
and how, 'cause you mentioned that we need education
and we need an improvement in education necessarily.
I think that that's very key
but how can we go about improving education
given that we do have budget deficit concerns
and we see that education, K through 12 more specifically,
is always the first to get slashed
when there are hard calls to make regarding deficits?
Yeah, it's a fair, it's a fairly common statement
a lot of economists and policymakers make
that we should stop throwing money at education.
I'm actually all in favor, I think, of throwing more money
at education.
If you look at the average SAT scores of people
who become education majors and go on to being a high school
and grade school teachers, they tend to be below average.
Education is not attracting the best students
coming out of great (mumbles) colleges anymore.
Why is that?
I believe the wages we pay them is one of the reasons
and so I actually do think we should.
On the one hand, figure out ways to fire bad teachers.
The whole debate is how can we measure teacher performance?
We'd have to (mumbles).
I think we have to fire bad teachers
and not say, "Oh no matter how bad you are,
"you get, (mumbles) tenure for life."
But, at the same time, we need to pay the good teachers well
to attract more more good people into education
and to stay in education.
And so I actually think we need to find more way to do that.
Where do you get the money for that?
That's an issue of tax policy.
I don't have the, I don't have, I mean I have,
I have my favorite taxes, consumption taxes, carbon taxes.
So, I don't have any, I don't need better answer
when it comes to education.
But I actually think throwing our money at education
is probably the right way to do it.
And it doesn't have, as I said from a previous answer,
it doesn't have to be public money,
I mean some of it, some of it has to be public money
it is public schools, but some of it can be private money.
We need to find more ways to get resources
into education.
There's a big, it's very popular for people
who are in advocating increased spending
to call every increased spending an investment.
And I think in most cases that's probably not the right term
so when the Medicare pays for my healthcare
once I turn what, 62.
I'm, it'd be a mistake to call that an investment
in my future.
It might be good for me but it's hardly an investment
in the economy once I'm retired.
But when we're, when we're paying money to education,
I really do think that is investment
and I think the best evidence is that it's got a pretty high
rate of return.
You mentioned your support for an increased
and high skilled education, I was wondering
if you were worried at all on the brain drain effect
of the, on the economies of the countries
that those immigrants are leaving?
Yeah, I worry about that a little bit.
I do.
But one thing, but one thing, one thing about immigration
is that when people move from a low productivity country
to a high productivity country, their wages go way up.
So the benefit to the worker who's immigrating is huge.
In many cases, they can benefit people behind (mumbles)
and so I'm, I have, I'm fairly sympathetic
to immigration actually of all sorts because I think of,
well first, for a few reasons, basically,
it, part of the most, there's a lot of people
who are affected by it and (mumbles)
when somebody immigrates.
The person who's affected the most is the immigrant,
if the immigrant wants to come here
and they, they're going to be better off,
that is the, that's the single most important thing
in my mind.
Now some people say that it doesn't matter
because we're not Americans.
And I have a slightly more Cosmopolitan
view of morality
in saying we only care about Americans.
If I thought the immigrants badly hurt the United States,
(mumbles), but I don't think that's fundamentally true
in most cases.
My favorite line about immigration is one from Pat Paulsen
and I'm sure (mumbles) remember who Pat Paulsen is,
I'm not sure none of the students know who Pat Paulsen is.
Pat Paulsen was a comedian who used to run for president
every four years back in like the 1970s.
And one of the, and one of his campaign lines was,
"Every problem of the United States faces today
"could be traced to an unenlightened immigration policy
"in the part of the American Indian."
(laughs)
And that's, I think that's basically a way to remind us
that we basically, almost all of us
unless you have Native American, almost all of us
are children of immigrants.
And I think that's a very, very important people
to think to remember.
I certainly remember that.
I'm all for my grandparents immigrated from Ukraine
roughly a hundred years ago.
And I know for sure that if I happened to be born
in Ukraine, I would be a lot poorer today.
And so that movement, I think the movement
of the four Mancues, they weren't actually all Mancues,
but you know, the four grandparents from Ukraine
to United States, the biggest impact of that event
was on them and their descendants
and it was surely positive.
And we shouldn't, and we shouldn't forget
that when we let the, won't let people in,
we're really dooming a lot of people
to much less productive,
much poorer lives.
Unfortunately that is all the time
we have this evening.
Please join me in one more time
thanking Professor Mancue.
Thank you.
(applause)
