Category: Innovation & Entrepreneurship
Explaining the “History of Technology” series and equitable growth
“Let me recite what history teaches,” wrote the 20th century American novelist Gertrude Stein. “History teaches.”
Does history teach? In particular, does history teach about job destruction and creation? Can the study of history, both in case studies and in the broad strokes of trends, help us understand how structural changes in the U.S. economy have affected growth and inequality in the past? Can they give clues about what we can expect in the future?
The Washington Center for Equitable Growth set out to answer those questions by establishing a Working Group on the History of Technology. In a Washington, D.C. policy environment dominated by economists and political scientists, we wanted to see if the tools and concepts of the history of technology can be deployed in ways that complement those other disciplines. After all, historical precedents are routinely cited in policy discussions, but rarely are they subjected to the close analysis that professional historians can bring to the conversation.
Our working group of technology historians seeks to answer the question of whether there are elements of previous mass technological shifts that may aid in the management of workforce disruptions brought about by the post-high-tech revolution. The group considered this question in light of the overarching mission of Equitable Growth to investigate whether and how economic inequality affects economic growth and stability. By casting an informed look back to previous technology-driven job upheavals, we may find shifts in inequality and growth—shifts that indicate whether these phenomena are linked. If so, then perhaps answers to today’s growing income and wealth gaps will lie in some combination of spontaneous forces and active interventions by government or through public-private alliances.
The “History of Technology” series of essays
Equitable growth and Southern California’s aerospace industry
By Matthew H. Hersch, Assistant Professor of the History of Science at Harvard University
and a Research Associate of the Smithsonian Institution’s National Air and Space Museum
Not all inequality is the same: Slavery versus economic creativity in Civil War America
By John Majewski, Interim Dean of Humanities and Fine Arts and Professor in the Department
of History at the University of California, Santa Barbara
Engineering, industrialism, and socioeconomic orders in the Second Industrial Revolution: What U.S. policymakers today could learn from emerging technology professions and innovation at the turn of the 20th century
By Adelheid Voskuhl, Associate Professor of the History and Sociology of Science at the
University of Pennsylvania
Responsible innovation: The 1970s, today, and the implications for equitable growth
By Cyrus C.M. Mody, Professor and Chair in the History of Science, Technology, and Innovation
in the Faculty of Arts and Social Sciences at Maastricht University in the Netherlands
Energy transitions in the United States and
worker opportunities past, present, and future
By Christopher F. Jones, Assistant Professor in the School of Historical, Philosophical,
and Religious Studies at Arizona State University
Environmental regulation and technological development
in the U.S. auto industry
By Ann Johnson, Associate Professor, Department of Science and
Technology Studies, Cornell University
Emerging technologies, education, and the income gap
By Michael E. Gorman, Professor, Department of Engineering and Society, University of Virginia
We did not look for technological speculation or “futurism” in our work. But any technology that is or has been in operation for the last couple of hundred years has been fair game for our group, from the steam engine and railroad to nanoengineering, synthetic biology and microchip production, as well as the workforces related to those endeavors. Otherwise, in charging our group of historians, we brought no preconceptions in this regard. Nor do we think that there will necessarily be a clear line from previous experience to the future. Some past events and concepts might be a dead end, but some might provide a foothold, however modest, on understanding what lies ahead.
Whatever the case, historical lessons are too important to be ignored in considering the future of job creation in a post-high-tech world. In the words of the 18th century Scottish philosopher David Hume—a decidedly less musical but no less nuanced writer than Gertrude Stein—the future tends to resemble the past. The challenge, we might add, is ascertaining which tendencies will turn out to matter in the years ahead.
Jonathan D. Moreno is the David and Lyn Silfen University Professor at the University of Pennsylvania, where he teaches and researches medical ethics and health policy, the history and sociology of science, and philosophy. Moreno has served as an advisor to many U.S. governmental and nongovernmental organizations, including the Department of Defense, the Department of Homeland Security, the Department of Health and Human Services, the Centers for Disease Control and Prevention, the Federal Bureau of Investigation, the Howard Hughes Medical Institute, and the Bill and Melinda Gates Foundation. Moreno is an elected member of the National Academy of Medicine (formerly the Institute of Medicine) of the National Academies and is the U.S. member of the UNESCO International Bioethics Committee.
What does and does not boost economic growth?
