Inequality: What Can Be Done?
Anthony B. Atkinson
Harvard University Press
Inequality will be everywhere and nowhere in the 2016 presidential debates. Given the way the rhetoric has evolved among the leading candidates, the economy will likely take center stage. The general tenor will be that something has gone wrong, that the economy isn’t working for everyday people. Yet, the moment it comes to explaining why, conventional wisdom will trap the conversation in a state of false idealism, if not paralysis.
There was a preview of this with President Obama several years back. For a brief moment in late 2013, Obama discussed “a dangerous and growing inequality and lack of upward mobility [as] the defining challenge of our time.” But this quickly transitioned into a conversation about opportunity, with the argument that “opportunity is who we are. And the defining project of our generation must be to restore that promise.”
Clearly, responding adequately to inequality is about much more than the government encouraging people to take advantage of opportunity. But conventional wisdom continues to insist that culture and technology—rather than public policy—are the leading drivers of inequality. It consistently argues that bold solutions won’t work, because they will reduce business growth and innovation by such a degree that the entire effort will become counterproductive.
Breaking out of this rhetorical trap is one of the ambitions of Anthony B. Atkinson’s recent book, Inequality: What Can Be Done? There have been countless books on inequality in the recent past—some arguing that it is a pressing problem and others arguing that it is not—but Atkinson’s stands above the crowded field. By pairing quantitative economic analysis with a clear moral argument, he provides lay readers with a bracing and accessible guide to the current inequality debates. The only thing missing is how to turn reform plans into a political reality, a challenge that will likely define the coming decades.
"Poverty is a more powerful influence on the outcome of inner-city children than gestational exposure to cocaine."
Atkinson, now 71 and a professor at the London School of Economics, is largely responsible for making the study of inequality a central focus of the field. His commitment to building historical and international databases of inequality statistics over time has allowed the sophisticated work being carried out today to flourish. During a long period when leading economists thought inequality was a potentially harmful distraction, he fought for its relevance.
There probably isn’t a better introduction to the way progressive economists view the economy than this book. Atkinson notes that “after many years of working on the empirical effects of public policy, I have concluded that it is remarkably difficult to shift people’s opinions if they are carrying in their heads a theoretical construction” derived from introductory economics textbooks. Atkinson’s guide is even more important as progressive economists become bolder in their suggestions for the economy. Whether you want them to succeed or fail, this book gives you their worldview.
Readers who keep up to date on inequality scholarship might be shaking their heads no, pleading for a respite from this type of reading, especially after critics insisted that Thomas Piketty’s Capital in the 21st Century was mandatory. And that’s fair. But Atkinson’s book is the perfect complement to, perhaps even the complete opposite of, Piketty’s landmark. Where Piketty meanders and repeats himself, Atkinson is tightly focused. Where Piketty speculates about the potential “laws” of economics in the future, Atkinson grounds his analysis in the institutions of the recent past.
Atkinson skillfully and lucidly describes the academic infighting over how to define inequality. Studying it is a bit like standing in a dark room with a strange, giant statue and a small flashlight; what you can see depends on where you point your data beam. Point it at the very top, at the one percent—whose share of national income doubled between 1978 and 2012—and it’s harder to see those in the middle. Point it at what people earn, and you won’t see what they spend.
The first disagreement among economists is the subject of measure. Are you looking at households, or are you looking at individuals? Are you looking at tax records, or are you looking at surveys? Surveys can tell you about the things people actually buy, but they are very unreliable. To see what is going on at the very top of the income distribution, you need to look at individual tax records, but that methodology provides less information on the shifting nature of households, a major force in the middle class.
The second dispute is more interesting: It’s over what should be included in the category of income. When asked, most people think of their income as the amount an employer pays them to work a job. But there are other considerations: how much is taken out in taxes; what benefits people receive from their employer; and what benefits people receive from the government, either in cash or cash-like compensation.
Conservatives tend to emphasize trends that make it look like inequality hasn’t grown as much as it has, using recent expansions of Medicaid and food stamps to bolster income figures. Citing these programs may make the economy look better for working people, but there’s some irony in conservatives pointing to the generosity of the very programs they are trying to cut.
