All right.
Well, we can in
fact get started.
I'm happy for everybody
would turn out,
which is progressively
becoming colder and colder here
in Duluth, Minnesota.
Although still relatively mild.
So I'm surprised that I can
still walk outside and perhaps
not die of hypothermia
in five minutes, which
is a good thing,
which is a good thing.
Now I'm incredibly excited
for tonight's event.
But before I get that, I
have to at least acknowledge
a lot of people who have
made this possible today.
First off, we are
able to do this
with the generous funding of the
Institute for Humane Studies.
And they, of course, are
able to do this largely
through the funding that they
get from the John Templeton
Foundation.
And as a part of this
funding, what we'll have to do
is put out these surveys.
IHS just wants to know generally
how you think this panel went
and if you found it was truly
a excellent panel, which
I'm sure you will.
The good news is is
that it is incentivized.
One of the people will
be a lucky winner.
When you find this stuff online,
if you give a valid email
address, a, I think,
$10 gift card to Amazon.
We've had people win
it here, obviously.
It is very real.
So please fill
out these surveys.
There is a small, small carrot.
I'd also like to thank Bruce
[? Reeves ?], [INAUDIBLE]
here, for the very
excellent tech work.
As you see, this is a
little bit more tech-heavy.
We are able to get Bob Frank
through technological means.
And it's been very
complicated, but Bruce
has been very helpful.
So I am very
appreciative of that.
Also I'd like to thank
Bridget Park, who's not here.
She is the secretary of
the philosophy department.
She has also been very
helpful in communicating
with the panelists
and communicating
with me and also services.
And she, if anything,
is essential
to this whole process.
I'd also like to thank my
TAs, Tyler England back there,
[INAUDIBLE] back there,
who are gracious enough
to work, not only for free,
but to pay me to work.
So probably a bad business
model, but thank you,
nonetheless.
I'm happy to exploit you.
Now a little bit about
tonight-- and I'm
not going to spend too much
time because we have panelists
who are going to
introduce the issue
and do so in a much
more, sort of-- how would
you say-- enlightened
way than I could.
That's why they're the
panelists, and I am not.
But I do think that
this topic has captured
the popular consciousness
in such a way
that pretty much everybody
knows a little bit about it--
in the sense that they're
somewhat interested in it.
So I'm sure you guys have
heard of the Occupy Movement.
Right?
I'm sure you've heard of
the 99% versus the 1%.
It's in movies, whether it be
Inequality for All [INAUDIBLE],
or whether it be, say, as
diverse as the comedy-- what
was it-- Will
Ferrell's Other Guys.
If you look in the credits
of that, it's in there, too.
There is an over-riding sort
of concern about this issue.
Moreover, during
an election year,
candidates are definitely
talking about it.
President Obama thinks
this is the defining
issue of our generation.
At least that's what he says.
Also we have Bernie
Sanders who is
making this sort of
an essential thing
of his particular candidacy.
Hilary Clinton, of course,
is also mentioning it.
In fact, candidates from pretty
much both sides of the aisles
have to at least pay some
attention to this issue.
That's how much it is important.
Now you may ask, if so many
people are paying attention
to this, why is the center
wanting to weigh in on this?
And it's part of
the center's mission
to provide-- how
would you say-- more--
I don't want to say enlightened
conversation-- but more
in-depth conversation from
a diversity of perspectives.
So what you often find
on many campuses--
not just here at UMD, but I
think across the country--
are various sorts of talks
or public lectures where
you'll have somebody pushing a
particular side of the issue,
right?
And it will come off much
more at times like a rally.
I'm not saying that's
a bad thing per se,
but it's just not what
we do at the center.
The goal here at
the center is always
try to get to many perspectives
as we can to the table.
And to have them discuss
it in front of you,
and to have you get a
chance to ask questions.
The reason being here is
not to convert anybody
to different points of view,
but to get you to at least sort
of see somebody from
a different side
and to start at
least recognizing
the power of other arguments.
Arguments that you may
have never considered
and for views that you may
have considered to be radically
different from your own.
So I don't want this to be
a series of talking heads.
We have plenty of
time to discuss this.
So feel free, if you don't think
the candidates are giving you
the answers you'd like,
feel free to press them,
as the other panelists
will press them, as well.
So let me introduce
our panelists.
So Joshua Preiss-- there you go.
I messed it up before.
He is an associate professor
and director of the Philosophy,
Politics, and Economics
program at Mankato.
Right?
Minnesota State--
University of Mankato.
He published in a wide
variety of areas, particularly
the journals, all the
right journals to be in,
Public Affairs Quarterly,
Ethics, Business Ethics
Quarterly, Social Theory
and Practice, Res Publica,
the European Journal
of Philosophy,
and the Critical Review
of International Social
and Political Philosophy.
We're very excited to
have him in Minnesota.
[INAUDIBLE] Yes.
He's used to this, very good.
We also have Professor
Nikolai Wenzel.
And is it Flagler College
that you're at now?
I know that you
switched just recently.
Good, good, good.
Now, you have of course worked
in various Washington DC area
think thanks.
Some of them
including, of course,
the Atlas Economic Research
Foundation, the Mercatus
Center, and, of course, the
Institute for Humane Studies.
And of course you've
been published
in well over a dozen journals,
including, of course,
the Review of
Austrian Economics,
the Journal of
Private Enterprise,
and the Oxford Handbook of
the Sociology of Religion.
And again, thank you for coming.
We appreciate it.
Professor Steven Horowitz,
he is Professor of Economics
at St. Lawrence University.
He, of course, is the
author of now, I think,
at least three books.
You just had one
recently come out.
So the ones that have
been out, Microfoundations
and Macroeconomics, an
Austrian Perspective.
That's from Routledge in 2000.
Monetary Evolution, Free
Banking, and Economic Order.
That's from Westview, from 1992.
He, of course, is also the
author of numerous op-eds.
He is a frequent guest
on TV and radio programs,
in particular-- and
one of the reasons
why I invited him
here, because it's
so good-- the popular YouTube
videos from Learn Liberty,
which is also from IHS.
Excellent videos,
I encourage you all
to look at Learn
Liberty-- well-produced,
and Steve does a really
good video set on there.
His latest book is on
Hayek and the family
and classical liberalism.
And it's Palgrave-Macmillan,
is where it got published by.
And just recently, too.
And, of course, coming to
us over the video feed--
I believe it's on WebEx,
right-- is Professor Bob Frank.
He was originally going
to be here in person,
but, of course, an
injury took him down,
but it didn't take
him out of the game.
So he's able to participate
here electronically,
which is excellent.
He, of course, is Professor of
Economics at Cornell Johnson's
School of Management.
His "Economic View" column
appears monthly the New York
Times.
His papers have
appeared, of course,
in the American Economic
Review, Econometrica,
Journal of Political
Economy, and of course
many other leading
professional journals.
His books-- and there
are a lot of them--
include Choosing the Right
Pond, Passions Within Reason,
Microeconomics and Behavior,
Principles of Economics which
he wrote with Ben Bernanke,
Luxury Fever, What Price
the High Moral Ground?,
Falling Behind, The Economic
Nationalist, The Darwin
Economy, and Success and Luck.
And they have been
translated into roughly 22
different languages.
If I kept reading
probably his bio
we'd probably be here
for a little bit longer.
So I'm going to
move on from there.
The way it's going to work,
as far as the structure,
each particular speaker
will get 15 minutes
to give a sort of
initial presentation.
After each have given their
15-minute presentation,
we will then move on to
just a sort of discussion
amongst the panelists.
That will take place for about
a half hour or 45 minutes.
After that, we will
move to audience
Q and A. You'll notice
there are two microphones.
What I'd like to have
you do is to line up
behind the microphones when
we get to the Q and A period.
And then you can address your
questions to our panelists.
So without further
ado, the order
is going to be first
Professor Frank,
then Professor Wenzel,
then Professor Preiss, then
Professor Horowitz.
So without further
ado, please give
a hand for Professor Frank.
Thanks very much, Shane.
Yeah, I think about
forums like this
where you have different
points of view represented,
I think the tendency
is for people
often to talk past one another.
And that's really
especially been a problem
in the inequality arena.
I think our tendency
has been to argue
about the concepts
and terms of things
like fairness and justice.
Those are very
difficult concepts
to agree on, what they mean.
Different people come at
them from different angles.
And so the debate's
really yielded
precious little progress over
the last ten or twelve years
since it's really heated up.
What I'm going to try to do is
to take a completely different
tack.
I'm going to view inequality
from the perspective of trying
to assess what are the
practical consequences of it.
Does it have any benefits?
Are there any costs?
Which are likely to loom larger?
And my overall
strategy is to try
to defend a claim
that will strike
many people as unreasonable.
I'm going to try to defend
the claim that inequality
causes problems,
not just for lower-
and middle-income families.
I think that's the
conventional view.
But it's also made
life less worth
living for people at the top
of the income ladder, who
are the ostensible
beneficiaries of inequality.
And the argument I'll offer
in favor of that claim
is very simple, and will
have very few moving parts.
Not one of them is
controversial, in my opinion.
But if anyone
disagrees, I'm all ears.
So the basic facts
of the matter we
used to argue about but
not so much anymore,
it's that most of
the income gains
have gone, during the
last four decades,
to people at the top
of the income ladder.
Incomes elsewhere
in the distribution
have been largely static.
It's not just that
people in the top fifth
are getting all the gains,
the real gains are there.
But if you look
at the top fifth,
it's the same pattern as for
the population as a whole.
It's the top 5% are
getting most of the gains
within the top fifth.
And within that
group it's the top 1%
and so on all the way up
to the top 1/10 of 1/100%.
The gains get bigger and
bigger the higher up you go.
And so really it's kind
of a fractal phenomenon.
And the question is
is this a problem?
And, if so, is there
anything we can or should
try to do about it?
And the lynch pin of the
argument I'm going to offer
is very simple.
It's that all human
evaluation depends,
to one extent or another, on
a relevant frame of reference.
Every judgement we make
is context-dependant.
So I hope you can see on the
screen this simple drawing.
Which of the two
vertical lines is longer?
is the question I pose to you.
Since you're on the
university campus.
You're all smart.
You're suspecting a trick.
And so many of you will have
the impulse to say, perhaps,
that they're the same length.
If you have that impulse,
well, you're right.
But the question,
really, I should pose
is while line looks longer?
If you think they look
the same, then you really
should schedule a
neurological checkup.
If you have a normal human
brain, the one on the right
ought to look
longer to you, just
because of the difference
in context where it sits.
Context matters when
we evaluate distance.
If there's three miles
left on a 300-mile journey,
are we almost there?
Of course.
If there's three miles left
on a four-mile journey,
are we almost there yet?
No, of course not.
And so it's not controversial
to say that temperature
is context-dependent.
Length, weight, all
things of that sort are.
In the same vein, judgments
about consumption goods
are context-dependent.
The house I hope you're
seeing on your screen
is like the one I lived in
Nepal when I was a Peace Corps
volunteer there years ago.
It had two rooms.
It had no electricity,
no running water.
Never for a moment
did that house
seem in any way less
than satisfactory
during the two years
that I lived in it.
I was proud to have
colleagues over.
It was a totally adequate
house in that environment.
It was indeed considered quite
a nice house in that [INAUDIBLE]
environment.
If I lived in that house
in Ithaca, New York,
it would not be considered
an adequate house.
My kids wouldn't want their
friends to know where we live.
They would be ashamed.
I would be ashamed for
people to see where we live.
Here, in fact, is
the house where
I do live in Ithaca, New York.
If my friends in Nepal
would see this house,
they would think I'd taken
complete leave of my senses.
What would anyone need
such a grand house
for, they would wonder.
Why so many bathrooms?
Is there a problem?
The house in Ithaca
doesn't strike people
as being over-the-top in
any sense of the term.
It's just a normal
middle-income professor's house
in our context.
That's the word is.
I don't think that's a
controversial statement.
I don't think it
would make any sense
to exhort people
not to have context
shape their evaluations.
This is just a given
in human evaluation.
Here's where inequality
enters the picture.
What are people at the top
doing with all the extra money.
They're buying more
of all the things
that people at every
level of income
buy when they have more money.
In particular, one
thing they're doing
is building bigger houses.
The middle class doesn't
seem angered by that.
That doesn't seem
like a moral failure,
really, on the part of the
rich to spend on bigger houses.
Many people wag
their fingers at them
and say that they shouldn't
spend so lavishly.
But really there are different
standards for every group.
And a house like this
doesn't seem over-the-top
if you travel in
a certain circle.
The middle class wants to
see pictures of these houses.
They're not made
unhappy by them.
There's a group just
below the top, though.
They travel in the
same social circles
as the people in the top.
They attend the same weddings.
Maybe it's now the custom to
have your daughter's wedding
reception at home, rather than
in a hotel or country club.
The group just below the
top needs to build bigger
to accommodate that custom.
Then there's a group
just below them,
that they have now the
need to be able to host
dinner parties for 24, not 18.
They build bigger.
And that cascades all the
way down the income level.
There's no other
way to explain why
the median new house
in the United States
is now 50% bigger than
its counterpart from 1980.
The median-income earner doesn't
have more income than before.
Why does the
median-income earner
spend more on housing than
the median earner did in 1980?
It's because others like
him are spending more.
But why are they spending more?
It's because people just
above them are spending more.
And the ultimate
answer to all those
why questions is the
people at the top
are spending more, just
because they have more money.
