Reflections on Our First Round of Grants: Thursday Focus for July 24, 2014

Washington Center for Equitable Growth Announces Inaugural Class of Grantees: “Equitable Growth will award $481,000 to 15 grantees…

…with additional funding for two of those grantees provided by the Russell Sage Foundation…. “Motivating academic economists to investigate whether and how structural changes in the U.S. economy, particularly those related to the distribution of wealth and the provision of opportunity, affect economic growth is exceedingly important,” says Heather Boushey, executive director and chief economist at Equitable Growth…. Philip Cohen… economic inequality [and] women’s employment patterns…. Ariel Kalil… inequality… parenting and the acquisition of skills…. Jesse Rothstein… school finance reforms [and] educational equity…. Michael Barr… how families manage different kinds of debt…. Will Dobbie… the impact of debt forgiveness on economic stability and recoveries…. Timothy Smeeding… how inequality in the distribution of income and wealth affect consumption… David Howell… cross-country trends in “good jobs”… William Lester… how regional variations in labor market regulation influence business decisions…. Joan Williams… workplace scheduling practices conflict with family care-giving needs…. Young scholar grantees… Pascal Noel… Shayak Sarkar and Ryan Sakoda… Stefanie Stancheva… Vanessa Williamson at Harvard… Danny Yagan… Owen Zidar…

As we often say around here, since the days of Lyndon Johnson’s Great Society discussions of equitable growth here in the United States have revolved around Arthur Okun’s metaphor of the “leaky bucket”: the market produces unequal distribution of income, and the government has a bucket that it can use to redistribute income from rich to poor, but the bucket leaks and so more is taken from the rich and is received by the poor. The efficiency-equity trade-off. Policies that would move toward more equity would also move toward slower economic growth.

But the question of whether our Bergson-Samuelson social welfare function has a higher value with a smaller pie more equally divided or a bigger pie with some slices much larger than others is only one of the ways that the question can be conceptualized.

A second way is to deny that the size of the pie has relevance because those who get the big slices are not “us” but “them”. That was how David Lloyd-George did his political economy and politics in Wales and in London’s East End back in 1909. To quote from George Dangerfield’s great The Strange Death of Liberal England:

Lloyd George… one July evening in 1909… went down to Limehouse… a packed and partisan audience of East End cockneys…. England has scarcely known a greater demagogue than this pre-war Lloyd-George…. Without the magic of face and voice to support them, his speeches are not likely to survive; and one can only imagine the effect of this, the most famous passage in that famous Limehouse speech:

I was telling you I went down a coal-mine the other day. We sank into a pit half a mile deep. We then walked underneath the mountain, and we did about three quarters of a mile with rock and shale above us. The earth seemed to be straining–around us and above us–to crush us in. You could see the pit props bent and twisted and sundered until you saw their fibers split in resisting the pressure. Sometimes they give way and then there is mutilation and death. Often a spark ignites, the whole pit is deluged in fire, and the breath of life is scorched out of hundreds of breasts by the consuming flame. In the very next colliery to the one I descended, just a few years ago three hundred people lost their lives that way.

And yet when the Prime Minister and I knock at the door of these great landlords and say to them—-’Here, you know these poor fellows who have been digging up royalties at the risk of their lives, some of them are old, they have survived the perils of their trade, they are broken, they can earn no more. Won’t you give them something [Page 23] towards keeping them out of the workhouse?’—-they scowl at us and we say—’Only a ha’penny, just a copper.’ They say, ‘You thieves!’ And they turn their dogs on to us, and you can hear their bark every morning….

Lloyd George was having the time of his life. He kept his audience howling with alternate rage and laughter; moment by moment, sentence by sentence, he assaulted the landlords, and outraged the gentry, and invited the dispossessed, and cozened the dissatisfied; he shouted and implored and wheedled and mimicked. It was a great performance.

And yet this spirited voice was not quite the voice of revolution–though thus it sounded in the anxious imagination of the Conservative press…. It was also Liberalism’s extravagant last will and testament. All it really said was this–that the rich, who are beginning to get too much in their own hands, have got to pay… his revolutionary language [was] nothing more than the language of super-taxes and old age pensions.

But in the meantime, the speech had done its work. If their lordships had been violent about the Budget before, they were twice as violent now. Mr. Lloyd-George redoubled his efforts… and up and down the country certain noblemen emerged from the rustic obscurity to which history had consigned them and began to trade public insults with their persecutor…

My favorite passage from the Limehouse speech is different. Mine is Lloyd-George’s claim that:

a fully-equipped duke cost[s] as much to keep up as two [naval] dreadnought [battleships]… [but is] much less easy to scrap…

Lloyd-George lived in a mental universe in which the dukes had their ownership of broad acres and their claims on GDP not because they did anything useful and entrepreneurial but rather because their very distant ancestor had laid Anglo-Saxon England waste in 1066 with King William the Bastard, or their distant ancestor had slept with King Charles II Stuart, or their not-so-distant ancestor had bribed enough members of Parliament to get an Enclosure Bill.

That was class war!

Or was it?

As Dangerfield points out, while the Tory squires and the titled members of the House of Lords in 1909 heard David Lloyd-George and thought “REVOLUTION!!”, the policies of the so-called People’s Budget of 1909 involved less income-tax progressivity (“supertaxes”) and less social insurance (“old age pensions”) than even the old Paul Ryan budget. And now that Paul Ryan has begun talking about how he wants to expand the EITC and the Ryan budget wasn’t his budget but rather the House Republican Conference’s budget, David Lloyd-George appears very far to his right indeed in everything but rhetoric.

I think that we here at Equitable Growth want to conceptualize the issues in yet a third way. If Arthur Okun was right, and if the bucket is indeed leaky, then the sharp reduction in the progressivity of the income tax and the reduction in union power to extract quasi-rents should both have given a significant boost to economic growth since 1980 or so. Yet that has not been the case. Is it the other factors reduced the underlying growth rate, and that Reaganomics actually did considerable good for growth but its effects have been masked? Is it that our Second Gilded Age is not gilded enough, and that growth will accelerate if we make just one more push to further widen the income distribution? Or is it that the leaky budget paradigm is wrong, and that there are at least as many channels by which greater inequality erodes investments, especially investments in human capital, and slows growth as channels by which it boosts growth?

We would really like to know which of these three is true. For unless we know, it will be hard to have an even semi-rational policy debate even were we to find a critical mass of people who wanted to have one.

So: in this round, half a million dollars out to some very smart and energetic people looking for answers to pieces of this big question. I am very interested to see and very hopeful about what the recipients will come up with.