There’s no single best way to align the data, but there is general agreement that those at the very top have increased their share of national income in recent decades. So the conventional wisdom doesn’t deny that inequality has increased. It argues that inequality doesn’t matter. Under this thinking, what’s important is providing opportunity and fighting poverty.
Though Atkinson agrees these are important priorities, he also argues that we need to move beyond simple bromides. For those who do end up unlucky, all the opportunity in the world won’t erase the hazardous effects associated with living or growing up in poverty. The stress and chaos, particularly for children, is a kind of poisoning. As one prominent health researcher described it elsewhere, “poverty is a more powerful influence on the outcome of inner-city children than gestational exposure to cocaine.” Once it becomes entrenched, poverty is transferred intergenerationally, disrupting whatever progress is made on the opportunity front.
Atkinson also debunks the second pillar of conventional inequality wisdom: the idea that inequality is a natural result of free markets, particularly seismic shifts in technology. Under this narrative, the rise of computers, robots, and automation is presented as a gold rush, beneficial for those with the skills and tools to extract value from the new economy and detrimental for those without them. Since this is a natural by-product of the way markets are supposed to function, there’s little that can be done without triggering harmful macroeconomic effects.
While this story about technology remains a darling of the popular press, the evidence hasn’t panned out. Workers with valued skills and strong educational credentials are seeing their career trajectories and incomes stall. Evidence that robots are taking the jobs of everyday people at epidemic levels doesn’t show up in aggregate productivity figures, the growth of which remains low relative to earlier times. The real rise in inequality since the 1980s can be attributed to both the explosion of salaries in the financial industry, which doubled its representation in the top one percent of incomes, and the growing pay packages for CEOs, which more than quadrupled at large companies. It’s hard to argue that this dramatic growth at the very top is simply a function of a natural skill-to-salary match.
A problem with books like this one is that the solutions can become a word vomit of suggested policy acronyms. And even though Atkinson does offer a laundry list of proposals, he manages to avoid tedium by building them out conceptually, changing the way we think about the role of the government and the economy in the process.
Atkinson argues for a two-pronged approach. The first method involves tackling inequality in the marketplace, by ensuring that workers and consumers have more bargaining power. These interventions range from more government investment in growing the economy and making sure it runs at full employment to commitment to anti-monopoly practices. He also suggests ideas outside the current American debate, such as directing government investments into a sovereign wealth fund. These types of efforts are often lost in the conversation about how to respond to the economy, because politicians and pundits assume taxes and social insurance are the only available tools.
The second approach is focused on re-embracing both the practice and the idea of social security. This notion—that the government is uniquely situated to provide broad economic security and has a responsibility to do so—has fallen out of favor in the conservative ascendency of recent decades, but it is one Atkinson argues for convincingly.
Atkinson also confronts the final part of inequality conventional wisdom: that tackling it will lead to a stagnating economy. Though most economists subscribe to the tradeoff idea, there is actually very little empirical work supporting the theory. Atkinson points to a massive body of literature that finds, well, nothing. There is no consistent relationship between efforts to combat inequality and economic growth among rich Western nations. Inequality is simply a choice. And it’s a choice he argues we mustn’t continue making.
Atkinson’s book represents the best case an economist can make on these issues. But Atkinson can’t claim certainty on the best way to amass the political will necessary for solving any of these problems. The gap between working-class interests and the concerns of the exploding one percent remains wide.
Atkinson paints a world where liberals want to expand government and conservatives want to restrain it. But we’ll likely see these coalitions fracture in the future: Arguments over how the government should provide economic security will become more and more complicated. And even if political interests did coalesce, less than 30 percent of the voting public actually trusts the government’s ability to put these types of policies and programs into action.
All of these issues pose serious challenges to a program designed to tackle inequality. Yet the fact that we even understand inequality as a real problem with nuanced constraints is something we owe to Atkinson, who helped make it the serious focus of inquiry it is today. This book is a forceful summary of that body of work, and stands as the best introduction to the concerns that will hang over all of our discussions of the economy in the 21st century.
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