Hands of the magician with magic wand and top hat, Veer.com
At a time of stagnant U.S. economic growth, magic seems to be not only an attractive option to boost growth, but perhaps the only feasible one. In a series of essays recently published by the Cato Institute, economists and analysts offered a number of ideas to boost growth that they’d implement if they had a magic wand. Commenting on the wide number of proposals in the collection, Washington Post columnist Robert Samuelson says the essays as a whole offer no singular consensus among economists about what policies to implement to boost economic growth. And that’s true—mainly because there’s no consensus about what actually increases growth in the long run. But what economists have done is knock down ideas that won’t boost economic growth, and point out broad areas that might boost it.
First, we have to be clear about what we mean when we talk about economic growth. If we just want to pump up economic growth in the short run, there are a number of ways to do that. But what we should be concerned about is the pace of long-run economic growth. And while economists still really aren’t sure about its source, they have a good idea about what won’t produce a higher growth rate.
Going back to the origins of the Solow growth model, many economists once believed that increasing savings could permanently boost the pace of economic growth, measured as the increase in gross domestic product per person. But under Solow’s framework, adding more capital and labor will only temporarily boost growth, and the pace of growth in the long run will eventually go back to where it was before. What needs to be increased, then, is productivity.
In contrast to the full employment assumptions in the Solow model, making sure labor and capital are utilized to their full potential is still critically important, —especially in the current United States with the aging of the Baby Boomers and the slowdown in female employment since 2000. So policies like the one proposed by Equitable Growth’s Heather Boushey that help workers balance work and family responsibilities are important to boost overall economic growth. But it’s definitely not the end of the story.
Taking a look at another famous growth model can help shape our thinking about what might boost productivity and long-run growth. Twenty-five years ago, economist Paul Romer, now of New York University, published a paper that developed an “endogenous” growth model. In Solow’s model, productivity increases are assumed. In Romer’s model, increases and growth come from individuals in the economy adding to the stock of human knowledge.
Romer’s innovation was to emphasize the knoweldge and ideas that help the economy and incorporate them into his growth model as “nonrival goods.” A good is nonrival if my use of it doesn’t restrict your ability to use it. Ideas are a great example of nonrival goods, as you and I can both use the idea of, say, nonrival good at the same time. As University of Toronto economist Joshua Gans put it in a blog post about the Romer model, “to understand growth surely we need to understand what incentives there are to create and also detract from the pool of knowledge that can help future idea creators.”
In other words, focusing on how ideas are created and then how those ideas are propagated through the economy are key for long-run growth. Spurring innovation can’t and won’t be the only solution to faltering growth. But it’ll certainly play a part.
So yes, economists and policymakers don’t know the exact policies to implement right away to boost economic growth. But there is an understanding of the general areas to focus on or not focus on. There’s a ways to go, but we know the general path to walk on.
Albert Hirschman’s linkages, economic growth, and convergence yet again…
When you think about it, broadly speaking, the question of why we have seen such huge rises in the real wages of labor–of bare, unskilled labor not boosted by expensive and lengthy investments in upgrading what it can do–is somewhat puzzling.
We can see why overall productivity-per-worker has increased. We have piled up more and more machines to work with per worker, more and more structures to work in per worker, and develop more and more intellectual blueprints for how to do things. But why should any of these accumulated factors of production be strong complements for simple human labor?
Karl Marx thought that they would not: he thought that what more accumulation of capital would do would be to raise average production-per-worker while also putting strong downward pressure on the wages and incomes of labor, enriching only those with property. Yet the long sweep of history since the early 18th century invention of the steam engine sees the most extraordinary rise in the wages of simple, unskilled labor.
There are, again broadly speaking, two suggested answers:
The first is that the accumulated intellectual property of humanity since the invention of language is a highly productive resource. Nobody can claim an income from it by virtue of ownership. Therefore that part of productivity due to this key factor of production is shared out among all the other factors. And, via supply and demand, a large chunk of that is shared to labor.
The second is that there is indeed a property of the unskilled human that makes its labor a very strong complement with other factors of production. That property is this: our machines are dumb, while we are smart. Human brain fits in a breadbox, draws 50 W of power, and is an essential cybernetic control mechanism for practically everything we wish to have done, to organize, or even to keep track of. The strong and essential complementarity of our dumb machines and our smart brains is the circumstance that has driven a huge increase in labor productivity in manufacturing. And, by supply and demand, that increase has then been distributed to labor at large.