So, so far no moral violations.
Everybody's acting in
a perfectly normal way.
People in the middle
are experiencing
some stress, however.
Because since they don't
have more money than before
and they're spending a lot
more on housing than before,
it's harder for them
to make ends meet.
And you might say,
well, if you can't
afford the house that you're
living in, buy a smaller one.
Buy a less-expensive one.
And that would be one thing
if the only consequence would
be that you would
feel like, well, I
won't have vaulted ceilings,
won't that be a hardship?
Get used to it, would be the
right response to that concern.
There's another cost, though.
And that is that in
virtually every jurisdiction
the good schools are located in
more-expensive neighborhoods.
A good school is also a
context-dependent phenomena.
Every parent wants to send
its children to a good school.
And what that means, if
you're the median earner,
is if you want to send your
kid to a school of just
average quality,
you've got to match
the average level of expenditure
for housing in your area.
Or else it's your kids who
will go to the schools that
have metal detectors
out from and low scores
in reading and math.
And so people do everything
they can to keep up.
My colleagues and I have
examined census data
in the hundred largest counties.
Inequality went up in the
most recent census periods
in each and every one of them.
But it went up by different
amounts across those counties.
In the counties where
inequality grew the most,
we saw the biggest increases
in direct or indirect symptoms
of financial distress,
which is exactly
the prediction of the
expenditure cascade hypothesis.
We saw the biggest increase
in bankruptcy filings
in the counties where
inequality grew the most.
Marriage counselors
say the couples
who come to see them are
almost invariably reporting
financial difficulties,
among whatever other problems
bring them to the table.
The divorce rates increased
more rapidly in the counties
where inequality grew the most.
Another margin
that families work,
when they can't make ends
meet is to move farther
from the center.
And sure enough, in the counties
where inequality grew the most,
the commutes longer
that one hour each way
grew by the largest amount
between census periods.
There are OECD country data that
show when inequality is high,
over the business cycle,
people work longer hours.
In countries where it's
higher than in others,
people there work longer hours.
These are all consistent
with the claim
that what you feel
you need depends
on what others around you have.
That's not a human
failing, that's
just what it means
to be a human being.
Here's an index I
constructed very quickly
from available data.
I call it The Toil Index.
How many hours per month
does the median earner
need to work to
earn enough to pay
the rent on the median-priced
house in the area?
From 1950 to 1970, that was
a roughly constant number.
A little bit more than
40 hours each month
would earn you enough
to pay the rent
on the median-priced house.
As inequality began
rising, and median incomes
began to grow more slowly, we
saw those twin forces interact
to push up the Toil Index.
It peaked at over 100
hours per month, just
before the bursting
of the housing bubble.
And it's almost that high again.
We see expenditure cascades
in a whole variety of areas,
In 1980, the average
American wedding, adjusted
for inflation, was $11,000.
By 2010, it had
grown to $27,000.
In 2014, it was $31,000.
In Manhattan, it was
$76,000 our last year.
Nobody believes that the people
who are getting married today
are happier because they're
spending three times as much
as they did in 1980.
Weddings have gotten
more expensive
because of an expenditure
cascade launched by spending
at the top, pure and simple.
There's no other parsimonious
way to explain that change.
There's a very
simple fix for that,
that I think liberals and
conservatives could agree on.
It's to scrap the
income tax in favor
of a much more steeply
progressive tax
on total consumption
expenditure.
Here's the Jones family.
Their $50,000.
Their annual savings is $5,000.
We'd have a big standard
deduction under this proposal.
Their taxable
consumption for the year
would be measured as
their income, the $50,000,
minus the standard deduction,
minus their savings.
Since you can only either
spend or save your income,
you income minus your savings
is the amount you actually
spent during the year.
And so that gives us
taxable consumption.
Tax rate starts out low.
Low tax bill for
people in the lower
reached of this distribution.
But once consumption rises
beyond a certain point,
the tax rate can rise
much, much higher than
under the current income tax.
And in the way that will
cause harm to no family.
Here's the thought
experiment that
illustrates the basic magic
implicit in the progressive
consumption tax.
Imagine a world like ours
where we have an income tax.
The wealthiest drivers buy
the Ferrari F 12 Berlinetta,
$333,000.
If we had a progressive
consumption tax,
they would scale back.
That car would be twice as
expensive for the high rollers
under a progressive
consumption tax.
They could instead buy
a Porsche 911 Turbo
for $150,000, whose after-tax
price would come in about where
the Ferrari's is now.
And they would still be driving
the best car among high rollers
in that society.
And so that car would
serve just about as
equally well as the Ferrari
does in the current society.
Car buffs will quibble.
Some would even say the
Porsche was a better
car than the Berlinetta.
But let's grant the assumption
that the Berlinetta is better.
If it's better, it's
not much better.
That's the law of
diminishing returns.
By the time you're
up to $150,000,
that car has got all the
meaningful performance features
a car could expect to have.
That's not the end
of the story, though.
The progressive consumption
tax raises a lot of revenue
from the buyer of the
Porsche 911 Turbo.
And the overall package you
would get under that tax
would be much, much
better for the wealthy
than the package they have now.
Here's the thought
experiment that I think
clinches that claim for me.
Who's happier?
Somebody who drives the
Ferrari, the $300,000 Ferrari,
in today's society with roads
riddled with foot-deep pot
holes, or somebody in the
progressive consumption tax
environment driving
a Porsche 911
Turbo on well-maintained roads?
To me, that's an easy call.
I would think it would
be a very daunting task
to try to defend the
claim that the Ferrari
driver on pot-hole ridden
roads would be happier.
So that's the basic argument.
As I said, a few moving parts.
Context matters.
Context will matter,
no matter what we do.
But we can slow the race
to out do one another just
by changing the terms of
trade using the tax system.
It's a tax proposal that
conservatives have favored.
There's an AEI book
out two years ago
advocating precisely this tax.
Noam Freedman once advocated
it in an AER article
published in 1943.
We could do this.
And if we did do that, there
would be much, much less
inequality of consumption,
much, much less stress
on people in the middle.
The wealthy would live
in smaller mansions,
but there's no
indication that that
would make them any less happy.
Beyond a certain point,
going from 50,000-square-foot
mansions to 75,000-square-foot
mansions, across the board,
probably makes rich people
less happy than before.
It's a bigger nuisance to
care for the bigger property,
more staff to
supervise, and so on.
So that's it.
That's my opening statement.
Thank you, for your
kind attention.
I hope technology worked, and
that you hear some of that.
So how does?
OK, great.
Adjust the microphone
a little bit.
Of course, the first
thing I tell my students
when they're making
presentations,
is that they should come
out from behind the lectern,
so I'm going to stand
behind the lectern.
This has been a weird road.
About three years ago, I was
asked by a Unitarian church
to give a talk on
income inequality.
And I had about three weeks
to prepare, and so I said,
sure, I'll do that.
And I went home that
night thinking I
had absolutely nothing to say.
And over the next
three weeks, I was
able to find something to say.
And the only odd
part about it was
that they had me speak at
the pulpit, which is not
a place I'm
generally comfortable
being, because I'm
more used to being
an academic than a preacher.
The second odd thing,
I suppose, about this
is I'm really grateful
for this invitation.
I'm happy to be here, This is
wonderful, and I thank you.
And to thank you for that
invitation, I'm basically
going to say, really
interesting question
you asked but it's
the wrong question.
I'm sorry.
So I'm going to discuss
something else entirely.
So let's see if the--
Is it on?
Is there an on
switch [INAUDIBLE]?
Yes.
I am technologically challenged,
so this will take a second.
Oh, there we go.
So my motivation basically
is everybody talks
about income inequality.
But I'm not convinced that we're
asking the right questions.
And I'm not convinced that
a focus on income inequality
is actually helpful for the
least-fortunate elements
of society.
What my priors?
They're up there.
I'm an economist.
So I thought maybe
I'd point out simply,
people matter, individuals
matter, dignity matters,
and poverty and
injustice are bad.
That's where I'm starting.
So as an overview
of my talk, I'm
going to spend about
five minutes talking
about the actual figures on
income disparity in the US.
And there is rising income
inequality in the US.
But then I'm going
to spend most of time
asking whether it's
the right question
and what the cost of
worrying about inequality
is, as opposed to the cost of
worrying about other things,
perhaps-- like absolute
levels of poverty.
And then I'm going to make
the claim that we're currently
fighting poverty the wrong
way-- and that the focus
on inequality is
actually detrimental--
and propose a
solution in the end.
So in terms of income
inequality in the US,
there's absolutely no
doubt from 1970 to 2007
that there was a drop
in the income received
by the bottom fifth of
households in the US, not quite
1%, and a rise in the income
received by the top households
by about 6 and 1/2%.
And I stop at 2007 because
the Great Recession
skews the figures.
Ultimately if we go back to
the figures of the recession
and recovery, I think it
actually bolsters my case.
But I've stopped at
2007 intentionally,
because such an economic
shock as we saw in 2007
makes for messy data.
But then you've gotta
ask some questions.
OK, so who are these rich
people that we're talking about?
Well, 56% of Americans are in
the top decile, the top 10%,
of earners at some point.
And the top 1% is
actually the top 12%,
but there's a lot
of churn and shift.
So we need to be careful about
what we're talking about.
Amongst the top 400 tax
returns, 73% of them
appear only once in the span
of 15 years from 1992 to 2007.
27% appear more than once.
15% appear more than twice.
And only 7 of those
appear in all 16 years.
So even though we're
looking at households,
there's movement within
those, in terms of who
belongs to those households.
Same thing with the poor.
We have to think, these are
actual, real people, not just
lumps of people who are
permanently in a quintile,
and that's that.
They're in the bottom 20%,
or the median 20%, no.
People are moving in and
out of these quintiles.
A majority of the people in the
bottom 20% of earners in the US
have also been in the top 20%
at some point in the past 30
years.
Less than 1% of the
American population
remains permanently
in the bottom 20%.
Now that doesn't mean that
they don't return there
at some point.
But they're not
permanently in that 20%.
So we need to be careful
about statistics and data.
Between '96 and 2005, of those
were in the middle quintile,
42% went up, 25%
went down, and 33%
remained in the middle quintile.
So we've got some
movement as we go along.
We've also got to ask
ourselves, who are households?
We need to be careful.
Statistics-- I'm using the
Census Bureau data-- measure
households rather
than individuals.
And, as you can see
from the screen,
39 million people are
in the bottom 20%,
but 64 million people
were in top 20%.
I think Steve Horowitz
is going to address
some of those figures, in
terms of why that may be.
And of course we
have to remember
that by definition
50% of Americans
will live below
the median income,
regardless of whether we're
all millionaires or poor.
That's the very
definition of the median.
You look at the median, half
the observations are above,
and half the
observations are below.
So with that I have
to ask the question,
are we asking the
right question?
So let's look at what happened
over the span of 1972 to 2007.
Yes, there is no
doubt, the share
of income earned by the
bottom 20% went down.
And the share of income
earned by the top 20% went up.
But we also need
to look at the fact
that real GDP-- that
is, national production
and national wealth
adjusted for inflation--
increased by a factor
of 3 over that period.
So the poorest 20%
of the population
are earning a slightly smaller
piece, 1%, of an economic pie
that is three times bigger.
There is an element
of good news.
Likewise, if we look
at the lower shares,
but the absolute increases,
over that same period of time,
yes, the top 20% of earners
have increased their income,
their production, by 63%.
But the bottom quintile has
increased its income by 22%.
Not enough, but still an
element of good news as I
make the case here
that we should
be focusing on something
other than income inequality.
Likewise, if we look at US
median income growth-- that is,
half of earners above and
half of earners below-- we
have seen a 20% increase
over those past 35 years.
So there's not all bad news.
There's plenty of
bad news, and I'm
going to turn to
that in a moment.
But it's not all bad news.
So I want to continue here
with a thought exercise.
If we want to fight
inequality, there's
something that we're going
to have to do about it.
And there will be
a cost to that.
If you've ever taken
an economics class,
you've hear the
statement probably,
there's no such thing
as a free lunch.
So if you want to
fight inequality,
you're going to have to
change the institutions.
You're going to have
to redistribute wealth
in order to figure out how
to fight that inequality.
And so I've got here a
thought exercise for you
of a society that is focused on
growth and ignores inequality,
and another society that
focuses on the inequality
and trying to diminish
it, at the cost of growth.
So if we look at the year
of fictitiously 1910,
Growth Society starts out
with the richest third
of the population
earning four times more
than the poorest third.
And the Fairness Society
redistributes some wealth, such
that there's not
quite that disparity.
You can see up there,
the poorest in this case
are earning $15,000 versus
$3,500 for the rich.
The cost of that, of
course, of redistribution
is going to be that Growth
Society is going to grow faster
than Fairness Society.
Because there's going to be a
cost to fighting inequality.
And I'll get to
that in a moment.
At the end of one
century, Growth Society
has become even more unequal
than Fairness Society has.
So if you look at the
end of the century,
the rich in Fair Society
are making 2 and 1/2 times
more, versus 4 times
more in Growth Society.
But ask yourself, what
about the lot of the poor?
Over the span of
a century, we've
had very significant
economic growth.
The poorest elements of
society are making only $10,000
per year in Fairness
Society, whereas
in the hypothetical
Growth Society
they're making $50,000
a year, because they've
been able to take
part and benefit
from the overall growth.
