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Paul Krugman & Tony Atkinson in Conversation | Inequality and Economic Growth

Paul Krugman & Tony Atkinson in Conversation | Inequality and Economic Growth


– Good evening everyone and welcome. I’m Bill Kelly, the President
of the Graduate Center of the City University of New York. It’s a great pleasure to
welcome you to this important discussion of Inequality
and Economic Growth. As you can see, we have
more than 400 people in the auditorium and more joining us outside in overflow rooms, and I suspect thousands more as we live
stream this conversation. That response, it seems
to me, is an eloquent testament to the urgency of this issue and of course to the esteem
in which our speakers are held, Tony Atkinson, Paul
Krugman, Chrystia Freeland. We are grateful to you and to all of you for joining us this evening. Tonight’s event is cosponsored
by The Graduate Center’s Advanced Research Collaborative, ARC, acronymically speaking,
and The Luxembourg Income Study Center, that’s LISC. ARC is an exciting initiative, we think, whose mission is to deploy
the intellectual capital of The Graduate Center to engage some of the most pressing theoretical
and logistical issues of the day. One of ARC’s core
missions is to disseminate its research through public programming and the use of new
media, excellent example is this evening’s program. When we launched ARC,
we identified several core research priorities,
and one of those, the focus of our conversation this evening is social and economic inequality. The Graduate Center’s
commitment to research and teaching related to
inequality is strong, and our interest in this
inquiry runs very deep indeed. LISC is one of The Graduate
Center’s crown jewels. It’s, as you all certainly know, an internationally celebrated data archive and research center devoted
to comparative research on socioeconomic inequalities. Combining the respective
strengths and engaging the congruent interests of
ARC and LISC have proven to be a productive strategy,
one that has advanced the interest, I believe
of both parties and has deeply enriched the
scholarly, the pedagogic, and the public outreach
of The Graduate Center. By way of very brief preview
of tonight’s conversation, I would note simply that few
social and economic conditions are more compelling or more
vexing than inequality. Yet, economic inequality
as distinct from poverty has attracted historically
much less attention in the United States than it has elsewhere most notably in Europe. This neglect is quite remarkable given the extreme levels of inequality that have long characterized U.S.
income distribution. Of late however, this
anomaly has been unraveling. Today some of the most
crucial, timely, and contested questions concern the economic
effects of inequality. We are grateful to have this opportunity to pose a set of questions
about that subject to two of the world’s most
distinguished economists, Professors Tony Atkinson and Paul Krugman. And, we are honored to
have as a moderator, the accomplished economic
journalist Chrystia Freeland. Let me now introduce Janet Gornick. She is professor of political
science and sociology at The Graduate Center and director of the Luxembourg Income Study Center. She will say a few words about LISC, provide some logistical information, and introduce our speakers. Please welcome Janet Gornick. (clapping) – Good evening. Thank you, President Kelly. I am indeed Janet
Gornick director of LISC, a cross national data
center in Luxembourg, in the country of Luxembourg
with a satellite office here at The Graduate Center. Very quickly, I’m gonna
tell you what LISC does. That’s a question we’re always asked. In short, we gather datasets
from around the world, now from nearly 50 countries,
and we harmonize them into a common database so that researchers and policy makers can use
them for comparative research. And, I’m happy to say
that many do exactly that. Since our founding in the early 1980s, several thousand researchers
have used our data. Most of this research has
been aimed at understanding the nature and the
institutional underpinnings of income inequality and
poverty and of labor market disparities. As President Kelly noted,
The Graduate Center is committed to strengthening
and extending research related to inequality
and to raising the public visibility of that work
and all of us at LISC in our office in Luxembourg
and here at The Graduate Center are thrilled to be working
with our colleagues here to build this inequality initiative. Before I introduce the
evening and our speakers, I wanna indeed give a few logistics. Tonight’s event is being live streamed, and if you haven’t
already, on your way out please stop at the information table, we have some information there from LISC. We have a brochure, we have a graph that we have produced
that shows inequality across 25 rich countries
which we put there to help set the context and the
website for our data and our institution is available there. And, also please take a moment to stop at the book table if you