Both have surely been at work together.
But to the extent that the second has carried the load, the rise of the robots—the decline in the share of and indeed the need for human labor in manufacturing—poses grave economic problems for the future of humanity, and poses them most immediately for emerging market economies.
So let me give the mic to smart young whippersnapper Noah Smith, playing variations on a theme by Dani Rodrik:
: Will the World Ever Boom Again?: “Let’s step back and take a look at global economic development…
…Since the Industrial Revolution… Europe, North America and East Asia raced ahead… maintained their lead… confound[ing] the predictions of… converg[ance]. Only since the 1980s has the rest of the world been catching up…. But can it last? The main engine of global growth since 2000 has been the rapid industrialization of China… the most stupendous modernization in history, moving hundreds of millions of farmers from rural areas to cities. That in turn powered the growth of resource-exporting countries such as Brazil, Russia and many developing nations that sold their oil, metals and other resources to the new workshop of the world. The problem is that China’s recent slowdown from 10 percent annual growth to about 7 percent is only the beginning….
But… what if China is the last country to follow the tried-and-true path of industrialization? There is really only one time-tested way for a country to get rich. It moves farmers to factories and import foreign manufacturing technology… the so-called dual-sector model of economic development pioneered by economist W. Arthur Lewis. So far, no country has reached high levels of income by moving farmers to service jobs en masse…. Poor nations are very good at copying manufacturing technologies from rich countries. But [not] in services…. Manufacturing technologies are embodied in the products themselves and in the machines… used to make the products…. Manufacturing is shrinking… all across the globe, even in China… a victim of its own success…. If manufacturing becomes a niche activity, the world’s poor countries could be in trouble…
By “a niche activity” I read “does not employ a lot of workers”–the value added of manufacturing is likely to still be very high and growing, certainly in real terms, just as the value of agricultural production is very high and growing today. But little of that value flows to unskilled labor. Rather, it flows to capital, engineering, design, and branding.
Noah’s points about economic development are, I think, completely correct.
The point is, however, one of very long standing. The mandarins of 18th-century Augustine Age Whitehall had a plan for the colony that was to become the United States. They were to focus on their current comparative advantages: produce, I’m slave plantations and elsewhere, the natural Reese source intensive primary products that the first British Empire wanted in exchange for the manufactured goods and transportation services the first British Empire provided that made it so relatively ridge for its time.
Alexander Hamilton had a very different idea. Hamilton believed very strongly that the US government needed to focus on building up manufacturing, channels through which savings be invested in industry, and exports different from those of America’s resource-based comparative advantage. The consequence would be the creation of engineering communities of technological competence which would then spread knowledge of how to be productive throughout the country. Ever since, every country that has successfully followed the Hamiltonian path–that is kept its manufacturing- and export-subsidization policies focused on boosting those firms that do actually succeed in making products foreigners are willing to buy and not havens for rent-seekers–have succeeded first in escaping poverty and second in escaping the middle-income trap.
The worry is the China will turn out to be the last economy able to take this road–that after China manufacturing will be simply too small and require too little labor as computers substitute for brains as cybernetic control mechanisms to be an engine of economy-wide growth. And the fear is that a country like India that tries to take the services-export route will find that competence in service exports does not more than competence in natural-resource exports to produce the engineering communities of technological competence which generate the economy-wide spillovers needed for modern economic growth that achieves the world technological and productivity frontier.
Very interesting times. Very interesting puzzles.
The future of work in the second machine age is up to us
“Big Thinkers” about the role of technology in the U.S. economy are roughly divided into two camps when it comes to the consequences of rapid technological change on the U.S. workforce. There is the techno-optimist view that better technology complements workers and hence benefits them by raising wages. And there’s the pessimistic view that better technology substitutes for workers and therefore displaces and harms them. A debate between the two views was probably what the organizers intended for an event last week hosted by The Brookings Institution’s Hamilton Project entitled “The Future of Work in the Age of the Machine.”
The impetus for the forum was the influential 2014 book “The Second Machine Age” by professors Erik Brynnjolfsson and Andrew McAfee at the Massachusetts Institute of Technology. The authors argue that increasingly “smart” technology displaces workers by reducing the range of tasks that require human ingenuity, and by enabling economic arrangements such as off-shoring that rely on instantaneous global communication and replicability. Brynnjolfsson and McAfee are clearly in the pessimists’ camp.
