Why We’re Launching the Washington Center for Equitable Growth

By | November 14, 2013, 5:17 pm
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The United States economy has undergone dramatic changes in the last three decades. Arguably, none of these changes has been so well documented as the rise in income inequality.

From 1979 to 2007, the top 1 percent of households saw their incomes skyrocket by 275 percent, while incomes for the bottom fifth of earners increased by less than 20 percent. Last year, the top 10 percent of earners took home more than 50 percent of national income, a higher share than in the 1920s. And today, the wealthiest one percent of households possess more than a third of U.S. total net wealth; the average CEO makes $14 million a year, while the average worker makes $51,200.

Inequality in the United States has worsened to levels that more closely resemble a developing country than many other OECD nations. Yet economists don’t know yet what that means for economic growth and stability in a country as economically complex as ours. Just last month, after winning the Nobel Prize in economics, Robert Shiller singled out worsening income inequality as America’s biggest problem.

We agree. That’s why we are launching the Washington Center for Equitable Growth, a new research and grantmaking institution focused on accelerating our ability to discover evidence-based, policy-relevant answers to the many questions surrounding inequality’s effect on economic growth and stability. This year, WCEG will support independent academic research through a competitive, externally-reviewed grant program. Our goal is to construct a portfolio of policy-relevant research projects that furthers our understanding of why and how inequality has increased and illuminates the ways in which inequality may affect economic growth and stability.

Conventional wisdom among many policymakers and pundits says that, while we may not like inequality, while it may insult our sense of fairness, it’s an inevitable byproduct of a competitive market economy. And if we aren’t careful, trying to curb inequality might hurt growth.

This perspective sounds serious and pragmatic. It’s tough love. It works in support of a visionof the economy in which growth is driven by wealthy investors, who, if they have enough cash on hand, will build businesses and make investments that create jobs. To best support growth, policymakers should stay out of the way, acting mostly to remove so-called hurdles like high taxes or burdensome regulations.

It’s a tidy story, but one that we believe is far too narrow a way to understand how an economy like ours actually functions—and, moreover, it’s a story that is largely unsupported by available evidence. For example, a recent IMF study found that countries with more equitable income distributions have longer periods of stable economic growth. Other studies point to the importance of issues ranging from investing in human capital to encouraging political inclusion to support long-term economic growth and stability. But evidence remains thin on how worsening inequality affects these economic components: how it may alter demand for goods and services, or hinder entrepreneurialism, or undermine our political or economic systems.

To begin finding answers, we are enlisting some of the most brilliant minds from economics—ranging from Nobel Laureate Robert M. Solow to John Bates Clark medal winners Emmanuel Saez and Raj Chetty—to guide our effort. We’re also convening a diverse, interdisciplinary group of advisers whose members study inequality from social, political, financial, behavioral, and psychological perspectives. To help ensure new research finds its way into the policy debate, we will also work to strengthen the lines of communication between the academic experts who study the economy and the policymakers in Washington who work to shape it.

This will be a long-term effort. We won’t have answers tomorrow. But hopefully by the time we do, we’ll have a political debate in Washington that is rational enough to consider the evidence and to implement solutions that produce strong growth while addressing one of America’s biggest challenges.

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