haven’t had a chance already where you’ll find for
sale Tony Atkinson’s book, Top Incomes A Global
Perspective, Paul Krugman’s book End This Depression Now exclamation mark, and Chrystia Freeland’s book Plutocrats. You’ll also find an order
form for an edited volume that will published be in
July titled Income Inequality. And, that book which I coedited
gathers 17 commissioned studies based on the LISC
data, one of them coauthored by Tony Atkinson. So tonight we turn our
attention to several intertwined questions about inequality, and these questions prompt us to ask the prior question why do we care? Why does inequality matter? Many would argue that inequality
especially when it’s high or rising raises fundamental
questions about equity and justice. From this perspective,
extreme or increasing inequality is intrinsically unacceptable especially against the
backdrop of national affluence. The haves simply have too much
relative to the have nots. But, a different set of
concerns is currently capturing the attention of legions of
scholars and political actors in the United States and
abroad, and these concerns are mostly instrumental
meaning that we worry about inequality because of its effects. And, from this vantage
point, inequality is mainly problematic
because it causes a range of undesirable consequences. And, today economists are at the forefront of this growing and lively
public conversation. Last year, Joe Stiglitz
helped to popularize the claim that inequality has a price. He argued the the
consequences of inequality may intensify over time as
vicious cycles take hold. Jamie Galbraith concurred
writing that increasing inequality is a warning
sign that something is going wrong and a pretty good indicator throughout history that
untoward developments may be on the horizon. An economist working
from a more conventional perspective at The World Bank, the IMF, and the OECD are also
assessing the possibility that inequality has harmful effects. And, some have argued openly
that the United States in particular is headed for trouble. This explosion of research and debate has focused on a set of crucial questions. The answers to which are all contested. The dominant questions are does inequality harm economic growth? Does it cause economic instability and possibly catastrophic economic crises? And, does it thwart
intergenerational mobility? That is the likelihood that young people will rise above the economic circumstances of their parents. And, in addition, many
economists are joining their colleagues in other disciplines by asking does inequality
corrode the political process and ultimately democracy itself? And, tonight as Bill Kelly noted, we’re immensely grateful
that Tony Atkinson and Paul Krugman aided
by Chrystia Freeland will share their views on
these three crucial questions and ultimately will help us
to separate fact from fiction. Tony Atkinson from Oxford
University is routinely described as the world’s foremost
scholar of the economics of inequality. He’s an author or editor
of more than 30 books and a mountain of articles on inequality and related topics. He’s received honors from around the world to numerous to mention,
not the least of which is becoming a knight of the
British Empire in 2000. Tony Atkinson’s influence on inequality can’t be overstated and nor
can his legendary generosity. In any room in Europe that
contains more than one economist, he’s simply
Tony, no last named needed it’s obvious. He’s the man who’s trained a generation of inequality scholars and has supported and enriched research
institutions and data structures all over Europe and beyond. At LISC, we proudly claim
him as our board president an honor that raises our aspirations. Paul Krugman from Princeton University is the author or editor of over 20 books and an unimaginable number of articles. He too has received countless honors including in 1991 the
John Bates Clark medal, and in 2008 the Nobel Memorial
Prize in Economic Sciences. Many of us have benefited
from his scholarship, but the fact is most of us know him best as the author of a biweekly
column in the New York Times. And, he’s, I think that’s true, he’s now undoubtedly the foremost economic and political commentator
in the United States. As I told him sometime ago, I
think his most admirable trait is his uncanny capacity
never to lose his cool or his train of thought when Mary Madeline regularly insults him on ABC’s This Week with George Stephanopoulos. (laughing) Paul Krugman has also
been generous to LISC. In 2010 he graced us with a
three day visit to Luxembourg, and I had the pleasure of serving as host. Luxembourg’s national
leaders came out in droves including the conservative prime minister who engaged him in a lengthy chat about the wisdom of
austerity policies in Europe. That was colorful, I promise you that. His visit attracted more
attention in Luxembourg than any economic event
since the introduction of the Euro rivaled
only by the announcement that Tony Atkinson had
agreed to become LISC’s board president. Both Tony Atkinson and
Paul Krugman have helped to raise LISC’s star,
