The Brookings-Okun Event

UPDATE: Oh, excellent! Here is the transcript.

Heather Boushey and Larry Summers posted their prepared thoughts for last week’s Brookings-Okumn event. They are very good, and are well worth reading. The others–Wessel, Mankiw, Kearney, Wolfers–alas, did not. I am told that they were very good in the panel discussion. But where am I going to find the hour and a half to listen to it? And there appears to be no transcript. Serious bummer.

The most important point to emphasize, of course, is that Arthur Okun wrote his Equality and Efficiency: The Big Tradeoff in an America in which the top 0.01% got 1% of the income and the top 0.01-1% got 9% of the income, while today we live in America in which the top 0.01% gets 6% of the income and the top 0.01-1% got 18% of the income.

It was not completely implausible to argue back in the early 1970s that the United States had, for white guys and only for white guys, gone over the top of the redistributional Laffer curve and that further increases in social insurance no longer both raised the level of material prosperity and increased the rate of economic growth. Now, however, the claim that we are on the far side of some redistributional Laffer curve is ludicrous–our rich today are, in bulk and on average, not an entrepreneurial minority who are insufficiently incentivized but rather a rent-extracting minority who hobble the rest of us with their control over the levers of political-economic power.

UPDATE:

JUSTIN WOLFERS: “I’m willing to stipulate there’s an efficiency/equity tradeoff…

…I think Okun’s focus on it is the result of the great confidence of economists of the day 50 years ago that we lived in an economy where we were somewhat close to that frontier. I think if you thought about today’s politics, you would be less confident. If you looked at the policy development subsequently, you would be less confident. I also think the scope of economics has changed now from a discipline that’s far more infused in both sociology and political science, and I think that pushes you to look beyond tax and transfer policy…. If you turn the question around and said is the implication of Okun that the pie needs to be smaller in order for each of us to have more equal slices, I think the answer is certainly not….

Discrimination. The effect of emancipation of women over the past 50 years has been one of the most important engines of economic growth, and of course, reducing inequality within households and within families. We have seen in some industries a rise in monopoly… rents…. Much of the American growth miracle was the result of people going to school. Thirty years ago, American men decided to stop going to school, so we haven’t had increases in educational attainment in several decades. American women, I think, have been somewhat more sensible…. When you look at pictures of Baltimore and you look at pictures of Ferguson, you see neighborhoods where investments could surely help both growth and inequality. The problem with mass incarceration was not on the agenda in Okun’s day, but surely is a huge issue in terms of both inequality and growth. We have seen the decline of the American Union movement. Unions certainly helped hold inequality down, the more functional among them could also help raise productivity. The less functional… maybe not…

DAVID WESSEL: “It seems to me it is striking when you read Okun’s book and he describes…

…inequality 40 years…. Okun writes that the richest one percent of American families have about a third of all the wealth, and the bottom half hold about five percent…. [Today] the richest one percent have over 40 percent of the wealth, and the bottom half have only one percent. Doesn’t that suggest there is a chance we are farther from the frontier?…

Suppose, for a moment, you were teaching your college students social theory—but that you were back in 1750.

Who would you want your students to have at hand to read?

We will not do the boring think of confining you to assigning solely authors who had written before 1750. Assume that the appropriate time machine is available. But, equally, we will not do the boring thing of allowing you to assign historical accounts of what in 1750 was then the future. This is an intellectual exercise: we are interested in analytical perspectives on societies and how they work.

The century after 1750 is, of course, the century of the Democratic Revolution and of the Industrial Revolution. It also contains the first stirrings of racial equality, or at least of anti-slavery. It contains the first reduction in social pressure on women to focus on reproduction and household production only. And it contains the first descents of theology: the first intrusions into this world of the apocalyptic eschatological utopianism that had been sought by prayer more than political action—the first intrusions of what my teacher Jeff Weintraub calls “the total conception of virtue”.

What five thinkers would best prepare students as of 1750 to analyze the century that was to come?

I would say:

• Karl Marx for the Industrial Revolution;
• John Stuart Mill fill for human equality, and the coming of democracy as a political phenomenon;
• Alexis de Tocqueville for democracy as a social cultural phenomenon, both the persistence and the decline of the old régimes;
• Emile Durkheim for collective effervescence; and
• Adam Smith for the market economy.

Now let’s move forward a century to 1850. Who are the best five theorists to read to prepare students for the Belle Époque and then the Age of Horrors that was to follow? In my estimation, at least, John Maynard Keynes and Karl Polanyi are the most obvious choices to cover all of the coming of the globalized economy, the initiation of modern economic growth, and the dilemmas of political-economic management. After that, however, it gets much harder. There are many possibilities—and they all seem to me to be grossly inadequate to the task. I am tempted to go with Mill and Durkheim and Tocqueville again. But in the final analysis it seems to me that they miss too much. I choose Max Weber on modes of domination. I choose Vladimir Lenin over Karl Marx, for what one wants is for people to understand not the empyrean theories so much as the ideas that moved people to struggle, kill, and die. And I choose Hannah Arendt. All of these are very contestable, And I contest them in my own mind every day, even as I write this.