Some people might
object that there
might be higher prices
in Growth Society,
because more people
are buying things.
Higher demand means
higher prices.
But we can also anticipate
that with greater wealth, comes
greater investment,
comes cheaper production.
Think about the price
of your computer
today, versus the
first computers
that were out 30 years
ago, when you were paying
the equivalent of
$4,000, $5,000,
$6,000 for a computer
with 128k of memory.
Now that probably doesn't
even compute with most of you
in this room, because
you're already
used to thinking
about megs and gigs.
128k for about $5,000
seems ridiculous.
Prices have actually gone down
because of the investments
that have gone into technology.
So with that, the more
controversial part
that we have here.
There's often going
to be a trade-off,
and efforts to reduce
inequality are actually
going to hurt the poorest
elements in society.
So with that, I'm
going to give you
a brief primer on
public choice theory.
Public choice theory is
simply economic analysis
of government.
So I like to call this
politics without romance.
Instead of assuming
that the government
is out to help people and is
acting in the public interest,
we look instead
and say, people are
people whether they're
acting in the private sector
or the government.
What kinds of incentives
are they facing?
Bureaucrats can do very good
things and very bad things.
People in the private sector,
bankers or industrialists
can do very good things
or very bad things.
What incentives do they face?
Well, the first problem
that we have, of course,
is regulatory capture.
When we look at the
idea that regulators--
who is in the best
position to understand
how the banking sector works?
The bankers themselves.
Who is the best
position to understand--
if you look at-- you've
probably all heard
of Monsanto at some point.
One of the top executives at
Monsanto is now vice president,
has gone in and out of
positions as top administrator
of the Food and
Drug Administration,
back into Monsanto, back
into the Food and Drug
Administration with a
promotion each time.
Now you may be for or against
genetically modified organisms.
But there seems something fishy
about the head of Monsanto
being the head regulator of food
and drug in the United States.
Likewise, we talk about the
special interest effect,
which talks about the fact
that policies may persist even
if they're bad if they
have concentrated benefits
and diffuse cost.
All of you in this room are
paying an average of $17
a year to support an inefficient
American sugar industry.
Most of you probably
didn't know that.
Prices are higher on sugar
because the American sugar
industry has captured
the political process.
I would venture a
bet that none of you
is going to go out
tomorrow to call
your state senator or your US
senator to fight to save $17.
But if you multiply
17 by 300 million,
which is beyond
my brain capacity
at this point in the
day, you're going
to get a really big number.
And the sugar industry has an
incentive to maintain that,
because there is a concentrated
benefit and a diffuse cost.
So if we look at
some of the examples.
Obamacare and George
W. Bush, both of them--
this is not a Democrat
or Republican problem--
both of them were
working closely
with the pharmaceutical industry
and the insurance industry
to get laws passed.
And it makes perfect sense.
If you're an
insurer, wouldn't it
be wonderful if you
could have a law that
forces every American
to buy your product.
Marijuana legalization, failed
in California a few years ago,
mostly on opposition
from alcohol.
Because we all know that
alcohol is good for you,
and marijuana is bad for you.
And on opposition
from law enforcement,
because people get
really violent when
they smoke marijuana-- if
you're a bag of Doritos.
And the examples go on and on.
And I'm going to
skip through here,
and I'm going to come back
to Walmart in a second.
And my worry in all of
this is crony capitalism.
So if we look at the
increases in the government
spending over the
past century or so,
it's not just a question
of absolute expenditure,
it's what is that
government spending doing?
And who is controlling
the government spending,
and to whose benefit?
It is estimated that the
average cost per year
for Americans of
complying with regulations
is almost $2 trillion.
Who's going to be
in a better position
to comply with regulations?
People at the higher
end of the spectrum,
or people at the lower
end of the spectrum?
So even if they're
well-meaning, we
need to be careful about
regulations that may allegedly
be out to help poor
people but may actually
end up hurting them.
Today, 30% of Americans require
an occupational license,
up from 5% in the '50s.
I can see an
occupational license
for lawyers, and
doctors, and accountants.
Hairdressers,
florists, not so much.
The average time to
become an EMT in the US
is about 300 hours of training.
The average time to
become a hairdresser
is 2,000 hours of training.
So all of these
occupational licenses
are hurting the poorest
people in society most.
5/6ths of wealth transfers
in the US-- so about 85%
of wealth transfers--
are not means tested.
That means that they're not
going from richer people
to poorer people, but from
less visible and less organized
to more visible and
more organized people.
It's impossible to have
redistribution of wealth
without disrupting the
production process.
Minimum wage laws, which sound
like a great idea on paper,
are especially going to hurt the
poorest elements of society who
do not have the
skill set required
to earn enough to be able to
make a job with minimum wage.
And we see this especially
amongst teenagers
who have a hard time getting
their very first job.
And, finally, most households
in the bottom quintile
have nobody working.
The problem that we have
with the War on Poverty today
is that it looks at the
alleviation, in the short term,
of poverty, rather than creating
opportunities for the poorest
elements of society to have
more opportunities to gain
and more opportunities to earn.
So if we look at the
number of people in poverty
in the United
States, it actually
was going down before the War
on Poverty started in 1964.
It has gone up since.
We currently have
about 46 million people
living in poverty in the
US in spite of $700 billion
per year in expenditure
on the War on Poverty.
More poverty, more expenditure.
More poverty, more expenditure.
There's a problem here.
It's not working.
So what do we do?
So I'm going to zip
forward because I only
have about a minute left.
But I'm going to ask you
about a thought exercise.
Would you rather
live in a world where
the poorest people starve
and the richest people
are barely subsisting?
That's a fairly equal world.
Or would you rather
live in a world
where the poorest
people have basics,
the things that we
consider essential to being
a participant in society, like
education, like food, like
housing, and then the
rich are super rich?
I would like to
propose the claim
that instead of worrying
about income inequality,
we should look at how poorest
people in society are doing
and focus on making
their lot in life better.
You think again of
your scenario in life.
Would you be happier
making a fraction
of what your boss is making,
even if you're making more?
Or would you rather live
in a world of equality?
So I'm going to close
in the next 30 seconds
or so, because I could speak
on this for hours and hours.
John Rawls, a philosopher
who was very concerned
with income inequality,
talks about the importance
of basic rights and inequalities
being acceptable only if they
work to the advantage of all.
So I'm going to make
this claim, finally,
that crony capitalism is
not going to advance that.
Because it's not going
to maximize rights.
Redistribution is also
going to be a problem.
So what we to do is focus
on economic liberties, which
is ultimately just a
technical term for the right
to earn a living.
So we have to have liberty and
unfettered markets and the most
opportunity possible
for the poorest people
to thrive and
participate in society.
I'm going to close very
quickly with two graphs.
If we look at economic
freedom and income,
there's basically no
difference across the world
in the distribution of income
that the bottom 10% of society
in the freest
countries in the world,
versus the least free
countries in the world.
So distribution itself,
it's not an impact.
However, if you look at
income in freer societies
versus un-free
societies, the bottom 10%
are making significantly
more than people
in the lowest quartile of
income of economic freedom.
So, in closing, I'm
simply going to say
we can't deny that
income inequality exists.
But I would like to
propose to you tonight
that income inequality
is not the thing that we
should be looking at.
We should be looking instead
at the lot of the poorest
in society and what we can
do to make them better off
in absolute terms, rather
than the relative terms of how
they're doing compared to the
wealthiest elements of society.
Thank you.
All right.
I'm very much used to walking
around and very uncomfortable
standing still, but
I'll do-- actually,
I could probably just
take this off, right?
It's not going to get
any feedback or anything.
Huh?
It's wired.
Oh.
You can't move it?
All right.
It's also disrespectful
of my height.
I don't know if we know
this-- I have a smaller
stool than everybody.
I think this is a really poor
version of leveling down.
Yes.
[INTERPOSING VOICES]
And really inefficient, because
people don't see how tall I am,
if nothing else.
Oh, wait.
It doesn't feel good for me.
I guess that's what counts.
All right.
Well, very quickly, I want to
thank the Institute for Humane
Studies for funding this panel,
and the Center for Ethics
and Public Policy.
And I want to thank Shane for
putting this panel together.
I'm sure many of you
are here precisely
because you know
Professor Courtland.
I don't know if your
assessment of Duluth area
democracy or democratic health
is that it's really flourishing
or that it's on life support.
But however well
it's doing, it's
doing as well as it is
in large part because
of this person and his efforts
and the efforts of the center.
He should be a constant source
of pride to the university
and to the community.
So thank you so much for
inviting us all here.
Let me start with a succinct
description of-- [INAUDIBLE]
So I don't want
anyone to leave here
without knowing what I
think about these things.
Because I'm not going to
say a lot in this 15 minutes
about what I think, but
rather try to give us
some normative
tools, some, lenses.
I'm the only philosopher
on this group.
Everyone else is an economist.
I like reading economics.
I like mixing it up with
data, and I'm definitely
going to be doing that,
I can tell already,
when we get to discussion.
But instead I'm going to talk a
bit about some moral framework,
some normative
frameworks we could
use to say, to try to
answer the question.
Is inequality, growing
inequality, a problem, or not?
And I want everyone
to know what I think.
What I think is that it is.
I think's it's unjust.
I think it undermines democracy,
the present state of affairs.
And I think it threatens the
liberty of many Americans
on a number of different
senses of liberty.
And so I'm going
to talk a bit about
these different conceptions.
Again, my goal here
is to provide us
something of a shared vocabulary
to have this discussion, right?
Some background with
which we don't just
say, well, that's fair, or
that's unfair, or complain,
are can you believe this house
that he has, or whatever.
OK.
So let's look at
theories of justice.
Within work on, academic
work on theories of justice,
a common distinction is made--
and I'm craning my neck here.
Hopefully, you're not.
But a common distinction is
made between what are called
relational theories of justice.
And this would include John
Rawls, Elisabeth Anderson,
Nancy Fraser, and
countless other examples.
Versus what might be called
responsibility-centered
theories of justice.
And the basic
distinction here is this.
For relational
theories of justice,
a society is unjust insofar as
people cannot relate to each
other, as Rawls would
put it, free and equal.
And what it means
for Rawls to relate
to each other as
free and equal is
to have inequalities follow
certain sorts of criteria.
linens
Liz Anderson talks about
democratic equality.
Nancy Fraser argues
that justice is
what it would mean
to participate
as a peer in civil society.
What it would mean to be unjust,
according to these standards
then, would be something
like this feudal life
that I've tried to put
here in my picture, which
is that there is a clear,
established hierarchy
between different citizens.
For the
responsibility-centered folks,
the question is not
so much whether you
can relate to each
other as equals,
but rather fundamentally whether
or not inequalities reflect
your responsible choices.
You might think of
this as broadly-- very
broadly-- speaking
an equal opportunity
conception of justice.
So inequalities are just
in this conception insofar
as they're the product of
responsible choices, right?
So, if you will, the cards
are stacked against you,
and it's very
difficult to move up,
if people's well-being tends
to reflect all sorts of factors
that they are not, something
that they are responsible for,
that would be an injustice.
That would be that remarkably
unlevel playing field
that I've put up there.
No one's laughing.
I think it's a funny picture.
Whereas if inequalities
did not reflect
these sorts of responsible
choices-- if they did-- then,
you know, the
picture on the left
would be perfectly fine
if everybody started
with a level playing field.
Now I want to very briefly--
and this should just
work with it here
instead of this
but-- And I'm not looking
for a plug from Apple.
I'm a Mac guy, and this is a PC.
So I kind of am working on it.
Just in case-- no one says, what
about historical entitlement
theories of justice?
So historical entitlement
theories of justice
look like this.
And I'm just going to talk
about it very briefly,
and then I'm going
to move past it.
So historical entitlement
theories of justice
basically say that the
current distribution of wealth
doesn't matter who
has how much provided
that the history of
acquisition is just.
Whether the people who--
whether you received it
as the product of-- as
that person up above
is-- mixing their
labor with the earth,
or freely exchanging, or
passing it on to their kids.
Provided that that's what
history looks like, as opposed
to a history of theft
or expropriation.
And so on, and so
forth, then it doesn't
matter how much inequality
we have, according to theory.
Provided what's called the
Lockean proviso, which means
provided that there is
as much and as good left.
Meaning we have no reason
to complain about someone
expropriating the
land for their benefit
if I can just go over to
the next field and plow it.
If I can't do that-- if the
only way to make a living
is by someone
telling me that they
will pay me to do
something, that's
a very different situation.
And finally the
principle of replication.
So, insofar as history doesn't
reflect this theory just
history of acquisition-- say,
not only does it not reflect
free exchange, but it reflects
a history of where, say, people
were property, didn't have
equal rights and liberties.
Or, alternatively, I
could just as easily
put a picture of indigenous
population up here.
Or if the root of
property is rooted
in expropriation--
something which
from this particular sort of
self-ownership, libertarian
position would be
clearly unjust--
then we need to rectify.
We need to make it so
that looks as close as we
can to the principle of
justice, otherwise this theory,
as Robert Nozick said,
just simply doesn't
apply in the status quo.
We can basically ignore it
until we do these principle
of rectification.
Now I'm not a
self-ownership libertarian,
but I wanted to make
sure that that was out
there so that no one said,
well, you ignored Nozick
and he's super important.
And he is.
OK.
Let's return to this
picture on the left.
So, again, we have
this kind of debate.