and all of us at LISC are really grateful to them
for signaling their confidence in the work that we do. Chrystia Freeland is
currently managing director and editor of consumer
news at Thomson Reuters. She has a long and exceptional
career in economic journalism and is most recently
the author of Plutocrats the Rise of the New Global
Super Rich and the Fall of Everyone Else. Plutocrats, a best seller, has garnered a tremendous number of
honors, and if I may say so, it’s a marvelous read if
sometimes a galling read. And, conventional accolades
aside, I was introduced to Chrystia Freeland
through her many appearances on Real Time with Bill Mahr. And, clearly if she can handle Bill Mahr and his unruly cast of characters, she’ll do well with Tony
Atkinson and Paul Krugman. So Chrystia, I turn it over to you. – Okay. (clapping) Thank you very much, Janet. Sadly for me though, Tony and Paul are much more intellectually
intimidating than the people on the Bill Mahr show. So a much higher challenge. And, just to give you
a sense of what a treat we’re all in for tonight,
I think people would agree with me that Paul Krugman is not a person who we often see as being
tongue tied or starstruck. But, he did confess in the
greenroom just a few minutes ago that he felt a bit abashed
about saying anything at all about inequality in the presence of Tony who really is the father
of this whole field and has been working on
it at time when it was a lot less trendy than it is today. The final reason that I think
we’re really in for a treat tonight is, you know, we are going to hear from two really towering
and brave intellects, they’re also both economists
who have a real popular touch. And, to give you a sense of
that, I read back through some of Tony’s papers to
get ready for tonight, and I was particularly
struck by how he framed one of his concluding sections to a paper on income inequality around the structure of the novel Happenstance by Carol Shield, a favorite of mine, I’m Canadian too. That doesn’t happen that
often in economic papers. And, Paul we of course know
has a fantastic popular touch, and to give you just a
quick snapshot of that, if you went through his blog
as I do several times a day, you would notice in the
past 72 hours, he has shared with us a picture of a
beaver dam as an example of infrastructure projects and also a clip of a Susan Vega concert. So there you go. This is, I think, really
the most important question of our time. And, it’s also really complicated. And, I thought that a great way to start would be to ask Tony to
set the stage for us. Tell us what is happening
with income inequality, and maybe give us a
little bit of global sense of where we are and what’s been happening in the past few decades. – Thank you. I must say I’ve never
seen the Bill Mahr show, so I don’t quite know what comparison. – Don’t be too flattered. – I found myself paired with John Waters which was really quite interesting. – Anyway to take up your challenge. I share your view that
this is a very important and pressing problem. But, perhaps we should just
start with some good news. And, there is some good news in this which is it’s not universally the case that inequality is increasing. There are some areas of the world notably at the moment, Latin America. I think every single country
in Latin America has seen a decrease in inequality
in the last 10 years which is rather staggering. It’s also globally the
case that we’ve seen in the last 10, 15 years some narrowing of the large gaps there are
between rich and poor countries. So globally in some respects,
we’re actually seeing perhaps a return or closing
of the big divergence that took place during
the Industrial Revolution and led to these enormous
disparities between developing countries and rich countries. So there’s some good news. But, there’s also a lot of buts. And, I think the buts are
that in most rich countries in the last 30 years or so we have seen income inequality that
is inequality in terms of what people earn, and what they receive from investments, and what
they get from the government, and pay in taxes, all these
things taken into account, income inequality has been
increasing in most countries. Not all countries,
there are some countries in the OECD, some of the
continental European countries are not seeing such an increase. But, it seems very
significantly increased. And, particularly of course
in the United States. I should say also it’s
increased in my own country, the United Kingdom more than
it has the United States. Now we sometimes think of Britain as being a little microcosm as it
were of the United States but actually we’ve seen a
bigger increase in inequality. – Well done. – Well done, thank you. All I can claim to have
contributed to it was to study it. I’m not necessarily as responsible. Although it is true that
ever since I started working, I wrote my first
book on poverty in 1969, and since then, poverty has doubled. It’s not a terribly good record. I think at the same time,
we should recognize also that it’s inequality which