Until recently, economists were largely in the optimist camp. Sure, some jobs—think buggy whip manufacturers, typists, or travel agents—might disappear, but others would arise to take their place. In the long run, increased productivity would benefit everyone in the form of higher wages.
Yet the debate last week actually highlighted a third position. If either the techno-optimists or the techno-pessimists are right, then we should see a major positive impact on worker productivity. But it just isn’t there in the data. If anything, the rate of technological change in the United States has decreased since at least 2003, specifically in the technology sectors widely thought to be most innovative.
In contrast, we definitely see worker displacement, stagnant earnings, a failing job ladder, rising inequality at the top, “over-education” (workers taking jobs for which they’re historically overqualified), and declining rates of employment-to-population and household and small business formation. What we do not see are the productivity gains, either on a micro or macro level, that are supposedly driving worker displacement. (See Figure 1.)
Figure 1
Former Treasury Secretary Larry Summers made this point forcefully at the Hamilton Project event. He said “people see there’s already a lot of disemployment but not a lot of productivity growth.” And he continued by asserting that “the core problem is that there aren’t enough jobs,” and that it’s hard to believe the future promise of labor-supplanting technology is driving current displacement. The reason, he said, is that we’d expect to see the installment of new labor-saving systems that would cause a temporary increase in labor demand during the transition.
Summers noted that back when he was an undergraduate at MIT in the 1960s, his professors said labor would not be displaced by technology. In those days, the non-employment rate for prime-age male workers was 6 percent. Now it’s 16 percent. Summers’ co-panelist David Autor added that since 2000, the education wage premium has reached a plateau and the rate of over-education has increased, both of which are hard to square with the argument that the reason for rising inequality is the advance of technology. Summers added that the idea that more education solves the problem of displaced labor is “fundamentally an evasion.” Summers’ arguments and Autor’s observation imply that if we’re wondering how things got so bad for workers, it’s not because we live in the Second Machine Age.
So if not technology, what explains labor displacement?
Broadly speaking, the explanation is this: market practices and public policies that favor managers over workers, and those who make their living by owning capital over those who make their living by earning wages. That choice lurks behind the decline in full employment as a priority in macroeconomic policymaking. It’s also behind a shift in the legal standards, mores, and incentives of corporate management in favor of the interests of owners over other stakeholders. That choice is also evident in the abandonment of long-term productive investment as a priority in public budgeting in favor of upper-income tax breaks and retirement programs for the elderly.
As Summers noted at the Hamilton Project’s event, there seems to be a lot of so-called rents—economics speak for excessive payment for something beyond its actual value—in corporate profits that can’t be understood as the fruits of productive investment. The big question is: who gets those rents? In 1988, Summers wrote an article fleshing out the idea that the division of rents between corporate stakeholders is what drives rising inequality. More than a quarter century later, he could not have been more prescient.
The good news is that if such a profound shift played out over only three or four decades, then it’s reversible. That wouldn’t be true if it were the result of the technological trends detailed in “The Second Machine Age.” So what should be the focus of public policy is to figure out ways for workers to accrue more of corporate earnings, for more unemployed and underemployed people to find full-time, productive jobs, and for the broader economy to serve the interests of the actual people who inhabit it—those who overwhelmingly derive their living from their labor.
We know what needs to be done and how to do it, because we’ve done it before. (See Figure 2.) But it’s a lot harder to actually do than doubling the number of logic gates on a computer chip every two years—the ostensible tech explanation for our current economic woes.
Figure 2
An appreciation of Robert Solow
President Obama today is awarding the Presidential Medal of Freedom to a number of accomplished Americans, including Robert Solow, Institute Professor, emeritus and Professor of Economics, emeritus at the Massachusetts Institute of Technology, Nobel Laureate in Economics, and a member of Equitable Growth’s Steering Committee
Robert Solow’s name is familiar to anyone who’s taken an introductory macroeconomics course. Solow’s model of economic growth is the first, and for the vast majority of students, the only growth model they will learn. And it’s for this work that Solow won the Nobel Prize in 1987.
