Breaking the political cycle of inequality

Jared Bernstein has a great presentation summary and PowerPoint on what has gone wrong with broad-based economic growth in the U.S. Jared Bernstein is currently a Senior Fellow at the Center on Budget and Policy Priorities. Previously, he was Chief Economist for Vice President Biden, and before that a senior economist at the Economic Policy Institute.

Bernstein’s talk and PowerPoint are aimed at puzzling out why the U.S. economic model in the last 30 or 40 years seems to have produced so little in the way of economic benefits for most Americans, particularly for those of low or moderate income. The basic idea is that once an economy begins to have institutional or policy features that distribute most of the gains of growth to the top income groups, this increased economic inequality results in greater political power for the top income groups. This greater power leads to policies and institutions that further intensify the inequality in the distribution of the gains from growth.  The PowerPoint provides evidence for this “vicious cycle” occurring in the U.S. context over the past 30 or so years.

I think the issue is: what do you do about it? My own view is that we have to focus on broad policies that clearly benefit the “99%”, but include some progressivity within the policy, either by the policy’s inherent nature or by some design features that target low income and moderate income groups. In other words, I’m a big fan of Harvard sociologist Theda Skocpol’s  notion of “targeting within universalism“.  There’s no way of overcoming the political imbalance without a broad based coalition.

Universal early childhood programs fit this category of policy that both provide broad benefits and target low and moderate income families. The evidence suggests that well-run preschool programs deliver similar DOLLAR benefits on future earnings of different income groups.  The similar dollar benefits imply a policy that passes a benefit-cost test for each income group if it passes such a test for any group. The similar dollar benefits also imply a policy that is highly progressive in its income distribution effects, in that the similar dollar benefits will be a much higher percentage of income for low-income groups.  If you have enough policies that provide equal dollar benefits to all income groups, the resulting income distribution will be substantially flattened from the current highly tilted reality.

Are there other policies that fit this category? We need to find many such broad policies that provide broad benefits to many groups, because any single policy is nowhere near enough to overcome the current strongly persistent trends. I’m a big fan of early childhood policies, but they only provide one component of a possible solution to the current problems with the American economic model.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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