affects different parts of the population. And, although it was
through the 1980s and ’90s the change was very much at the bottom of the income distribution
that is particularly the wages of people near
the bottom were being affected adversely by
trade and by competition from other countries
and by technical change making people redundant. That’s a process which
actually as somebody said is not, I think, carried
on in most countries. What has happened is at
the other end of the scale, the top end is where the
process is carried on. So the increasing inequality is now very much a top phenomenon. – Okay so, Paul if you could
comment on what Tony has said, and also specifically, you
know, he sort of concluded with something you’ve written about a lot which is both, you know, the hollowing out of the middle class and
also the pulling away of the very top. Where is the action, and what’s
going on in those spaces? – Yeah, so there are, actually I would just by the way second, I used
to, obviously the two great English speaking cities
of the world are London, and this place. And, I used to feel in
some ways that London was more of a place for ordinary people, and now I feel that New
York is more of a place for ordinary people. London just seems too much a rentier city of the global elite. And, although New York, there
was a story in the Times today about the vast
empty residence buildings for the global super wealthy, nonetheless New York is now more
of a middle class city than London which is a remarkable thing. So two things are happening, and I think they’re distinct. They’re not exactly the
same story, but I think they’re both very problematic. One is the middle class, and nobody knows what the middle class means. We don’t have a formal definition, but we do have some sense
of what that oughta be. It ought to be a certain
amount of security, a sense that you can get
by, that your children will get a decent education,
that you’ll receive the necessary healthcare that
you need when it’s required. That basically you’re
not living on the edge. And, very clearly there’s a sharp drop in the fraction of the
population that feels that way, that has that kind of status. More and more people in
this country, I think less so in the U.K. in part because
of universal healthcare which we’re sort of, kind of getting at the end of this year. But, even there, sort of
the sense that you’re living on the edge, that one thing goes wrong, one spouse loses a job, one illness. That you fall off the edge, or
simply that you cannot count on your local public
high school to provide decent education. That status has been eroding. That’s one end of it. The other is this super
elite which, you might say, “Why do we care?” Is it just pure envy? And, aside from that fact,
it’s a pretty significant amount of income that’s siphoned off. If you look at economic
growth, I think it also warps our society. It warps our priorities, and
this gets into these issues ultimately of political economy. How much does it matter that so much of the influence in our
society lies in the hands of a handful of people who
live in a material universe that’s simply beyond the comprehension of 99, Occupy Wall Street had it wrong. It’s not the 1%, it’s the .1% or the .01%. And, that’s got to be something
that’s going to disturb you if you worry about,
you know, if you have kind of a democratic ideal
of what kind of society we’re supposed to be. – Should it disturb us, Tony? – Well it certainly disturbed Plato who said the maximum
distance between the top and the bottom should be four to one. It’s not quite fair ’cause
he wasn’t counting slaves. – And, was he counting women? Did women count for Plato? – Well come to that in a moment, yes. But, anyway it gives you
a sense of four to one also would be quite hard to
imagine that happening today. But, I think I agree very
much with what Paul said just now about the
connection between these. That is the fact, or I
think it was well put by the historian Tawney
in England when he said, “What thoughtful rich people
call the problem of poverty, “thoughtful poor people
call the problem of riches.” And, these two things are interconnected. And, I think that
particularly when it comes to issues about the policy
of public provision, public schooling, and other
things, it is the ability to opt out of that which has
meant there is less political pressure to maintain equality of services and the guarantee of services. That in this way, our
lives are bound up together even though we may be very separated in terms of gated
communities and other things which separate people off. – So Paul does Tony’s
point about this ability to opt out, maybe go
someway towards answering a question that you’ve been asking a lot which is why do the
austerians continue to push for austerity and why do we
get some of these points made that, I think, you would
argue from a technical economic standpoint are just wrong. Why are these arguments raised? Is it from the point
of view from the 0.1%, actually they serve that vested interest? – Okay so for those who are new to this or have not read the