The Solow growth model has one key takeaway: the source of long-term economic growth is technological growth. Before Solow’s 1956 and 1957 papers outlining the model, some economists believed that a country could boost its rate of economic growth by increasing its savings rate or adding more workers to its labor force.
But Solow’s model shows something else. Increasing the savings rate could get an economy to a higher level of output after the increase, but the long-run rate of economic growth wouldn’t increase. Doubling the savings rate would increase a country’s GDP per capita, but it wouldn’t change the fact that the economy would grow at the same rate as before. But a “technological” advance boosts the long-run growth rate of the economy.
Think of it this way: an increase in the savings rate moves an economy along a line, but technological growth shifts the line out.
Now by technology Solow’s model doesn’t mean just advances in computers or robots, but rather anything that allows for a more efficient use of capital and labor. In that way, technology is essentially the same thing as total factor productivity. What determines the growth in TFP over time is still very much an open question in economics.
But Solow’s model is important for guiding how we thinking about economic growth in the real world. For example, once you understand the Solow model you realize a country like China growing much faster than the United States isn’t so surprising. China is experiencing catch-up growth as it invests more in its economy and adopts technology and other resources from richer countries. Eventually China will catch up to the technological frontier and grow at about the same rate as the United States. At least in the long-run.
As for countries already at the frontier, the model indicates that the path to sustainable long-term economic growth is to improve productivity. Rich countries can help boost the productivity of labor by improving access to and the quality of education, increasing the productivity of capital by creating institutions that allocate it more efficiently, fostering innovation, or a variety of other policy options.
Solow’s most famous work is certainly theoretical, but it has clear policy implications. Solow himself delved more directly into the world of economic policy when he served in government. He served as a senior economist for the Council of Economic Advisers during the Kennedy Administration in the early 1960s.
Though Solow officially retired from MIT in 1995, he continues to engage in the economic and policy debates of the day. He wrote one of the best received reviews of Thomas Piketty’s Capital in the 21st Century published in the New Republic. And he does not shy away from engaging in contentious debates.
The Presidential Medal of Freedom is awarded to individuals who make especially “meritorious contributions” to society. Robert Solow’s contributions certainly have great merit. Through his groundbreaking insights into economic growth, his government service, and his role in the public debate, Solow has helped create a more prosperous United States.
John Podesta: Income inequality’s ripple effect
John D. Podesta, discussing the launch of the Washington Center for Equitable Growth and whether and how economic inequality and economic growth are linked.)
Last week, Barack Obama, delivering the clearest and most powerful economic policy speech of his presidency at an event sponsored by the Center for American Progress, identified “the combined trends of increased inequality and decreasing mobility” as “the defining challenge of our time.” The week before, in his first papal exhortation, Pope Francis robustly criticized “trickle-down theories” of economic growth as having “never been confirmed by the facts” and as leaving behind the poor and vulnerable. Soon after being awarded the Nobel Prize in Economics, Robert Shiller told the Associated Press that inequality was “the most important problem that we are facing now today.”
This article originally appeared in Politico Magazine on December 9, 2013.
These concerns are serious. For the last three decades, the U.S. economy has been growing dramatically more unequal and less mobile by nearly every measure. The fact is that we don’t know nearly enough about what high inequality means for economic growth and stability. We need a better understanding of how inequality affects demand for goods and services and macroeconomic and financial imbalances. We are in the dark on whether and how inequality affects entrepreneurship, or whether it alters the effectiveness of our economic and political institutions, or how it affects individuals’ ability to access education and productively employ their skills and talents.
That’s why we’ve established the new Washington Center for Equitable Growth, a long-term effort to support serious, sustained inquiry into structural challenges facing our economy. Our aim is to enable rigorous research on the relationship between inequality and growth through a competitive, peer-reviewed, academic grant program; to elevate the work of young scholars and new voices; and to help make sure cutting-edge research is relevant and informative to policymaking debates.
The basic facts bear repeating. Income inequality in the United States today has reached levels last seen during the Roaring ’20s. Over the last three decades, the top 1 percent of incomes have risen by 279 percent, while the bottom fifth of workers have seen an increase of less than 20 percent. In 1979, the middle 60 percent of households took home 50 percent of U.S. income. By 2007, their share was just 43 percent.