Now is society just
according to these standards?
Now one of the problems,
and one thing that I've
written about extensively, is
this idea that we don't often--
I'm not going to blame these
people-- social scientists,
policy studies, the US
Census Bureau, whatever,
where we get our data often
don't give the data that we
actually need in order to
assess equal opportunity
or relational egalitarianism
or, for that matter,
libertarian self-ownership
pieces like Locke, excuse me,
like Nozick, his
theory of acquisition.
But from the data
we have, I think
we have substantial reason to
believe that both a growing
number of American citizens are
unable to relate to each other
as peers, are clearly dominated.
There's a clear
hierarchy within society,
something that the people on
the left would find unjust,
and something that the
people on the right
would also find unjust.
Because, and again, social
mobility is the data
we tend to have.
That's not the same as
a normative conception
an equal opportunity.
But given the data
we have, there
seems to be a tremendous
link between inequality,
and a variety of other
factors, and social mobility.
Right?
So given the best data we
have-- and the map on the left
here is a huge data set
Raj Chetty, Emmanuel
Saez, and others have
recently put together
on social mobility
in the United States.
And the red areas have
really shitty mobility.
Excuse me.
I hope no one was offended.
And the blue area
tend to do well.
And there's all
sorts of problems.
There's all sorts of
things that I would
do to interpret this data.
But since I don't have
time, all I want to say
is that there seems to be a real
strong tie between inequality,
economic segregation,
educational quality
and availability, poverty,
and social mobility.
Right?
And what these things
point to-- sometimes called
the so-called Great
Gatsby Curve--
is that societies that
have these characteristics
tend to have comparatively
poor social mobility.
What this means is that
it might be the case
that the debate, in many
ways, between the relational
egalitarians and the
responsibility-centered
egalitarians is
somewhat academic.
Right?
I mean, we philosophers
are disagreeable sorts.
We tend to disagree
with each other a lot.
And we tend to emphasize our
disagreements rather than
our agreements.
But what this
reality points to is
that there might be a
substantial, practical overlap
between what seemed
to be diametrically
opposed theories of justice.
And if that overlap exists,
that's really powerful.
Because then what
we're saying is
we have the three main theories
of justice we're talking about.
According to all of them,
society, American society,
in our trends toward
greater inequality
are probably the problem.
So I don't have to
convince you of one theory
is my essential claim.
I can convince you by any of
those that we have a problem.
Democracy.
Let's look at democracy.
OK?
Within debates about
democracy, is it valuable?
Is it not valuable?
And then, is it valuable?
If it is, how?
Well, one way of saying
that it's valuable,
is to say that it's
intrinsically valuable.
What this means is
that it's valuable
because it's the
old-- again, this
is a huge body of
literature that I'm
giving a very quick summary of.
And I will have citations
for these things.
If you want to ask
me for citations,
I will give them to you.
But very basic idea here is
that citizens in a free society,
in a free and equal
society, ought
to-- are going to inevitably
disagree about-- the rules that
govern their collective lives.
Right?
So some argue that given
this disagreement, given
our diversity, given
our different interests,
and so on and so
forth, democracy
is the only legitimate procedure
to resolve these disputes.
Right?
And we can't say, we'll just
leave it up to the market.
Because the disputes include how
should we structure the market.
Right?
It's not like the market is,
like, a neutral way to go.
So there's this debate about
how we structure the market
and how these disputes are.
Right?
How do you resolve?
Some say, well,
given this diversity,
everyone ought to
have an equal say.
And that laws are only
legitimate-- that is,
they only justifiably
claim authority over us,
or just they only respect us
insofar as they're [INAUDIBLE].
Others claim that
democracy is valuable
but instrumentally is a tool.
Democracy is valuable
precisely because democracy
gets better results than every
other way of looking at it.
I mean, I think one thing
that all the panelists here
can agree to is that,
broadly speaking,
market societies
have worked better
than every other
form of society.
And I think what we'd
also all agree on
is that, broadly speaking,
democratic societies have
worked better than all
other forms of society.
And I think our
disagreements are going to be
how should we structure markets?
How do we structure
democratic institutions.
But some argue that
democratic societies
are important because they're
epistemologically superior.
Unlike a totalitarian
regime where
you have a small cadre of
people who decide everything.
Presumably, a healthy
democracy anyway
is one where lots of
different perspectives,
lots of different
groups, are heard.
And that they help check
concentrations power.
This is something that is argued
from across the ideological
spectrum.
And they also are
effective insofar
as they protect the
interests of the poor.
So, Nobel Prize-winning
economist Amartya Sen famously
argues that healthy
democracies with a free press
don't experience famines.
I don't like to think of
democracy as a yes or no in
the way that that phraseology--
I say democracy is probably
more, better, or
worse is a better
way of thinking about it.
Well, one thing that
we can definitely say
is that healthy
democracies do a better job
at protecting the
interests of the poor
than unhealthy democracies.
OK.
So do we have democracy issue?
Inequality, economic
inequality, is in and of itself
not a problem for democracy.
It's only a problem insofar
as the economic sphere
infects the political,
or democratic, sphere.
Right?
So whether or not
economic inequality
is a problem for democracy is
fundamentally a question of
does that translate into
political inequality?
And I think we have a huge
collection of data right now
that says that that's
exactly what's happened.
You know, I'm so thrilled to be
on a panel with Robert Frank.
He wrote a book,
Winner-Take-All Society.
He's one of the co-authors.
Hacker appears to have this
book, Winner-Take-All Politics,
highly recommend it.
Unequal Democracy, by Bartels,
also highly recommended.
Many argue that,
functionally, on many issues
that govern how we live
together-- including
how we structure our markets--
that the opinions of the 50%
poorest of the population
are functionally
irrelevant from a
democratic perspective.
Now I'm not going to
convince you of that data,
but if that analysis is true,
and the amount of money--
particularly post-Citizens
United, but not
just post-Citizens
United ruling.
If that situation
is true, if you
think that people are lobbying
government for no reason--
you might say they're spending
money, but it doesn't matter.
Democracy is perfectly healthy.
But if you think
it's not, right?
If you think that
they're spending
the money for some reason and
that this money buys influence,
then this is a huge problem.
Economic inequality leads
to, as that center cartoon,
somebody having lots more say.
Now if this analysis
is correct--
this idea that economic
inequality is translating
into political inequality and
democratic inequality-- then
it's a problem for
all conceptions
of why democracy is broken.
It's a problem for
those who think
it's intrinsically valuable.
It's nothing sort of a crisis of
democracy or legitimacy, right?
But for those who think that
it's valuable as an instrument,
it's also a problem, right?
Again, like the justice
issue, the democracy tool,
we can disagree quite a lot.
Philosophers do all the time.
We disagree with
each other, and we
tend to emphasize
these disagreements.
But the fact of
matter is-- and I
don't think philosophy
should try and pretend
to be a normal science
or something like that--
but the nature of
philosophy is such
that there might be the
case that inequality
is a problem according
to all these theories.
Because if this
person in the back
has a lot more say than her,
and if her voice is functionally
irrelevant, that harms the
epistemological advantage
of democracy, right?
Because lots of people
aren't being heard.
You don't get that benefit.
It also inhibits the ability
of democratic institutions
to protect the
interests of the poor.
So if the views and the
interests of the poor
are functionally irrelevant,
it can be functionally ignored.
And for this reason,
it's not surprising
that societies with great
inequalities of income
and wealth are also societies
that have higher poverty
rates than their peer.
You can ignore the poor
if they have no say.
And this is really important.
And what we need to recognize
is that, even if we believe
that our fundamental concern
shouldn't be equality,
but poverty, not we
shouldn't be fundamentally
concerned with how well off we
are relative to each other--
and I think Frank lots of
really important things
to say about that-- but
how well-off the poor are,
then it still matters.
If economic
inequality translates
into political
inequality, right, then it
threatens the very institutions
that might protect the poor
and those in poverty.
That is, if great economic
inequalities translate
into democratic
inequalities, they
threaten instruments
and institutions that
enable people to have enough.
They threaten what Sen
calls protective securities,
social welfare measures, other
things that prevent people
from falling below
a certain threshold.
But they also make
markets function worse.
They enable crony capitalism.
As I argue in a recent
paper on Milton Friedman,
even if our ideal is a
society of comparatively
little government influence
in the economic sphere,
and where democratic powers
are significantly limited
by-- Friedman wants an
economic bill of rights.
Even if we agree with Friedman
about what the ideal is.
Democratic inequalities in the
status quo are still a major
problem that cannot be ignored.
Neither can inequalities
in wealth and income
that, given our
institutions, translate
into democratic inequality.
Now, of course,
for those of us who
are more concerned with
equality and democracy
than Friedman might actually
be, it's an even worse problem.
But even if all
we're concerned about
is poverty, if we recognize this
link between democratic health
and poverty, and we
recognize the fact
that people who aren't heard
can be legislated against,
then inequality if it translates
into democratic inequality
becomes a major problem.
And, finally, very, very,
very, very briefly, because I
look and I see that
Shane has a stopwatch.
And I hadn't realized that.
And now that I'm egregiously
free-riding on you
for a minute and a half, it
also inhibits freedom, as well,
on a variety of
different concessions.
I would love to talk
more about this,
but I'm going to focus on two.
And I'm going to do it
in 30 seconds, which
means that it will
be a complete blur,
and you won't have any idea.
But you can look at those books.
So capability freedom.
Inequality can undermine
capability freedom.
Another way of putting
this is that GDP per capita
is very different than
freedom per capita,
if we understand freedom
in a capability sense.
Because freedom in
a capability sense
depends upon distribution.
It depends upon
distribution in terms
of political control
over one's life,
in terms of material
control over one's life.
These are two
essential capabilities.
And bodily integrity,
equally wealthy states
with high amounts
of inequality tend
to have high amounts
of violent crime
and just health and
life in jeopardy.
High poverty states
also have low mobility,
but they also tend to
have less freedom just
to live a good life.
And finally, republican freedom.
Inequality can translate very
strongly into domination.
So some citizens having a
higher roll over another.
And for a republican--
this is not
a republican in a way
that translates really
at all at this point,
maybe McCain a little bit,
into the contemporary
Republican party--
historically, people
like Thomas Jefferson
and so on, they
thought freedom was--
you think of freedom
as being not dominated
by your fellow citizens.
Unequal society,
you were dominated.
Now there is ways to
ameliorate that domination
without equality, like basic
income that's unconditional
or workplace democracy.
And those are alternatives
for the republican.
But my argument is that in
the institutional status quo,
our inequality also
undermines the freedom
of many American citizens.
Thank you.
Well, I also want to thank
Shane for organizing this panel.
I think it's great to have
this diversity of voices,
as you said, and for us to
have an opportunity to exchange
ideas with each other and
with you guys, as well.
Thank you all for coming out and
spending your Thursday evening
with us.
I want to talk about
inequality, but I also
want to talk about a particular
kind of inequality tonight.
And that's consumption
inequality.
We've been talking a
lot income and wealth.
And in certainly in Bob
Frank's opening remarks,
he talked about
consumption issues.
And I want to follow
up on that and also
follow up on a couple things
that Nikolai talked about
in his talk and look at
this question of consumption
inequality.
What I want to
argue is that we're
living in a time of declining
consumption inequality.
And I want to put forth
the more, perhaps,
radical argument that
that declining consumption
inequality might be,
to some degree anyway,
a function of existing income
and wealth inequalities.
And I'll get to that
in a little bit.
I'm going to talk about what I
mean by declining consumption
inequality.
If we look today at what
the rich and poor consume,
rather than their income, we
get a very different picture
of what inequality
might look like.
And if you think
historically for a minute,
the difference between
the rich and the poor
was mostly that rich
could consume things
that the poor could not.
And I'm thinking here over
the long history of humanity.
If you know Monty Python
and the Holy Grail,
you may remember the scene where
how we know who the king is.
And I'm not going to
use that word again.
All right?
If you know that movie
you might remember that.
See, that seems
actually not inaccurate
in the sense that in
that world the difference
between rich and
poor was enormous.
But I want to suggest is
that we've gone from a world
in which we had a small number
of haves and a large number
of have-nots to a world
with a large number of haves
and a small number of
have-more-and-betters.
And I think the kind of thing
that, again, Bob Frank was
talking about in
his opening remarks,
is consistent with this point.
That the world we live in
now, we tend to focus on those
people at the top who are
the have-more-and-betters.
What I want to focus on for
the next 12 minutes or so
are the large number of
haves and how much better off
poor and middle-income
Americans are
than they used to be, and
ask the question whether this
doesn't represent a narrowing
of consumption inequality.
So, for example, Bill Gates has
a house with air-conditioning
and heat, running water.
He has appliances and cars.
He has access to life-saving
medical technology,
all of the things
that we think of that
wealthy people in the
United States have today.
But you know what?
The average poor American, it
turns out, has most of those,
if not all of those things,
too-- though perhaps of lower
quality and/or fewer of them.
That the difference between
rich and poor today is not
a difference so much between
have and have-not but more
a difference between have
and have-better-and-more.
So I want to give you some data
to back that up in a second.
But what I want to argue now
is that the difference here
is smaller than the difference
between have and have-not.
It's a better society when
our differences between lots
of people having things and
a few people having more
of and better of those things,
versus a society in which
a small number of people have
things and a large number
don't.
The first good society-- again,
all of us I think have done
thought experiments
tonight-- but I
think that first one is a
better society to live in.