377 columns I’ve written about his in the past year. – Oh recite those columns, Paul! – Clearly we’ve had this amazing push in the midst of what is a
depression in the advanced world. It’s not the great depression. I thought that should’ve been
Obama’s reelection slogan, not as bad as the Great Depression. (laughing) But, it’s clearly a depression. This push to cut back, to cut
back on government spending, to retrench, to worry about debt even if you’re able to
borrow at negative real interest rates. And, one obvious question
is how much of that is because the relevant class, the people involved, are either
unaffected by or maybe even benefiting from the depression. And, it’s clear that they certainly are not much affected. That if we look at top
incomes, they have recovered very smartly from the financial crisis. That if we look at corporate
profits which ultimately if you ask who are the ultimate claimants on corporate profits, it’s going to be this very largely a small
number of people at the top. They’re at record levels. Now, I guess I don’t
believe there are a lot of self conscious villains there. I don’t think– – It’s not guys in dark
rooms, smoking cigars and plotting to crush– – There’s some of those. The Koch brothers maybe. (laughing) – We are live, Paul. – I’m aware. If they don’t have it in for me already, they’re not doing their job. But, for the most part, I
think it’s more just that there is this divorce of experience. That if you are in fact,
I mean I’m sometimes in those rooms, the bunch
of men with great tailors sitting around a base covered table with water bottles in front of them, that you and your friends are not feeling a lot of hardship in this. And, you are thinking sound fiscal policy. We gotta worry about
the debt, and of course these entitlement programs, they look excessively generous. And, I don’t think we would be having anything like the discussion we’re having if we did not already have a society in which so much wealth and so much power is concentrated in the hands of this group that is pretty much
insulated from the disaster that the rest of the
population is experiencing. – Tony does that group deserve to have so much wealth and power
concentrated in its hands? – Well I think, in fact,
Janet’s earlier discussion brought out clearly there are two sets of consideration. One is the consequences and
therefore thinking through whether that has the kind
of effects we’ve just been talking about, but the other is the notion of what would be a socially just society. And, I think that’s something, I’m sure everyone in this room has
probably a different view. I mean this is something we can discuss and probably disagree about. But, I think the kind of
reasons why it concerns me is that the nature of your society does depend on the extent of
differences between people, and that therefore that if
they extend to such extents we no longer feel a
sense of common purpose or cohesion, then I think that ceases then to be an effective society. – This is something
that I actually I think is important to clarify
our thoughts a little bit. And, that it’s something
I’ve tried to think about. So what do we mean by deserve? What are the different meanings? So one question would be
just some kind of notion of natural right. And, one of the things about blogging is we get to, not too often, but you get to read the comments. And, there’s a fair number of people who basically say, “What’s mine is mine, “and anything else, progressive taxation, “is taking away my things
at the point of a gun.” And, there’s really no way
to argue, well there are ways to argue with that. You can say, “Look we
all live is a society,” and this is the famous Obama,
“You didn’t build that,” remark, that road, you didn’t build that. He wasn’t saying you didn’t deserve, you can build your business. But, that is a very difficult
point to argue with. There’s a second question which is are the activities that
have made some people so wealthy actually socially
productive activities? And, the thing that London and New York have in common is that a lot of the wealth these two cities have is built upon gigantic financial industries whose main, this is the old joke, right,
name me a financial innovation of all this financial
innovation that’s generated all this wealth, name me
the financial innovation that has unambiguously been beneficial, and you’re not allowed to count the ATM. (laughing) – We were all gonna say the ATM. – And, so there’s a real question how much of this wealth has been generated by stuff that’s at best dubious and quite possibly socially destructive. And, then there’s a third
question which is optimal, and I’m almost afraid to mention this with Tony Atkinson
here, but from some kind of social welfare point
of view, what is optimal? And, here I will say I read
my colleague, Peter Diamond, who says if we tried to think about it from the point of view
of some abstract social philosopher king trying to set tax rates on the ultra wealthy,
that philosopher king should care not at all about the income of the wealthy per se