These trends have continued since the end of the Great Recession. Ninety-five percent of income gains since 2009 have gone to the top 1 percent of earners. In 2012, the top 10 percent took home more than 50 percent of the nation’s income—a record high. After a brief period in the late 1990s during which incomes rose across the board, median wages stagnated during the 2000s, and have remained depressed during the economic recovery.
These trends are aided and abetted by a dominant narrative defining how the economy grows. According to conventional wisdom, inequality may upset or offend us, but it’s a necessary part of a competitive economy. Economic growth is driven by the wealthy few, who make investments, build businesses, and create jobs—ideally, according to some, in an atmosphere of small government, low taxes and limited regulation. Policy interventions to reduce inequality or support lower and middle-class Americans are assumed to hurt job creation or harm growth.
“Over the years, as I’ve looked for the evidence behind this story, I’ve found it to be flimsy,” Nobel Prize laureate Robert Solow says in a video that premiered last month at WCEG’s launch. “Sometimes there’s not much evidence there at all.”
This tough-love, winner-take-all narrative dominating policymaking is far too limited a way to think about how a complex, modern, diverse economy like ours expands and thrives. The strongest periods of economic growth in the 20th century were also times when incomes rose across the board.
With the guidance of distinguished academic economists and thinkers from around the country, WCEG will start by asking questions about the relationship between inequality and economic growth—questions for which we don’t purport to have the answers.
But we know asking the questions is important, because inequality matters to Americans. About half of public school students in the South and West today live near, at or below the poverty line. At the same time, the educational achievement gap between low- and high-income students has increased by about 40 percent since the 1960s, even as the black-white achievement gap has shrunk.
And while life expectancy has continued to increase, albeit at different rates, for most demographic groups, it has declined by 5 years for white women who do not have their high-school diploma. It’s an unprecedented drop for a prosperous, modern, industrialized economy, and researchers can only speculate on why it is happening.
We need to understand what the impact of these and other trends will be on our economy in the long term, and how policymakers should respond now. Over the course of the 20th century, many countries produced great wealth, but no combination of economic and political systems has resulted in shared prosperity or economic dynamism to rival the United States. As we move forward into the 21st century, understanding how to sustain that prosperity and dynamism is in the interest of us all. A clearer understanding of how today’s levels of inequality affect growth and stability—and how to best promote a more equitable economy—is a critical place to start.
An extended chat with Robert M. Solow
The full video of Nobel Prize winner and MIT Professor Emeritus Robert M. Solow discussing inequality and equitable growth at the launch of the Washington Center for Equitable Growth:
John Podesta’s Remarks at the Launch of Equitable Growth
John Podesta delivered opening remarks at the launch event for the Washington Center for Equitable Growth on November 15, 2013.
Good morning. Thank you all for joining us as we launch the Washington Center for Equitable Growth. And thank you, Heather, for your kind words and your hard work to make Equitable Growth a reality.
We would not be here today if not for the efforts of many passionate, intelligent people. Before I begin, a few thank-yous are in order:
The members of our steering committee for their time and energy; led by our intellectual godfather and inspiration for this project, Bob Solow;
The talented academics and researchers who have joined our Research Advisory Board, whose help and expertise we will call on often in the months and years to come;
And, of course, all of our distinguished panelists, some of whom have traveled a long way to be with us today. Thank you for being here.
I also want to make a special thank you to my friend Herb Sandler and the foundation he and his late wife, the wonderful Marion, founded, for their leadership and support.
I also want to acknowledge and thank Neera Tanden, the President of the Center for American Progress, for supporting and housing Equitable Growth at the Center for American Progress and for sustaining an environment of open inquiry and a constant search for deeper understanding about how our economy works.
It’s wonderful to be in this historic synagogue, this beautiful old building which has been a cornerstone of the District of Columbia’s civic and community life for more than a hundred years.
I trust it won’t come as a shock to anyone in this room when I say we live in a country where incomes have been increasingly unequal since 1979. Today, our income distribution more closely resembles that of El Salvador than Canada.
Over the last three decades, the top 1 percent of earners have seen their incomes increase by 279 percent. But the incomes of the bottom fifth of workers have risen by less than 20 percent.
Since the end of the Great Recession, the top of 1 percent of earners have captured 95 percent of income gains. Last year, the top 10 percent of earners took home more than half of the country’s total income.
Income inequality in the United States today has reached levels not seen since the Roaring ’20s.