Now let us shorten our view somewhat.

Let us move ahead to 1950. And let us try to think not who would be most useful for analyzing 1950-2050 but merely for 1950-2015—for that is all that we have seen. We do know what was taught in social theory in 1950. What was taught is what I call the “Social Studies problematic”: Mill, Marx, Weber, Durkheim, with others (Freud, Foucault, Tocqueville, Smith, pick your favorite) added to that core. But that was what was taught, not what should have been taught. What should have been taught would have been theorists who would have enabled students to analyze and grapple with:

• Les Trente Glorieuses;
• The ossification and then collapse of the Soviet Empire;
• Decolonization, and the economic rise of East Asia;
• The coming of the Neoliberal Era and then of the Second Gilded Age.
• The conspicuous failure to resolve or even to balance off the dilemmas of political-economic management; and
• Equality and diversity.

Who would have been the best five to assign back in 1950, assuming that you had at your disposal then the proper time machine to pull the books off of today’s library shelves?

And then, after you have answered that question to your satisfaction, the kicker. Over at http://io9.com I see:

Robert Charles Wilson: “I’m tempted to repeat the old adage that science fiction doesn’t predict…

…it speculates. But science fiction does make one prediction that always comes true, and it’s the deep Heraclitian truth at the heart of the genre: change happens. Change is inevitable. It devours everything familiar and builds strange new structures on the quicksand of contingency. Step in the same river twice? Kid, we don’t even have that river anymore. We paved it over back when the rain stopped falling.

So what might be new and different in the next 10 years? We can start by asking what’s already beginning to feel old. And what feels old (to me) is our political and economic discourse. Here we stand, on the brink of a global climate catastrophe and embedded in an emerging oligarchy armed with a surveillance apparatus of unprecedented reach and power, discussing politics in terms Victorian philosophers would have recognized. There is a tinderbox of unmet expectations and frustrated idealism out there, and a genuinely captivating new political or economic idea—good or bad—could start a global conflagration.

How might such an idea arise? I would point at recent progress in cognitive science. We’re standing on the verge of a profound new understanding of the one subject Enlightenment philosophy could never really get a grip on: human nature. As we come to know ourselves better, we’ll begin to understand our political and social behavior differently—and, inevitably, we’ll find ways of manipulating and modifying that behavior. And how will that play out? Beats me. I’m just a science-fiction writer. But it invites some interesting speculation.

It is, I think, not 10 years but 50. But the question is very urgent: who are the five thinkers who should head social theory courses’ syllabuses today—and if those five have not yet written their books, what do their books say?

Must- and Should-Reads:

• FRB Atlanta: “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 0.8 percent on May 5, unchanged from May 1…”
• Mike Orcutt: “Bitcoin’s real promise… is… the underlying technology…. The blockchain will be valuable for many other things besides tracking payments…”
• Roman Frydman (1982): Towards an Understanding of Market Processes: Individual Expectations, Learning, and Convergence to Rational Expectations Equilibrium
• Must-Read: Bruce Bartlett: How Fox News Changed American Media and Political Dynamics
• Must-Read: Jason Furman: Smart Social Programs
• Must-Read: David Frum: British Election: What Republicans Can Learn From David Cameron
• Must-Read: Brian Watt: More Momentum Behind L.A. Minimum Wage Hike

Might Like to Be Aware of:

• Aaron Carroll: More Consensus on Coffee’s Benefits Than You Might Think – NYTimes.com
• German Lopez: Journalists should worry about the people policy hurts, not the politicians it helps
• Must-Read: Philip Bump: Mark Halperin’s cringey Ted Cruz interview is all part of the Halperin Primary

Over at Grasping Reality: Arthur Burns: Secret Diary, 1969.

Must-Read: My view was always–and subsequent research over the past generation has only confirmed my view, at least as I read the research–that the disemployment effects of safety-net programs were vastly oversold. Those who are discouraged appeared to me to be people who also had so many family responsibilities that their participation was of zero or negative societal value in the first place. The underlying subconscious logic behind overselling disemployment effects seemed to me to be one of punishing the poor, and and punishing women who either became pregnant without marriage or who could not keep a man…

• Over at Grasping Reality: There Is a Potentially-Important Piece to Be Written About ECI-Wage and Salary Divergence
• Over at Grasping Reality: Today’s Economic History: JM Keynes: Concluding Notes on the Social Philosophy Towards which the General Theory Might Lead