because they already have so much that the marginal
utility of a dollar is essentially zilch. We should care really about extracting the maximum revenue from them. In which case, the top marginal tax rate should be the one that maximizes revenue which to make a vague, rough guess would be 73% according to Peter. But, all of those perspectives, I think, except the first one, would suggest, I don’t know the wealthy
don’t deserve their wealth. I’m not quite sure what that means. But, that we would be a better society if they were not so wealthy. If we did things that
through some combination of financial regulation
and higher top tax rates to reduce their wealth. – Okay so Tony please comment. And, could you comment on something that I think maybe you get
in your comments, Paul, in that first category,
which is also this notion that, okay, you actually
need that inequality to have an innovative society, to have a society where
you have entrepreneurs who are willing to go
out and risk greatly, they must be rewarded
greatly to have that. – The evidence on that is mixed. – Mixed or negative? – Mixed I would say. I was just reading a
very interesting article about the question which
is discussed perennially as to why Britain had the
Industrial Revolution. And, this article interestingly argued that in fact one of the
things that Britain had, and I hadn’t really thought
about, was that it had the most developed form
of poor law at the time. And, that this had meant that people were able to take risks with the guarantee that they’d have something to live on. And, they gave examples
of various well known inventions in the cotton
industry and other industries which were invented by people
who were poor craftsmen. For whom if it failed,
there was actually something to live on which was not
true in most other countries at that time. – So universal healthcare
should help entrepreneurship? – Certainly universal provision
of guaranteeing survival, yes. I think this is an aspect we
often tend to lose sight of. The welfare state is actually partly a way of sharing risks which
benefits the rest of society not just a person. It allows people to take risks
in terms of say occupational choice or setting up a
business or something. Which if you’ve got
something to fall back on, the government is sharing
part of the risk with you. So that’s an example why
it’s not at all clear to me if there’s any negative
effects from that kind of redistribution. – There’s always a question
of where on the curve we are. I think we probably all agree that Cuba or Cuba as it was. I don’t know what’s going on now. But, that an attempt at absolute leveling will destroy incentives. But yes, very much. Dean Baker at Center for
Economic Policy and Research likes to point out that we
worship small business here. We talk about small
businesses all the time. But, actually there are a
lot more small businesses and small business people
in Europe than here. And, that has a lot to do with the fact that there is a safety net,
and that there is healthcare. And, it’s actually very dangerous. I personally know quite a number of people who reluctantly work
for large corporations. They’d really rather be on their own, but they need that damn health plan. – So to take your 73% ideal top tax rate, and I’ll ask you in a
minute, Tony, if you have a different number in mind. How enforceable is that in
a highly globalized economy in which taxation happens nationally but capital and capitalists live in an international space,
and could do as many of the French have been saying just decide to move somewhere else, or like Starbucks and Amazon and Google just
not pay too many taxes in lots of countries. – So my understanding
is the number of French celebrities who said that
they’re going to move is a lot larger than the
number who actually have. And, actually I believe if
we could just crack down on the British with their
business with the domicile and London as a tax haven is
actually a pretty significant part of this, and if we
could just stop that. There’s a lot of tax avoidance
going on in the world centering on places like
Cypress until the other day. But, it’s a known set of places. If the G Seven countries
decided that we’re not gonna let this happen, it would stop happening. So it’s not that there’s a
global elite that can’t be policed, it’s there’s a global elite that has enough influence
on major governments to ensure that it is not policed. – True or false? – Yeah, and I think we’ve
seen a lot of progress on disclosure for example
partly unintendedly. The disclosure by people
inadvertently revealing information, but nonetheless that I think has changed very much. On the other hand, I do agree with Paul that we could exercise more pressure, and one wonders how far
in fact the OECD countries are serious about it. Each of those countries has
its own particular tax havens. – Do you agree with Paul that 73% would be a good upper level? – We’ve been having a
debate in the United Kingdom about this. Interestingly the
