Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity
The fundamental truth about American economic growth today is that while the work is done by many, the real rewards largely go to the few. The numbers are, at this point, woefully familiar: the top one percent of earners take home more than 20 percent of the income, and their share has more than doubled in the last thirty-five years. The gains for people in the top 0.1 percent, meanwhile, have been even greater. Yet over that same period, average wages and household incomes in the US have risen only slightly, and a number of demographic groups (like men with only a high school education) have actually seen their average wages decline.
Income inequality has become such an undeniable problem, in fact, that even Republican politicians have taken to decrying its effects. It’s not surprising that a Democrat like Barack Obama would call dealing with inequality “the defining challenge of our time.” But when Jeb Bush’s first big policy speech of 2015 spoke of the frustration that Americans feel at seeing “only a small portion of the population riding the economy’s up escalator,” it was a sign that inequality had simply become too obvious, and too harmful, to be ignored.
Something similar has happened in economics. Historically, inequality was not something that academic economists, at least in the dominant neoclassical tradition, worried much about. Economics was about production and allocation, and the efficient use of scarce resources. It was about increasing the size of the pie, not figuring out how it should be divided. Indeed, for many economists, discussions of equity were seen as perilous, because there was assumed to be a necessary “tradeoff” between efficiency and equity: tinkering with the way the market divided the pie would end up making the pie smaller. As the University of Chicago economist Robert Lucas put it, in an oft-cited quote: “Of the tendencies that are harmful to sound economics, the most seductive, and…the most poisonous, is to focus on questions of distribution.”
Today, the landscape of economic debate has changed. Inequality was at the heart of the most popular economics book in recent memory, the economist Thomas Piketty’s Capital. The work of Piketty and his colleague Emmanuel Saez has been instrumental in documenting the rise of income inequality, not just in the US but around the world. Major economic institutions, like the IMF and the OECD, have published studies arguing that inequality, far from enhancing economic growth, actually damages it. And it’s now easy to find discussions of the subject in academic journals.
All of which makes this an ideal moment for the Columbia economist Joseph Stiglitz. In the years since the financial crisis, Stiglitz has been among the loudest and most influential public intellectuals decrying the costs of inequality, and making the case for how we can use government policy to…
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