So the question is why?
How does this come about?
Well, I think one
reason for that
is what we might call the
declining real cost of goods.
And what I want to argue is that
the story of the last 200 years
is the story of the
growing purchasing
power of human labor.
And it's spread
from rich to poor.
That is, first is has
been the wealthy who
gained that purchasing power,
and that purchasing power has
slowly spread to the poor.
And one way measuring
that is by looking
at what various goods cost when
they're calculated in terms
of the average hours that
the average private--
the number of hours that average
private sector hourly wage it
takes to purchase them.
This is an interesting
way to calculate.
In fact, we saw this again
in Bob's opening remarks
with his rent measure, right?
It was calculated in terms of
work hours for median income.
I want to look at that again.
But I want to look at a
whole bunch of other goods.
And part of my argument
will be, by looking
at those other goods, it
might explain to us how
we can afford some of the things
that have, in fact, become
more expensive.
And I also want to make
a second point, too.
That it may be that
one of the reasons
that so many of
these foods are now
more affordable
by poor Americans
is because first they
were only affordable
by wealthier Americans.
It might be that one of the
benefits of income inequality
is that wealthier people can
afford things first and make
it possible for
producers to invest
in new and better goods that
are very expensive at first
but progressively become
cheaper, and cheaper,
and cheaper.
I'm old enough to remember
the first so-called pocket
calculator in the 1970s,
which cost about $75,
took 14 batteries, and
barely fit in your pocket,
and did about four things.
Now, in our pockets, we
have this, which cost,
in terms of hours
worked, not all
that much different than
that pocket calculator did.
And the pocket
calculator-- by the way,
it has a calculator on
it-- the pocket calculator
is a giveaway.
Right?
At the bank, there's someone--
we get solar ones for free.
That decline, the
fact that some people
were able to afford those things
first-- take the car example.
Most cars these days
have now-- the new cars
at least-- have rear backup,
rear-view cameras on them.
That was once considered
an element for rich people
to have on their cars.
The fact that some people were
able to afford it and show
that they wanted it made
it possible for firms
to mass-produce those in ways
that they might not otherwise.
And when we start to
look at things this way,
the vast majority of commonly
purchased household items
are much cheaper
than they used to be.
And the result of
that is the narrowing
of consumption inequality
between the rich and poor.
So I'm going to run some data
by you to take a look at.
The first set of
data is 20th data
over the course of
the 20th century.
And it runs from 1920 to 1997.
And these are some basic
household staple items, again,
measured in terms of the
hours that an American would,
who was earning the
avenue private sector
wage, industrial wage,
manufacturing wage,
would have to labor
to buy those things.
And you can see, a
half gallon of milk,
one-pound loaf of
bread, gallon of gas,
air travel-- all those
things fell substantially
in terms of the
amount of time it
took to purchase things over
the course of the 20th century.
And if you think
about it for a moment,
time is the important
variable here, right?
The less time we
spend working to buy
these basic goods, the more
time, the more money we have,
the more of our hours are
spent to earning income
to buy the other kinds
of things that we have.
How is it that so many Americans
can afford one of these?
It's because we spend so
much less of our income,
as a percentage of our income,
on these other kinds of things.
If you look at shelter,
clothing, and food,
the average American family at
the turn of the 20th century
spent about 70% to
75% of their income
on shelter, clothing, and food.
Today it's about 35% to 37%.
So, again, the ability
to consume these goods
are within reach of many more
people than it used to be.
This is the same data set.
I just call your attention
to the bottom line,
the computing power of a
million [INAUDIBLE] per second.
In 1950, it would have
taken you 515,000 lifetimes
to purchase that.
Even by 1997, 9 minutes, that's
already, what, 20 years ago?
Today, we'd be talking seconds,
if not fractions of a second.
All these of goods,
on electricity--
three-pound chicken,
pair of Levis-- all much
cheaper than they used to be.
If you want to look at some
data that's a bit more recent,
here's some data from the Sears
catalog from 1975 to 2006.
Very similar kind of
data here, looking
at the number of hours it
would take to buy those goods.
One of the things I want
to point out-- for example,
with the garage door
opener here-- one
of the problems in making
these comparisons over time
is that goods have
gotten so much better.
That garage door
opener from in 1975,
the cheapest one you
could buy from Sears
was a quarter horsepower.
The cheapest one you could buy
in 2006 was a half horsepower.
So you might want to adjust
those figures for the fact
that the one in 2006 is twice
as powerful as the one in 1975.
That point about
quality is something,
again, I want to come
back to in a minute.
If we want to see even more
recent data, or sort of a wider
range of data than this,
this is 1973 to 2009 data
that's coming up in a second.
And this is a bunch of
household appliances.
Looking at the retail
prices in 1973,
at the average private
sector manufacturing wage
of $4.12 an hour versus 2009.
Like Nikolai, I've
tried to cut my data off
before the effects of the
Great Recession were there.
2009 just so happened
to be a useful date.
But again, before things
that happened since.
And you can see hours of work
then at the 2009 private sector
wage.
If you look at that,
the number of hours
it takes-- number
of hours of work
it takes-- to purchase those
goods has fallen dramatically.
These are kind of the
basic household appliances
that we think of as being staple
goods for the American citizens
has fallen by an
average about 71%.
The point I want
to make, though,
is it's not just that
these goods are cheaper,
they're much better
than they used to be.
A color-- I'm old enough to
remember color TVs in 1973.
If you were lucky
you had a 19-inch one
and didn't normally
have a remote control.
My remote control was I
threw something at my brother
till he changed the channel.
All these other goods are
more efficient-- electrically
efficient, energy efficient.
They do a better job.
The washing machine cleans
your clothes better.
The refrigerator
keeps food better.
All of these goods are
better than they used to be.
Coffee pots, all of it.
So even if we just look at
price, we get one thing.
But when we begin to include the
quality measurement in there--
think of what a TV, a typical
looks like does it today.
Again, goods are much cheaper.
The result of the fact that
these things are much cheaper
is that they become
much more affordable
and accessible to
poor Americans.
My next set of data here is
some household consumption data
between 1971 and 2005,
so essentially spanning
that 30-year period that we've
roughly been talking about.
And when I flip in
a second, you'll
see down the left side is a very
similar list to what you just
saw, sort of basic
household goods.
And then across the
top is going to be
the percentage of households
among the poor and then
among the average American,
typical American, all American
households, who have
those goods in their house
in various years.
So one of the things to notice,
if you just look at the first
four columns first, you can
that for poor-- and this not,
by the way, the lowest quintile,
this is below-the-poverty-line
American households-- those
poor American households had
steadily increased their ability
to consume those goods over
the course of that 20-year
stretch from 1984 to 2005.
And you can notice a few
things fell off, telephones
for example, why?
Because now poor
households are more
likely to have cell phones than
they used to, even as of 2005.
And now we're
talking 10 years ago.
One quick story about cars.
72.8% of poor American
households had a car in 2001.
How many of you have either
read or see the movie
of The Grapes of Wrath?
Awesome.
Better than my liberal arts
students at St. Lawrence.
You are to be congratulated.
You know the story, right?
It's the story of an American
family in the Great Depression
who is caught up in the Dust
Bowl and heads to California--
gets in their car,
their beautiful car,
and heads to California--
in search of a better life,
and terrible things happen
to them along the way.
And it's sort of a
general indictment
of American capitalism
at the time.
The Russians, the
Soviets, decided
to show the movie of Grapes
of Wrath as propaganda
not long after it was made.
And they had to stop after
a small number of showings
because the Russian people
watching the movie, at the end,
kind of said, wait a second.
Poor Americans have cars?
So, again, context
does matter here.
Right?
And when we sort of recognize
this question of consumption
inequality, we begin to
see some of these things
in a different light.
And again, as I emphasize
at the beginning,
I think that one of the reasons
that these goods are more
available to poor households
is because rich households are
able to afford them
first and justify
the expense that producers
take in producing them.
Last point about
this table is you'll
notice that the poor American
households in 2005, on most
of those goods were more likely
to have them in their house
than were the average
American family in 1971.
And that suggests, again,
that poor households
are doing pretty well
and even relative terms.
If you compute, by
the way, the sort
of gap between poor
households and rich households
in the ownership of those
goods, you'll see it shrinking.
It doesn't shrink a lot, because
the numbers are pretty high.
But it does shrink over this
time, too, suggesting, again,
a reduction in
consumption inequality.
So with that we might
begin to think about some
of these broader themes that
we've been talking about.
I'm going to put to
you what my friend Don
Boudreaux has put forward.
I like to call it The
Boudreaux Challenge.
That's an operating
room from 1967.
That's an operating room from
2000, roughly 2013, 2014, 2015.
And Don't challenge
is the following.
Given the choice, would you
rather live in 1967 with
today's real median household
income of almost $52,000,
or today with 1967's real median
household income of $35-plus
thousand.
And Don's point
here is to suggest
that there's so many more
things available to us
today so much more
cheaply, that we might well
be better off today with
the lower median household
income, than we would have
been in 1967 with the higher
median household.
With all these
basic goods-- goods
that weren't even
available back then
like the stuff in our
pockets or medicines
and so forth-- that, in fact,
even though we are caught up
perhaps in these sort
of spending binges
that Bob Frank
was talking about,
the work-- that has also
created a world in which people
are able, including the average
American and poor Americans
to live better lives than
they were in the past.
Another way to look at
this is the following.
In 1964, the year I was born,
the average hourly wage was
$2.50-- now, we're getting that
same average private sector
manufacturing wage.
Today it's about $21.00.
In 1964, suppose you wanted
a home entertainment system.
What would it look like?
I don't know how
well you see that.
A moderately priced,
excellent stereo system--
that was actually '63-- would
have cost you $379.00 in 1964.
That world have
been about 152 hours
of work for the typical
American to purchase that.
And consider what
you're getting, right?
Not much.
I used to have one of those.
I know what they sound like.
It's not much.
But now consider the following.
That same 152 hours
at $21 an hour
today would be almost $3,200.
If you wanted to,
with $3,200, you
could walk in, as of October,
to Walmart and buy this.
A Go Pro, which is just, you
know, if you need a Go Pro.
And a 3D printer so that you
can make the other stuff.
Add it all up, $3,200.
What I want to argue is that
this remarkable expansion
in the consumption capacity
of typical Americans
is a great equalizer.
So much stuff is so
much cheaper that we're
able to afford fancier weddings,
bigger cars, bigger houses.
And I think it will be
an interesting discussion
to think about how we want to
contextualize that consumption
cascade.
But perhaps one of the
reasons we're able to do that
is that all this other
stuff has become more cheap.
And as it has, the distance
between rich and poor,
in terms of they're
able to consume--
and that's what
ultimately matters,
what one's able to consume--
has narrowed, I think,
substantially.
So let me leave you,
as all of us have,
I think, with two questions.
What exactly are the problems
that supposedly growing income
inequality is
creating in a world
where consumption inequality,
I would argue, is shrinking?
And the poor are doing
better than ever.
We heard some of the
answers in Joshua's talk,
and I think those
are areas that we
can continue to talk
about as we move this
to a panel discussion.
And finally, to what degree is
the increased politicization
of resource allocation that
is taking place in the US
since 2008 led to a regressive
redistribution of resources
and power.
Have bail-outs and new
regulations actually benefited
the have-more-and-betters
rather than the have-nots?
Maybe one reasons we're seeing
worsening income inequality
over the last six or
seven years is precisely
because some of the things
that we did in response
to the Great Recession.
And I'll close with-- well,
actually I'll leave with that.
I'll save my last thought
for the discussion.
Thank you very much.
All right.
What I think I'll do here is,
since Bob is Skyping this,
I'll let Bob, if you'd like
to, ask the first for us
in the panel or
anybody on there.
Do you have a question that
you'd like to start with, Bob?
A question-- yeah.
Let me ask, why is it
relevant for our discussion
of inequality to note
that life is better today
than it was in the feudal past?
Isn't the real
issue whether life
would be better today if there
were less inequality today?
I certainly agree
that life is better
today than in the feudal past.
I would rather live today
than in the feudal past.
But it just seems that no useful
purpose is-- no useful purpose
is served by having to
spend three times as much
to achieve a basic goal
that could be achieved
for a third as much.
It's not a strange parent
that wants the guests
at their daughter's
wedding to leave
feeling like they
had a good time
and that the
occasion was suitably
marked by the festivities.
But to have to spend $31,000
to achieve that goal, when
if everybody spent
a third as much
we would achieve the
goal equally well,
that's just wasteful.
Why do we want to do that?
Whose freedom is
enhanced by doing that?
We have to tax something.
Whose freedom is violated
if, instead of taxing income,
we tax consumption at more
steeply progressive rates
and cut out some of that waste?
So that's my question.
Why can't we focus on making
today better than about
worrying about whether today
is better than yesterday?
I think the quick answer
is that if with many
of the policies that we might
undertake to level income
inequality, even including
a consumption tax--
and, again, I think that's
not an in-principle objection
to a consumption tax.
It might be an objection to
a steeply progressive one.
But some of the policies
we might undertake
to reduce income inequality
may have the effect
of making it harder to produce
the very goods that are making
the lives of those at the bottom
of the income distribution
better off.
If I didn't get that
across clearly enough,
that's my failing.
But I think that when we
think about income inequality,
we, I think, also have to
think about the ways in which
the spending habits
of the rich create,
if unintentionally, the
possibilities of improving
life for the poor.