These trends aren’t abstractions. They have real and serious consequences for the American people. The unemployment rate at the bottom of the income scale is above 20 percent, while unemployment among the richest Americans stands at just 3.2 percent. That’s not abstract. Last year, one in five children under 18 lived in poverty, the highest rate since the early 90s. All the gains we made in the fight against poverty during the Clinton administration have been washed away. That’s not abstract.
The conventional wisdom says that inequality, even dramatic inequality like we have today, is an inevitable byproduct of a competitive market economy. For many years, certainly among conservatives but also among some progressives, the notion that policy interventions that dampen inequality would also hurt growth has not been adequately challenged.
For some, these assumptions go further: that the ingenuity of the American people can flourish only in an atmosphere of small government, limited regulation, and low taxes on the rich. Growth comes from high-income investors, the so-called “job creators.” Inequality may be unfortunate—it may insult our sense of fairness—but tolerating it is necessary if we want strong economic growth. Or so we often hear. Despite the lack of evidence that it’s true.
We think that is far too narrow a way to understand how an economy like ours actually grows and thrives. Today, the U.S. has rates of inequality comparable to developing countries, despite having a far more complex economy—but we’re largely in the dark about the implications of that fact.
Recent research in the international context suggests that more equal societies generally experience longer periods of economic growth. Other studies point to the importance of issues ranging from investing in human capital to encouraging political inclusion as ways 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.
We are launching the Washington Center for Equitable Growth to help accelerate new, cutting-edge research into how these deep structural changes affect growth and stability. We want to facilitate a deeper dive, through a competitive, peer-reviewed grant program, into understanding the mechanisms through which inequality affects growth. We want to help make important new research on economic growth and stability relevant to policymaking. We want to help support and elevate excellent work from talented younger scholars, a number of whom are joining us here this morning. And we want to shift the debate away from polemics and back towards a substantive, evidence-backed conversation here in Washington.
Ten years ago, I worked with Neera, Sarah Wartell, and a small group of people to start the Center for American Progress. We wanted to build an institution where progressive leaders could hone their policy ideas and collaborate across a range of critical issues, from national security to clean energy to education. I’m tremendously proud of what we have achieved, and I know CAP will continue to be a leader in Washington for decades to come.
But I’ve always thought that academic research is an underutilized resource in the policy debate. Too often, rigorous research and analysis, even when it concerns our most critical social and economic issues, doesn’t make its way from the academy to the shores of the Potomac, where policymaking by anecdote or instinct too often takes precedence. But when academic economists tell us that they don’t have clear evidence yet, it’s hard for policymakers to know the best road forward. Even where we do have answers, it can be difficult for academic research to have an impact on the policy debate given the separation between these two communities.
So we’re fortunate to be guided by a truly outstanding group of academics with interest or expertise in policy. Throughout our planning, we’ve engaged with three generations of leading economic thinkers: one represented by Bob Solow; the second by Laura Tyson and Alan Blinder; and the third by Raj Chetty, Emmanuel Saez, Melody Barnes, and Brad DeLong.
Today, we’ll hear from some of these leading scholars, who are really well-positioned to dive into the questions, and from some of those policymakers, who are demanding a more rigorous evidence-based point of departure for the policy battles that lie ahead. What you will hear today are the kinds of interesting and insightful conversations on which we believe the debate on inequality and growth must be based.
Now, it gives me great pleasure to introduce a true lion of the economics profession, Professor Robert Solow, who I know wishes he could be here with us in person today, but who’s such an inspiration to this effort we went to him to get his thoughts on the matter.
It would be hard to say that better or more succinctly. Today would not be possible without the support and expertise of dozens of passionate, dedicated people. There are representatives from many organizations and foundations here today who have been leaders in supporting important research and casting a critical eye on unanswered economic questions.
One of those people is Rob Johnson, the president of the Institute for New Economic Thinking. We’re thrilled to have Rob here with us today to say a few words. Under Rob’s extraordinary leadership, INET has sponsored some truly cutting-edge, exciting research on the economic challenges of the future. We’re looking forward to a long and fruitful partnership with Rob and with INET.
Please join me in welcoming Rob Johnson.
An Interview with Robert M. Solow
Nobel Prize winner and MIT Professor Emeritus Robert M. Solow discusses inequality and equitable growth in a video presented at the launch of the Washington Center for Equitable Growth.