Brad DeLong: Worthy reads on equitable growth, September 14–20, 2019

Worthy reads from Equitable Growth:

1. Heather Boushey in Politico provides a platform to argue for distributional national accounts. Read “How To Fix Inequality: Publish Distributional, Not Just Aggregate, Growth Data,” in which Boushey writes: “To tell us how Americans—low-, middle- and high-income alike—are faring in the current economy, relative to other groups and to the average, federal agencies need to produce distributional statistics alongside the aggregate ones. That means offering not just one estimate of growth but several: growth for those with different levels of income, of different races and ethnicities, and also for variation by state or other levels of geography. Legislation has been passed that encourages the [Bureau of Economic Analysis] to add the disaggregated data, but the law provides no new funding and doesn’t go beyond encouragement. If we do not change the way we conceptualize and analyze economic progress, we are unlikely to have very much of it. Better, fairer growth measures are a vital step toward better, fairer growth.”
2. This is very, very much worth reading: “Research on Tap: Unbound,” a Twitter round up of the event earlier this week in which “Equitable Growth celebrated the release of Heather Boushey’s book, Unbound: How Inequality Constricts Our Economy and What We Can Do About It. She was joined by Sandra Black, Atif Mian, and Angela Hanks for a conversation moderated by Binyamin Appelbaum.”
3. This is key to why distributional national accounts are becoming increasingly essential for understanding what is going on in the U.S. economy. Read Heather Boushey’s written “Testimony before the House Budget Committee,” in which she writes: “National economic statistics are becoming less representative of the experience of most Americans. The implication for how policymakers and economists alike evaluate the economy is that average economic progress is pulling away from median economic progress. We see these same divergent trends across multiple measures of economic well-being: wages, income, and wealth.”

Worthy reads not from Equitable Growth:

1. Perhaps the most interesting thing to happen in U.S. political economy over the summer was the Business Roundtable’s declaration that it no longer believed in “shareholder primacy,” the doctrine that a corporation’s managers have a twofold—and only twofold—duty: obey the law and maximize the stock market value possessed by its shareholders. All other considerations are, according to shareholder primacy, not the proper business of the corporation. Instead, they are the business of the government officials who make the laws and write the regulations to enforce them, the politicians who compete to boss around government officials, and the voters who elect them. The alternative view was always that shareholders were just one of the groups of stakeholders—albeit one of the most important groups by virtue of their status as residual claimants and their powers to choose corporate officers—whose interests were to be advanced and balanced. Here, my old teacher Mike Spence has smart things to say about the possible advantageous consequences that opening the door to the possibility of moving away from shareholder primacy might produce, in his “The End of Shareholder Primacy?” In this essay, he writes: “An even more exciting feature of the shift toward socially conscious corporate governance is that it opens the door for new, more creative business models … Alibaba [was] founded with the goal of expanding market access for small and medium-size companies. … [and] remain[s] committed … Mukesh Ambani … identified Reliance’s stakeholders as the ‘Indian economy, Indian people, our customers, employees, and shareowners’ … Digital technologies tend to come with high fixed costs, but low to negligible variable costs. Once established, a firm like Alibaba or Jio can thus provide a platform for countless other business models built around social objectives. And this effect is especially powerful in potentially large markets like China, India, Indonesia, Brazil, and the United States. The Business Roundtable’s recent declaration represents a major step forward for the multistakeholder model. The example set by industry leaders matters. And it is no accident that some of today’s most successful global companies were explicitly conceived and built on the basis of multistakeholder values.”
2. Nixon, Reagan, Trump—the truth is that Republican presidents have never regarded the independence of the Federal Reserve as something to be respected. They did, however—before President Trump—regard “appearing” to respect the independence of the Federal Reserve as something to try to accomplish. Read Bob Bryan, “Trump’s attacks on the Fed may be intense, but they’re nothing compared to a wild new story about Ronald Reagan from former Fed Chairman Paul Volcker,” in which he writes: “Trump’s attacks on the Fed may be intense, but they’re nothing compared to a wild new story about Ronald Reagan from former Fed Chairman Paul Volcker … Volcker recounts being privately ordered by Reagan’s chief of staff [James Baker] to not raise interest rates prior to the 1984 election while Reagan was in the room. Volcker was not planning to raise interest rates at the time, but said he was ‘stunned’ by the direct violation of the Fed’s independence … According to Volcker, Reagan did not say a word, but Baker delivered a strong message: ‘The president is ordering you not to raise interest rates before the election,’ Baker told Volcker … Reagan’s apparent intimidation also echoed former President Richard Nixon’s disastrous pressure on former Fed Chair Arthur Burns to keep rates low, which is seen as one of the reasons for the inflation of the 1970s.”
3. It is a very curious thing that preindustrial societies were, by and large, about as unequal in terms of relative income as we are today. It does suggest that something like Vilfredo Pareto’s Iron Law is operating, although how it could operate is beyond me. And it does suggest that Thomas Piketty was correct in his fear that the post-World War II “trentes glorieuses” age of social democracy from 1945 to 1975 was a fragile anomaly. This, however, fits less well with Piketty’s recent argument that our current second gilded age was generated by the descent of the center-right into neofascism and the descent of the center-left into cultural liberalism as it took its eye off the important ball that is the distribution of wealth and hence of social power. It is also worth noting that preindustrial inequality was much more vicious than modern inequality: Push preindustrial inequality up by an additional fifth or more, and large numbers of people start dying from malnutrition. Read Branko Milanovic, Peter H. Lindert and Jeffrey G. Williamson, “Pre-Industrial Inequality,” in which they ask and answer: “Is inequality largely the result of the Industrial Revolution? Or, were preindustrial incomes as unequal as they are today? This article infers inequality across individuals within each of the 28 preindustrial societies, for which data were available, using what are known as social tables. It applies two new concepts: the inequality possibility frontier and the inequality extraction ratio. They compare the observed income inequality to the maximum feasible inequality that, at a given level of income, might have been ‘extracted’ by those in power. The results give new insights into the connection between inequality and economic development in the very long run.”