And that's why I think looking
at consumption inequality
is ultimately what
we want to do.
I think one other quick
point I'll make here
is it may well, as
Nikolai kind of hinted at,
it may well exacerbate
some of these problems.
The policies we might adopt
to cure these problems
might well exacerbate
some of them.
And I think that's a serious
consideration that we
have to think about here.
How-- I'll leave it there.
Nikolai?
I'd like to give a half-playful
and half-serious reply.
And I say half-playful
because I haven't really
developed the theory yet.
I think, in a way, we are
returning to a medieval system
of economics.
Now, that may sound
like a very [INAUDIBLE]
controversial statement.
But I'm just going to
give you two examples.
If you think of the
medieval system as a system
where guilds restricted
the ability of anybody
to enter into a new profession.
And basically what they
were doing, basic economics,
is limiting the supply
to keep their wages up
at the expense of other people
who were not allowed to enter.
That's essentially what we're
seeing with these increased
licensing requirements.
Moving from 5% to
30% of jobs that
require a license, basically
is saying-- you know,
we have cases.
I'm just going to use the
Louisiana case as an example.
It is illegal in the state
of Louisiana to sell flowers
if you are not a
licensed florist.
Now we all know
how many people die
every year because of
improper flower arrangements,
so it's good-- no.
You have to take classes.
You have to pay
for these classes.
You have take a written exam.
And you have to put together
two floral arrangements
as judged by somebody
who is currently
a licensed florist in
the state of Louisiana.
And, of course,
what they're doing
is trying to keep
other people out.
So that's point number one.
We have a return to a
system where we have
less and less economic freedom.
And guess what?
A lawyer is going to be able
to pay for the bar exam.
A lawyer is going to be able to
pay for a professional license.
Somebody with minimal
skills is going
to have a lot more difficulty
entering into a profession
and trying to compete in a
profession that is closed.
Second example, we're returning
to the medieval theory
of just price theory.
As opposed to
markets determining
prices, people getting
paid for the value
of the marginal
product of their labor,
we have more and more of a push.
And I think it comes
from noble purposes,
but I think there's
also a public choice
story that can be told.
Increasing minimum wages--
$15 an hour, $20 an hour,
$25 an hour-- sounds
like a wonderful idea
until you think that
those who are not
able to produce
at that level are
the ones who are likely to
end up being unemployed.
And it comes down to a
philosophical question
of what should determine
the wages of people?
Whether it's some abstract,
outside notion of justice.
And we abstractly say, well, OK.
Let's decide $25 an
hour, $50 an hour,
is the just wage, as opposed
to focusing on letting markets
determine the value of labor.
And then maybe deciding instead
of tinkering with minimum wage
laws, let's look at ways
in which we can enhance
the human capital of
the poorest in society
so that they can earn more,
as opposed to being locked out
of the system.
One quick thing
that I want to add,
one point that Bob Frank made.
Yeah, I no one's going to
argue about the difference
between a feudal
society and today.
But I'm much more interested in
the question of the difference
between the 1970s and today.
Because that's
where the folks that
are focusing on income
inequality as such a problem
start their own
analysis, frequently.
And what I want
to argue is if we
look at consumption we don't see
the same growth in inequality.
In fact, we see a reduction.
Josh?
Yeah.
The question, Bob's question,
wasn't exactly for me.
But I want to
follow up that just
to ask Steven a question
related to that.
I think, you know,
everybody agreed.
Hopefully we're all-- most of
us are working really, really
hard.
Lots of us, and we're
generally hardworking people,
and we innovate.
Hopefully good are
getting cheaper.
Hopefully we are
producing better goods
and more efficiently.
Right?
The question is, is the
inequality contributing that?
You said a little bit about why.
I remain unconvinced.
And the reason, the question
that I have for you first--
and I have all
sorts of-- I could
open into you, all sorts
of speech-making right now.
But my first follow-up
question is-- I mean, did not--
I mean, OK.
So look at it this way.
Let's compare the 40
years we've been talking
about-- whether we
talk about inequality
or whatever-- let's compare
it to the previous 40 years.
The previous 40
years was a period
where we had substantially
more income inequality,
hugely more wealth inequality,
where productivity gains
translated to gains in
wages, as opposed to there
being a sharp separation.
And there's some legitimate
debates about how sharp
that separation is between
productivity and wages.
But at the median level,
there's no argument
that it's not substantial.
We have wide broad-based growth.
And not only-- and this is
sort of a response to Professor
Wenzel, as well--
but not only that,
we had greater
growth in that period
than we have in the
40 years since then.
Now, of course,
any 40-year slice
is going to have all
sorts of differences
from any other 40-year slice.
But it seems like, you know,
textbook economic theory
might tell us one thing.
Our actual data might
tell us something else.
And the actual data
might be telling us
that inequality
is more efficient.
Or, excuse me, that
equality is more efficient.
That inequality
is not helping it.
Or, to put in terms of
Dr. Wenzel's, the choice
between Growth Land and Equality
Land might be a false choice.
It might be the case
that Growth Land
looks a lot like Equality Land.
Depending on how you do
it, but the same thing
could be said about any
decision that you make about how
to structure markets, right?
The devil's in the
details, but so far I
haven't been given any reason
to believe that the inequality
itself if necessary for
any of these things.
In fact, I feel like
there's a lot of data that
says it's simply not necessary.
Anybody [INAUDIBLE]?
Go ahead.
There's a lot there.
And I don't want to make
it all about my argument.
But a couple things I would say.
One, when we look at the wages,
the sort of stagnating wages
and productivity
question, I think
we also have to look
at two other things.
One is not just wages
but total compensation.
When you look at
total compensation,
that split is not as
big, as you noted.
So that's one point, I
think to consider there.
I think the other end of that
is the question-- that's why I'm
concerned about consumption.
Which is what can people
buy with their wages?
If we have a situation,
and it seems like we do,
where we continue to produce
stuff more cheaply, and better
stuff more cheaply,
then the fact
that wage growth-- or
even compensation growth--
has not gone up as
quickly as it had before.
It might not matter as
much if those wages can
buy more than they did before.
And one of the
things that we have
to think about in last
40 years, two things.
One is the sort of
technological revolution
that's driven down prices.
But also the opening
up of trade globally
is another big change
in here, too, that
made it possible for people
to consume more, perhaps,
with that slower growth.
And we can look at those
[INAUDIBLE] growth in wages,
but the fact is, in
terms of consumption,
I would argue we're doing
better than we were before.
Another answer I'd
like to give to that.
If we look at the period 1930
to 1970, versus 1970 to 2010,
one of the things that
I emphasised in my talk,
is a massive expansion
of the role of government
in the economy as a whole.
So growth, if you divide
government spending
by total GDP, we've had
an increase in that.
So two problems
there, which I think
are actually
increasing inequality.
The first one is
the welfare state.
And if you look at
the welfare state,
even if it starts off with
a good intention-- the way
the welfare state has
worked out in the US,
is it allows more people
to live without working.
So that is going to increase
inequality, because it's not
an investment in human capital.
It's not an investment
in the opportunity
to earn more income.
But it's simply an opportunity
for more-- as I pointed out--
many people in the bottom 20%
of income are not working today.
So that is going to
contribute to inequality.
The second thing that
we see is the growth
of government also
contributing to inequality
because of that redistribution
effect that I talked about.
Not going from richer
to poorer people,
but going from more politically
active and concentrated people
to-- I'm sorry-- concentrated
benefits and diffuse costs.
So the diffuse costs are
paying, and the money
is going into the
concentrated benefits.
And, if anything, what
have we seen post-2007
is increasing inequality for the
simple reason-- how many of you
here got a bailout?
Well, it's the
people at the top,
in the top quintile
that got the bailouts.
And it wasn't those of
us in the other quintiles
who got the bailouts.
So it seems to me
that the more you
have government intervention
in the economy, as we've
seen from 1970 to 2010
compared to the 40 years
before that, the more you
have government intervention
in the economy, the
more you're rewarding
government activity, as
opposed to economic activity.
And this is where I think I
agree with Professor Preiss.
This is the difference
between a well-functioning
and a poorly-functioning
democracy.
We have a poorly-functioning
democracy in the US.
Increasing amounts
of governments
spending in the economy means
that political activity,
or political
connection, is going
to start being rewarded
more than economic activity.
And I think that's one of
the things that we've seen.
Why do we see more
and more concentration
of wealth at the
top, in spite-- even
though I said it
wasn't necessarily
that much of a problem.
Why do we see more
concentration at the top?
Because precisely we have
more government intervention
in the economy, and it
is those very people
at the top who are able to
capture the political process
for their own gain, as opposed
to those who are ignored
in a democracy and
those who are ignored
in a crony capitalist system
that we currently have.
Professor Frank?
Can I just ask
whether you recognize
having just made an argument
against increasing inequality?
If it empowers people at
the top to buy government
favors so effectively,
isn't that a bad thing?
Well, the inequality comes from
the expansion of government
in the first place
is what I'm arguing.
So--
Well, it may come,
in part from that,
but you-- surely you don't think
it come only from that, or even
mainly from that.
OK, and the other question
I think is if it--
Maybe market incomes--
the pre-tax market incomes
have grown vastly more
disparate in the last 40 years.
It's not mainly from government
favors that that's happened.
Dentists on average earn about
what they did 40 years ago,
but the top 1% of dentists
earn five or six times as much
as they did then.
That's not government largess.
That's just a
winner-take-all market.
You know, one practice emerges
as the go-to cosmetic dentistry
practice everywhere.
Whoever started
practice and built
the reputation of
being the best then
absorbed a few other practices.
And then all the
money goes there.
But then those winners
have the capacity
to buy favors from government.
And we-- I think we
call all on this panel
agree that buying favors from
the government is a bad thing.
But it's a bad thing
that's absolutely
abetted by the patterns
of income change
that we've been seeing.
[INTERPOSING VOICES]
You go ahead.
My second one's a question
for you, Josh, anyway.
All right.
I think the one response
to that argument,
though, is that that's precisely
the reason why one wants
to keep the-- there's
plenty of other reasons
I think it's a
good idea-- but why
one might want to keep
the size of the state
to the minimal amount necessary.
If the fact is that the
rich will always gain power
over the political
process, there's
two ways to deal with that.
One, you can try to
use more government
power to decrease inequality.
Or, you can argue,
government should
be doing less, and
therefore those with money
will have less
opportunity to make
use of that power for
their own purposes.
And that kind of leads to my
question for Josh, which is I
think it is true that
economic inequality can
lead to political inequality in
the way that you talk about it.
But the question then
becomes doesn't that
make us skeptical of using
more government as a way
to address economic inequality?
Because shouldn't we then think
that the things that government
is going to do are
going to mostly rebound
to the benefit of those
who already have the means?
They're the ones with the
access to political power.
Aren't we stuck
in a kind of loop?
How do we get out of that loop?
Well, I guess I'll answer
the question first.
And my first question is--
insofar as I can tell,
no one on this panel is
advocating for more government.
I don't--
I certainly heard that
in Bob's opening remark.
Well, I think what
we've been advocating--
What did you hear me
say that made it sound
like I wanted more government?
I thought the
government [INAUDIBLE]
If not more, at least
more spending on potholes.
--the roads I'm driving on.
Well, you might was more
spending on potholes, too.
But, I mean, the more
of government-- at least
in this group.
I think, I don't just
think in this group,
I think for almost any
participant in this discourse,
the more government,
less government question
is almost completely
a hollow one.
The question is overwhelmingly
which forms of government, how?
Right?
I haven't talked too much
about concrete policy here,
deliberately, because
of the nature of my talk
and what I wanted
to set up here.
Professor Frank
has done that some
and done well, in his
books and of course
in his brief presentation here.
But, I mean, I don't
think we should
have licensure for florists.
That's clearly a
[INAUDIBLE] solution.
I don't think we should either.
You know, like, there's all
sorts of problems about that,
right?
I don't think we should
have marijuana be illegal.
Which means now I can't run
for public office for 10 years.
But I don't think that--
but then it will change.
But I don't think it
should be illegal.
There's all sorts of
ways that government
can be part of the problem.
But there's two things
that are worth noting.
One thing worth noting is that
governments are, first of all,
at some level essential
for structuring markets.
But whether they are
not-- well, they are.
But I mean, like, the
degree to which they are
is a matter of debate.
However, what is
not a matter debate
is that governments are
involved in markets.
Our question is how
should governments
be involved in markets?
Our answer-- Bob
and I's answer--
is that they should be involved
in ways, as best they can,
to ameliorate inequality.
Right?
That's the central question.
I want to have a, sort of--
And another way of putting it
is-- that even if you agree
that this is why-- I mean,
as I said, I have a forthcoming
paper in basic income studies
on Milton Friedman on freedom.
And so even if you think
that Friedman's right.
Even if you think
that the ideal state
is a state with-- regulated
by a constitutional provisions
for-- markets.
Even if you think
that, generally
for public choice
sounding reasons,
democracy is not all
that good, but you still
have to have democracy to
settle the rules of the game.
Even if you just
believe that, you
have to deal with, in the status
quo, the impact of inequality
on it's laws and institutions.
Right?
You can't ignore
that inequality.
That inequality is
part of the problem
for why government maybe
is or is not doing what
it should be doing in markets.
In other words,
it's another-- it's
a really long way of
putting it-- inequality
is a major problem.
