Last Thursday and Friday the Hoover Institution at Stanford hosted a wonderful Conference on Inequality in Memory of Gary Becker. John Raisian and I opened the conference commenting on the appropriateness of both the venue and the topic: Gary spent a great deal of time doing research at Hoover over the years, and he began diagnosing and recommending policy solutions to inequality problems decades ago, long before the current explosion of popular interest.
I recalled his policy advice on the issue two decades ago in a presidential campaign memo: “we have seen income distribution widen in the United States and other countries” and that reflects, he said, “a particular problem with the education and training of those at the lower end of the income distribution.” He advised that “the aim of policy reforms in this field should be to help stimulate economic growth by encouraging better quality and more effective schooling and training, especially for those at the bottom and middle of the human capital distribution.” This “will both raise economic growth and also reduce inequality in earnings.”
Gary took economics very seriously, including when he applied it to policy. For Gary, economics and economic policy were inseparable, and a goal of the conference was to bring out that inseparability. Here is a quick summary. A book on the conference will appear soon, and more information can be obtained from the individual speakers.
The conference began with an overview of the facts placed in context by Jim Pierson who made use of his provocative new book The Inequality Hoax and an informative chart book prepared for the conference by Tom Church. Jim reviewed the data collected by Piketty and Saez and put these in the context of the recent policy debate in the US.
We then shifted to Casey Mulligan whose presentation, “The Effects of Redistribution Policies on Growth and Employment,” showed that attempts to reduce inequality through a host of new government re-distribution policies had the unintended consequence, at least during recent years, of lowering economic and job growth. At the end of his presentation Casey conjectured (in jest?) that the reason a survey of economists at the Chicago Booth School found that these “stimulus policies worked” was that no one on the survey took Gary’s price theory course either at Chicago or Columbia.
Josh Rauh’s session was called, “The Broad-Based Rise in the Return to Top Talent.” Josh compared two opposing views of the recent increase in income inequality: the economic growth incentive view, in which lower marginal tax rates increase incentives and economic growth, versus the rent-seeking view, in which lower tax rates, for example, reduce the resistance of corporate boards to very high executive pay. He presented reams of data and examples more consistent with the first view, which of course has bearing on the question of what to do.
Chad Jones, in the session “The Economic Determinants of Top Income Inequality,” presented a nice workable model—thus in the Becker tradition—that enabled him to determine the factors that affect the income distribution over time and across countries. A special feature of his model was a two parameter combination determining the pace of technical change and the dampening of creative destruction. He used the models to explain why income distribution did not widen as much in France as in the United States in recent years.
At the end of the first day of the conference, Eddie Lazear and George Shultz reminisced eloquently about their long association with Gary over the years both at Chicago and at Stanford. There is no way that I can do justice to their touching tributes, so you will have to wait for the conference volume.
The second day of the conference began with the session “Inter-generational Mobility and Income Inequality: Facts, Explanations, and Policy Implications.” One of Gary’s former students, Jörg Spenkuch, presented a paper that he was working on with Gary when Gary died. It was one of Gary’s last presentations at the Hoover Working Group on Economic Policy, and I remember that well. It traced out the connection between the income distribution and inter-generational mobility. A key issue in the model was the connection between parents’ human capital and the ability or effort with which parents are able to pass on that human capital to children.
The next session was a fascinating “debate” on “Income and Wealth Inequality in America and Policies to Address It” with Kevin Murphy and Emmanuel Saez. While they covered many issues, the main take-away was that Kevin Murphy focused on poor education (insufficient supply response) as the source of the inequality problem and recommended improvements in education, while Emmanuel Saez focused more on higher tax rates as the way to reduce inequality.
In keeping with the policy theme, the conference concluded with a Panel on Solutions, with John Cochrane, Lee Ohanian, and George Shultz focusing mainly on what policies would most help those below the 1%. John focused on the fundamental question of why so many in academia, the media, and policy circles seem to care so much about the 1%. (A survey reported by Dan Kessler at the conference found that most other people do not care so much). John argued that such an emphasis gets in the way of implementing policies which actually help those with lower incomes. Lee Ohanian focused on education (with many graphic stories and statistics—including examples of what is actually on those achievement tests) and immigration reform. Shultz proposed a more hard-nosed, roll-up-your-sleeves approach with practical solutions including health and micro-finance programs like those promoted by Muhammad Yunnis. No one on this panel called for higher tax rates as a solution.
A stated purpose of the conference—starting from the early planning stages—was to address “the key policy question of what to do, with particular attention to those at the bottom of the income distribution and the overall effects on economic growth.” As evidenced by this last panel and indeed most of the other presentations and discussions at the conference, this was exactly how the conference turned out.