Right?
And that's one reason
why, and one reason
that I think we
can all agree to.
Can I have a follow-up
question for--
Sure.
--for Professor Wenzel, too?
Yes.
You'll have to do some more work
to convince me that the welfare
state is causing more poverty.
I think you're going to have
to do a lot of work on that.
I mean, you know,
I say we should
look at empirical reality
rather than so-called textbook
economic theory and whatever.
But it seems to me that if you
undercut the bargaining power
of the poorest members
of the population,
that you're going to
undercut the bargaining
power of the people right
above them, as well.
And it seems to me that
workfare programs, right?
I'm all about investing
in human capital.
My way of orienting to
justice is broadly relational
egalitarian, but it
has equal opportunity
responsibility-sensitive
qualities.
But it seems to me that you
undercut the bargaining power
of the poorest population by
lowering the floor to zero,
that essentially you're going
to undercut the bargaining power
of the next group above them.
And that there would
be, if anything, getting
rid of a high floor will
make it more rather than less
likely to have people on
[INAUDIBLE] or poverty.
One quick thing I would say.
I think one of the things that
both you and Bob had talked
about-- and I'm not
speaking [INAUDIBLE]
I'll speak to me, too--
for myself, rather,
is the idea of a basic income,
or some kind of negative income
tax, one of those
kinds of proposals,
certainly for me is much
better than the status quo.
If that's what
we're talking about.
If that's the way that we're
going to ameliorate inequality,
that's certainly better than a
welfare state that spends way
more money than actually gets
into the hands of poor people.
So if that's what we-- if we
want to talk about, again,
and I would talk about it not
so much in terms of inequality,
but as a way of
addressing, making sure
that poverty isn't as damaging
as it might otherwise be.
And that's, I think, an
interesting conversation
that we might want to have.
But when you say
ameliorate inequality,
I need to know what that
role of government would be.
We talk about things that
government maybe shouldn't
do, like license florists.
But we need to be more
concrete about what it means
to do that and what kinds of--
I mean, we have the idea
of a higher consumption
or progressive
consumption tax, but where
is that money going to go?
What's is going to be spent on?
What are the things that it
means to ameliorate inequality.
We maybe don't want
to get too caught up
in the thickets of particulars.
But I think, for
where I'm coming from,
knowing what the concrete
answers to that question
is matter a lot.
Because those are
things that are
going to matter for
the level of regrowth
and the way in which that growth
effects the absolute well-being
of the least-well-off.
Yeah, and I wanted
to add to that,
I think the welfare
state [INAUDIBLE]
has increased the
level of inequality,
because it hasn't
focused, as I mentioned,
on increasing the human
capital of the poorest
elements of society.
I don't think it's the welfare
state alone that has increased
poverty in the US.
What is causing
increasing poverty
is the tangle of
regulations that we
have that make it so
difficult for the poorest
elements of society to
enter into the job market.
So there's a $10 per
hour minimum wage
or $15 per hour
minimum wage, anybody
who's value of labor
is worth more than $15
is not going to be affected
by the minimum wage.
Those who are going to be
affected by the minimum wage
are those who are
worth less than $15
per hour in the job market.
I'm reminded here of a story.
And I think this
ties in with this.
Walmart, which is a
company that all of you
have followed, I think, for
it's very progressive policies
on workers, for the
benefits that it gives
to workers, for the
high wages that is it
pays to work-- We're not
talking about the same Walmart.
They're not laughing.
No laughing.
Walmart, for a
decade or so now, has
been lobbying the
federal government
to make it mandatory
for employers
to pay for health insurance
for their employees.
Now why would
Walmart do something
like that, given its reputation
and given its other record?
It has made the calculation
that on a per-worker basis
it is going to be
hurt less than Target,
which is its
next-biggest competitor.
So it has been pushing
for these regulations,
because it understands that it
can weather the storm better
than Target can, and
therefore is in favor of this.
Take a second example
that's parallel to this.
The 2010 Dodd-Frank
Act which was
designed to end the notion
of "too big to fail."
So if my favorite sandwich
shop fails, I cry in my corner,
but I'll live.
But if a big bank
fails, it could
bring the rest of the
economy tumbling down
with it if businesses can no
longer get short-term loans,
if depositors have
difficulties, et cetera.
So Dodd-Frank was designed
to re-regulate or add
regulations to the
financial markets
to prevent "too big to fail."
Now what happened, of course,
is that the regulations
on a per-unit basis were more
expensive for smaller banks
than bigger banks.
So what we've seen
over the past six years
is a greater concentration
in the banking industry,
which is exactly the opposite of
what Dodd-Frank intended to do.
So my concern with all this--
I don't think the welfare state
alone is to blame for the--
it certainly hasn't diminished
poverty in the United States,
but I don't think the welfare
state along is to blame.
It's this massive
regulations, which
may be either--
depending on your mood
that day-- they may
be either well-meaning
but ignoring the
laws of economics
so they lead to bad
results, or maybe they
are not well-meaning.
Because I certainly
don't think Walmart
is well-meaning in trying to
drive Target out of business
and hiding behind the veil of
mandatory health insurance.
I think it's this morass
of laws and regulations
that are supposed to, on
paper, be helpful for the poor
but end up hurting the poor.
Why don't we open it up
now to audience Q and A.
We can, of course,
continue this conversation,
but I'd like to get some
audience participation.
If you can, we have two
microphones-- one on this side,
and one on this side.
And I will alternate
between the two.
So feel free to line up between
whichever one you'd like.
So, yes, professor.
So two questions.
One is that I'd like to hear
from each of the panel what
you take to be the causes of
the growth in income inequality.
So I have an idea of
Professor Wenzel might say,
because he cited government.
But in this same period
there were all sorts
of changes-- globalization,
dumping a lot of money
to higher education,
technology, and so forth--
which might benefit some and
exclude others from growth.
And so there's this
interesting question about what
each of you-- whether you're
on the same page at all
about what the causes are of
the increase in inequality.
And then the second question
is just looking at GDP.
So just total, social wealth.
Is there empirical evidence
that reducing or increasing
inequality has an
impact upon the GDP.
So that if you would say
efforts to decrease inequality
would disincentivizes
production,
therefore dampen GDP growth.
Or is it the other way around?
You-- I don't know.
So I'm curious about if
there's any empirical evidence.
So there's two questions.
I'm sorry, but--
Yes.
[INTERPOSING VOICES]
Bob go first?
Yep.
Bob, do you want to go first?
Yeah.
What was the first
question again?
I'll take the second one.
Does reducing the variance of
incomes help GDP grow faster,
or does it inhibit growth?
I think the conventional
view at one time
is that it inhibits growth.
Everybody accepts the idea
that incentives matter.
And the idea seems the follow
that if your after-tax wage
goes down, you're incentive
isn't to work as hard,
and so the economy
won't grow as quickly.
If you look a
little more closely,
though, that's never been a
prediction of economic theory.
A reduction in the wage
rate has two effects.
It does make it cheaper
to take time off.
That's the one everybody
focuses on when they
say people won't work as hard.
But it also makes you
poorer, and that's an effect
in the opposite direction.
Which of those two
effects dominate
is a strictly
empirical question.
And what we know from
the historical data
is that the real wage
now is much, much higher
than it was 100 years ago.
And people, on
average, work much,
much less than they used to.
And so it's precisely
the opposite
of the conventional view--
if you pay people more,
they will work harder.
You do need to pay people
more if they work harder than
if they don't work as hard.
So the slope of income
with respect to effort
can't be zero.
Everybody will stay home
and veg out if you do that.
But evidence seems to suggest
that people want to get ahead.
Getting ahead is a
quintessentially relative
concept.
So if the tax rate at the
margin is 33%, 28%, 56%--
it just doesn't seem
to matter very much.
There are 40 vice presidents
who all want to be CEO,
and that's gonna be true.
They're going to
work their asses off
whether the tax
rate is 30% or 80%.
The second question was--
Yeah, what was the
first question.
I mean, the first question was
what caused the acceleration
in inequality since 1970?
Well, I have a
dog in that fight.
Phil Cook and I argued it
was the power of information
and other technology
to extend the reach
of the most-able performers.
We don't need millions
of local tax accountants.
Now somebody competes to write
the most user-friendly tax
software.
There are hundreds of programs.
The critics anoint
one of them the best,
and then that's the only
one we need anymore.
And so the developers of that
program get very, very rich,
and a lot of local accounts
earn a lot less money
than they used to.
It's that story in one
form or another replayed
in almost every sector.
[INTERPOSING VOICES]
I'll just add a couple quick
points to that last comment.
I think there's
some truth to that.
The question is whether
those same processes haven't
benefited consumers immensely.
Those same
information technology
processes that have
enriched some people.
Sure.
Sure they have.
Yeah.
And I think that we have to do
double-entry bookkeeping here.
I also think globalization has
been key to this, too, right?
The stakes, for example-- if
you have a globalized economy,
the value that shareholders
and boards of directors
might believe, rightly or
wrongly, that CEOs can deliver
is much higher and will
be able to pay them more.
And so I think that's
part of that process, too.
I'll add something.
I mean, well I think-- I mean,
I'm not the economist here.
So you can just cover your
ears and do the na, na, na.
He did Rawls.
You can [INAUDIBLE]
Yeah, that's true.
And he'll do it better
than I did Rawls.
Professor Frank's Winner
Take All is a economy
book well worth reading.
I think he's definitely
on to something.
I think the bargaining
power in general
of labor vis-a-vis capital
has dramatically decreased.
Globalization is one
of the sources of that.
I don't think it's
the only source of it.
I think a major, major
institutional source
for growing inequality has been
the cut in the marginal tax
rate at the top level.
I think that that incentivized
CEO pay to explode
on top of where it was.
Two generations ago, it used
to be the case that the average
CEO would make 3 to 5 times,
maybe 10 times, the average--
I guess I'm-- I'm just
coming up with numbers.
Relatively speaking, the average
worker, now it's closer to 20
to 100 to 500 times.
A big reason of that is
because those dollars
aren't being taxed anymore.
And not taxing them, or taxing
them in the way that we do--
we have started to tax them.
Meaning, one of what
the implications is,
being able to avoid
those taxations
has given further incentive to
this escalating rise in pay.
It's very much-- there's
definitely a policy source
to some of these inequalities.
It's not just these natural
products, if you will,
of markets.
DJ, go on.
I had a question
for Mr. Horowitz.
When describing or trying
to illustrate declining
consumption inequality,
you had a list
of a select few
commodities there
and noted the differences
or the changes
in the percentages among
lower quintile people.
I would argue-- or could
you say that those kind of--
or those increases
in consumption
would be due to
increasing consumption
pressures from higher classes?
I argue that those
commodities now
are almost necessary for
people in these times.
Yes, more lower-quintile
people have washers
and dryers and computers.
But that's because
if they want a job,
their employers
expect them to be
communicated to reliably and
look nice and things like that.
And I think to illustrate
you point a little better,
you should at more luxury
goods, such as-- you know,
obviously more
lower-quintile people
aren't hiring per
sitters, and chauffeurs,
you know, and stylists
and things like that.
So I just wondered why those
select few commodities were
listed to illustrate the point.
I think just because
there-- Well, two reasons.
One, that's what-- The
Census Bureau measures those,
for one thing.
But they're pretty
much household basics,
the things that are
fairly constant over time
that we can make those
longitudinal comparisons.
But having said that, right?
I do think if you look
at the kinds of things
that even average and
working-class households are
able to do today more frequently
than they were in the past.
Households eat out more often
than they did in the past.
They can afford to
do that, and so on.
So perhaps one of the
reasons we see this-- I mean,
you can say that
there's pressure
from above to
consume these goods,
but you still have to
have the means to do it.
Right?
And they still have to
be affordable enough
for you to get them.
And there's no
evidence, by the way,
that this is being
financed by any larger debt
burden on households, in terms
of their level of debt compared
to their income.
So it may be true--
I mean, I'm not
denying that people
respond to the context
and the social pressures
that are on them.
But to be able to-- if you're
going to be able to respond,
you have to have
the means to do it.
And what my argument
is, is that when
we look at what the real
ability of people to consume is,
we see less inequality
than we have in the past.
Corey?
My question is for
Mr. Frank here,
and it was also partially
mentioned by Dr. Wenzel,
but it was going into
your specific idea
on, the new idea
of an income tax
that was specifically
taxing consumption.
I was really
intrigued by the idea.
I haven't heard of it before.
I thought it was really
interesting and neat when
I first heard it.
But the more I
thought about it, I
came to the idea of--
one concern I had for it
which is the fact that
that tax idea kind of-- it
gives an incentive
to people who save
and don't spend their money.
And when we're
spending money, we're
reinvesting our money
into the economy.
And if we're giving incentives
to save and not spend,
I was just wondering if
you had any ideas on how
if we implement a tax policy
like that to make sure
that investment didn't
severely decline because of it.
Because that could
possibly cause,
you know, like nationwide
economic [INAUDIBLE] there.
Yeah.
That's a great question.
We certainly would
not have wanted
to implement a progressive
consumption tax right when
the economy crashed in 2008.
As long as there's insufficient
demand in the economy,
it's any port in the storm.
Any extra spending you
can get from any quarter
is better than none.
And so cutting back on
consumption spending
would be counter-indicated
during a demand shortfall
economy, absolutely.
Probably our best bet would
be to vote such a tax into law
with the proviso that we'll
adopt it when the unemployment
rate goes down to
a certain threshold
that we all agree we're willing
to call full employment.
And at that point it would
be phased in gradually.
That would actually accelerate
the growth of the economy
to full employment, because
rich people would hustle
to build additions
onto their mansions
before the tax took effect.
And we'd get an avalanche of
additional demand, none of it
on the government budget.
So, yes.
If you phased it
in gradually, you'd
see a gradual shift
from consumption,
which is now about 70% of
total spending-- 66% to 70%.
You'd see a gradual shift
down in that percentage
and a gradual shift up in
the percentage of money
spent on private investment and
on public goods and services.
We have a $3.6 trillion
backlog of basic infrastructure
maintenance.
There's really no need to go
prospecting in great depth
to figure out what we might
spend money usefully on.
I mean there's just so
many essentials that we've
postponed spending money on.
That if we had additional
investment funds to make use
of, we could put them
to really good uses.
I'd be curious to know
whether all four of us
would be willing to vote for
a strict campaign finance
measure that would reduce the
likelihood that any extra tax
revenue would be funnelled
off into the pockets
of the rich people who made big
contributions to politicians.
Do you want to--
Just a quick comment.
I think it's
interesting when we look
at-- when the conversation has
been often about government's
inability to create streets that
don't have potholes in them.
That we believe if we have
all-- we have all things to do,
that politicians will
actually do the things
that we think they should do.
I'm much more skeptical of that.
I'm much more likely to
believe that in fact it
will be funnelled off into
the hands of the people who
are their cronies.
I don't think campaign finance
laws are going to stop that.
If you want--
Well, we know
there are countries
that have good governments.
Yeah, if you want to--
My wife is a city
councilwoman in Ithaca.
We have a good local government.
It's a treat to watch
those smart people think
hard about what
policies to vote for.
They've really made life
exist in a much higher quality
as a result of the thoughtful
efforts that they put in.
[INTERPOSING VOICES]
Are there bad governments?
There are plenty of them.
But if we work hard, we could
build a better government.
I'd be much happier in a world
where much more responsibility
was at the local level in the
way that you're talking about.
My point is simply
how much confidence
do we have that
governments will do
the things that we say on the
blackboard that they should do.
And if you want to take
money out of politics,
get politicians out of
other people's money.
Well, do you think we would
have better roads, though,
if we didn't collect
taxes for roads?
No.
I think the argument
instead is if we
had ways of ensuring that
government wasn't doing many
of the other things
that it does,
it would be easier to focus on
the things, the set of things,
that we think it
should be doing.
But right now we have
unconstrained politicians
who are going to be bought
off by the people who--
by the winners, right?
And until we address
the structural problems,
in terms of the relationship
between the political realm
and the economic
realm, that's going
to continue to be the
place-- to be the situation.
And to think that somehow
we're just going to-- we're
going to get the policies
out of this process
that we might
ideally wish to have.
I'm not confident [INAUDIBLE].
But no one here thinks that.
Right?
Well--
I mean, you're not
really addressing anyone
on this panel on that issue.
The question is, I think
everyone on this panel
probably thinks the
government should
be in the business
of building roads.
And we generally think that
the government would do better
at building roads if it did
better at building roads
if it had better government--
One of the questions that our
panel is discussing though
is whether inequality helps
or harms this process.
And I think what Professor
Frank and I have both argued--
and I think reasonably
well, but you can judge,
everybody can judge-- is that
inequality hurts that process
rather than helping it.
It hurts it.
The question is
what to do about it.
And if you think-- my
concern is that the solution
to the problem
you're identifying
can go one of two ways.
We can try to reduce inequality
through the various measures
that you're suggesting.
Or we can reduce the
power of government
so that that inequality doesn't
turn into political power,
especially if you think that
a society in which we have
more restricted government
would be one in which
generates more wealth,
and that in turn benefits
the people as a whole,
particularly the least
well-off.
Michael?
My question is mainly
for Professor Preiss,
but anyone is
welcome to weigh in.
So in your presentation
one of your main points
was that economic
inequality is bad
because it harms the
political process,
harms democracy--
making the connection
between economic inequality
and political inequality.
And I'm not entirely sure that
connection is entirely there.
I know, for example,
literature, a 2003 article,
interesting title--
"Why is There so
Little Money in US Politics?"
And by-- I'm going to
butcher these names, but --
Ansolabehere,
Fidueiredo, and Snyder.
Basically, one of
their arguments
is that-- granted it's 2003.
So it's a pre-Citizens
United world.
But that in 2000 the
total contributions
to all politicians, 2000
election, every level, state,
local, presidential,
was about $3 billion.
The federal budget for that
year was about $2 billion--
was about $3 billion--
was about $2 trillion.
Around that time, Nike
spent like $10 million
controlling an industry
that's only worth $40 billion.
And so I think the
argument that political--
that economic inequality has
to cause-- economic inequality
has to cause
political inequality
has to deal with viewing
campaign contributions
are, like, as investment.
That corporations
mainly think they're
going to invest a
bunch of money so
that they'll get favors,
government favors, out of it
in the end.
But mentions-- the term they
used is Tullock's puzzle.
Where if that is true, then
the rate of return that they're
getting on their contributions
is astronomically high,
and that they should really
be willing to spend more.
And that it makes more sense
to view campaign contributions
as consumption-- what was
the term-- consumption valued
in association with politics.
And it also mentioned
that the vast majority
of that $3 billion, $2.4
billion came from individuals
who only gave about
$150, which makes sense
because they figure they're not
going to get much out of it.
They're just individuals.
They can't do much on their own.
And so arguing that-- instead
of thinking of contributions,
campaign contributions,
as investment,
as that we're going to
give you this money,
you're going to give us
something back in return.
But it's more just
consumption that they,
that the individuals who
are the main people that
give to democracy,
which also, I think,
kind of undermines
that argument.
That it's not
mainly corporations.
It's mainly individuals
who are giving
to political contributions.
That they're giving
mainly for the reason
that you would give to,
say, like a charity.
That they're
interested in politics.
They're interested in the goal.
And they don't feel they're
going to get anything out
of it in the end.
But it's just consumption
and not really investment.
So I guess my main problem
with your presentation
is that you kind of asked us to
assume this connection exists.
And I think that's a really
strong claim to make.
Professer Preiss?
Yeah.
That's a great-- I
haven't read that book.
I do recall reading
a footnote about it.
What's interesting about
that-- several things are
interesting about that thesis.
First of all, I would
be inclined to say
the thesis probably could use
some updating with some trends.
But whether-- my concern,
a little bit-- what
also is interesting about
that thesis it seems
to say that the politicians
are doing better
than the people on
my left would think
they are at making
laws that are not
being just crony capitalists.
It's essentially a thesis
against crony capitalism,
right?
Or that that's not
what's going on.
So I'm certainly not
going to-- well, anyway.
But from my perspective,
certainly it's
a problem if government
just becomes--
as everyone one this panel is
concerned with-- if governments
can just be bought for special,
particular market interests
is a problem for everybody.
But from a number of
conceptions of democracy--
maybe just the ones
you have in the room--
even if I was particularly
benevolent, I had no--
even if Bill Gates,
even if Mark Zuckerberg,
is not selfish at all
about his tendency--
we might still think it's a
problem that Mark Zuckerberg
can tremendously impact policy
in a way that most citizens
can't.
Regardless of
whether he's buying
Facebook favors,
or he's just making
the policy fit his interest.
They might both be a problem.
Crony capitalism is one problem.
But it's not the only problem.
Another problem--
again, it depends
on what you think
about democracy, why
you think it's
important, what do you
think it means to be a citizen.
There's all sorts of
questions lurking there.
But on most conceptions of that,
that kind of unequal influence
might be a problem even if the
people who are-- even if CEOs
were benevolent, right?
Even if we imagine
that-- you know,
we imagine-- it would be
wrong to think that government
agents are just
benevolent, probably
be wrong to think that
CEOs are just benevolent.
But even if they were,
democratic inequality
would [INAUDIBLE].
Professor Cole, last question?
We've focused tonight on the
United States, inequality
in the United States.
So I was wondering, if we're
less parochial and look
at the bigger
context of the world,
in which there seems to
have been great advances
in democratization
[INAUDIBLE] growth of a--
Dave, into the mouthpiece
for the mic, please.
--a middle class of about
300 million in China
was created over
this same period.
So that, if you
take-- so I'm just
wondering-- if you take
the global perspective,
maybe there's a local
aberration in the United States
where you get one set of
change and inequality.
And you get another
change that's
a much more interesting
one on the global scale.
I wonder-- I'm going to
start with a speculation.
I'm gonna guess that Chine has
much greater inequality now
than it did 30 years ago.
Because if you look at
it, basically everybody
except for the party
apparatchiks was poor.
Today as one portion
of the population
has become middle
class, who-- I think
China even has more
billionaires than the US does.
I could be wrong on that.
They're all sending their kids
to school in the United States.
Well, at the same
time, there are--
Our democratic
government's way better.
That's why.
Well, at the same
time, there's still
huge portions of the Chinese
population that have not
had access to that
growth in part
because-- talk about
crony capitalism.
That's basically
what's going on there.
So I don't think we can say that
the situation today with more
inequality is worse
than the situation
30 years ago when
everybody was poor.
That's why I say that
I still have difficulty
with this notion that inequality
isn't the fundamental problem.
I'll just-- a quick
point to add is
that I think actually-- I'm
not sure it's an aberration
or different.
I think one of the trends
we've seen globally recently
is the dramatic decline in
the number of people living
on a dollar a day, or $2 a day.
We've seen a tremendous
increase in well-being there.
And certainly the rise
of China and India.
And rising living standards
there are, I think,
the good news.
We have seen some increase in
inequality as part of that,
but as Nikolai suggests,
that inequality
may be part of the very
same-- the very same processes
that produce better lives
for the least well-off
may also produce
growing inequality.
And I think, globally, that
may be what we're seeing.
But that's-- I'm
willing to make that--
if that's the cost of many
fewer people living on $1 or $2
a day, it's well worth paying,
as far as I'm concerned.
Bob, did you want to get in?
I think the overall
trend in the data
is that within
almost every country
inequality has been growing
over the last decades
but that inequality between
countries has been declining.
Yup.
So that's the good news about
inequality in recent years
is the cross-country
comparisons are getting
a little less one-sided.
Yep.
[INAUDIBLE]
Did you want to?
Not on this.
OK.
I wanted to see if
there were any more--
how much more time do we have?
This is it.
This is your last chance.
This is your last chance.
You want to--
I just wanted to close
with one little comment.
I tend to agree with my esteemed
colleague Professor Preiss
that inequality may
indeed hurt democracy.
But it seems to me
every policy I ever
hear to diminish
inequality is just going
to lead to greater inequality.
Because the policies
that lead to inequality
are going to lead to more
government intervention
and back to this process
of crony capitalism.
I'm not going to belabor that.
I want to return to a point
that Professor Frank made
at the beginning
which has troubled me.
Not because he made the point,
but because of the implications
of the point.
The good schools are in
the good neighborhoods.
So as the price of
housing goes up,
defacto the price of
schooling goes up.
And that's probably going to
lead to greater inequality
because wealthier people are
able to send their children
to wealthier schools.
Is that a problem
fundamentally with inequality,
or with the model of funding
that we have where schooling
is tied to geography
as opposed to schooling
tied either-- if you want to
get really crazy about it--
some sort of alarm
system-- or if you want
to get less crazy about
it-- a voucher system where
each family is handed a voucher
to purchase education that
is not linked to the
place where they are.
And that could--
again, that might
be an opportunity not
just to break inequality
but to break property.
So I'm wondering if there's not
a question of inequality being,
again, the wrong
problem on which
to focus rather than some of
the fundamental institutions
underlying it.
So I think maybe I
inadvertently closed
with a question
for Professor Frank
in the process of thanking
him for that comment.
Would you like me to
have him answer it,
or do you just want him
to take the question?
If the good professor
is willing to--
We can give him the last word.
Yeah, you have the last
word, Professor Frank.
Well, what's true is that
if we fund the school budget
with property taxes
that really compounds
the link between school
quality and the average price
of the house in
the neighborhood.
But even if you go to countries
where, by law, the budget is
the same at every
school everywhere
in the country-- France has
a requirement of that sort--
still, the schools
that everybody
would like to see their kids
go to are in the more expensive
housing areas.
And that's going to be true even
if you take every equalization
step possible, just because the
children of affluent families
just start with a more prepared
baseline when they enter
kindergarten or even preschool.
And so the pace of learning
is gonna be quicker
in those neighborhoods.
You can't eliminate that.
The frustration, I think,
that the middle-income family
experiences because
of that link is
that, if you're
the median owner,
you're not gonna
adopt a goal of I
hope my kids can go to
bottom-quartile schools.
That's just not a
realistic portrait
of parental human nature.
You're gonna want to at least
claim your spot in the income
distribution, in terms of where
your kids end up in the school
quality distribution.
And that just leads inevitably
to this cascade where everybody
spends more bidding,
trying to outbid
other families for a house in
the better school district.
But just exactly as
when everybody stands up
to see better, nobody
gets anything from that.
So you just succeed,
at the end of the day,
in bidding up the prices of
the houses in the better school
district.
Half of all the kids end up
going to bottom-half schools,
the same as before.
That's wasteful.
All right.
I would like to give a round
of applause to our panel.