conservative government put it in exactly the terms that Paul described, that is they said this is a
question of raising revenue. It’s not a question,
they attached like you, no weight to the fact of the
incomes of the top group. They argue that the
revenue maximizing rate was, I think, 40%. I think that’s a
miscalculation, and in fact it’s a miscalculation
because it doesn’t recognize the fact that much of the
income is obviously not spent on goods that are taxed which they assume it’s all gonna be spent on goods, and we should pay Value Added Tax at 20%. It assumes that you’re going to be paying full social insurance contributions. This is all assuming that
the income essentially is earnings. It’s, you know, salary. Whereas of course most of
the income is not salary, it’s in other forms which pay lower taxes. And, therefore I think the correct answer which they should’ve come
up with is more like 60%. – 60, so you’re lower than Paul. – Well I said that’s what
the government’s own logic would produce. – It’s also true that there
is some international leakage. So the level that would make sense for the U.K. acting unilaterally
is going to be lower than for the U.S. And, of course substantially
lower than for the OECD sort of collectively deciding
what it’s gonna do here. These are not hard numbers. Christie Romer says 80. It’s based on some real work,
but I think for the U.S. the point is clearly
higher than we are now. – That’s exactly the point. The other point I’d make
is because we do need essentially begin to move
to a global tax regime. That is basically the
idea of nation states trying to tax is really out of date. – Is that at all plausible,
global government? – Not is the U.S. Congress I don’t think. – That’s okay, we’ll
just get the Cincinnati office of the IRS. We’ll get some black
helicopters to go after you. Sorry that’s a little bit too topical. But, look the point is
actually you don’t necessarily have to have global governance as long as the major countries are at
least vaguely coordinating. If the U.K. and the U.S. and
the Germans, and the French, and if the Italians ever
do have a government. – They have a government. – It’s not that hard for us to move to collecting substantially more. That’s not the whole
story, but clearly we could be raising more revenue
from the super elite than we are right now. And, we could use the money. – It’s also not a question
of simply individuals. It’s really corporations
as much more important in some ways than individuals. And, we are moving toward
harmonizing in various ways very slowly. I think one day we’ll have
a world tax organization. It can’t be called that. It has to be called World
Tax Authority or something because we’ve got a WTO already. But, there will be
something like that soon. – Which enforces certain
floors on taxes and rules? – Well not necessarily
having common rates, but it has common ways
of assessing incomes in order to make sure that you can’t– – European Union has quite a lot of stuff like that already, VAT, there are minimums on VAT. – Yes, for sure. – But, don’t we actually in real life also see the opposite tendency
of arguments being made in countries about how,
you know, we have to keep, to take corporate tax, we have to keep our corporate tax rates at a certain level to avoid our companies
going to another country or even another state? – I was actually just on
Irish radio this afternoon, and they were talking
a bit about, you know, if there’s closer European
political integration, won’t this reduce our ability
to offer these tax incentives? Which it would. But, what they get from
those tax incentives is actually a lot less than
what they think they get. They get a lot of businesses
that essentially hang out a nameplate in Ireland,
and maybe to a little bit of activity, but actually
generate remarkably little in the way of actual jobs
or value added in Ireland. There’s a lot of that illusion,
and same thing happens with U.S. states. A lot of state governments
go to great lengths in an attempt to attract businesses. And, if you actually try
to do the cost, benefit, they’re shooting themselves in the foot. So I think just better
information can help quite a lot here. – A professor’s hope. – That’s right. We always like to fantasize
that better information will help. Although I have to admit
that most of the evidence of experience runs the other way. – Now Tony, in talking
about the British debate about taxes, you talked about
assumptions, about how much of their income they wealthy would consume which is part of this
question that Janet set us up with at the beginning about
what is the relationship between inequality and growth? And, there have been
people starting to make the argument that actually
even setting aside these issues of social
cohesion, even setting aside these issues of raising
revenue for the state, that too much inequality is bad for growth because you don’t have the middle class having enough income to
be a consumption engine that the economy needs. Do you buy that? – I think the problem right away with discussing the terminus of growth, the truth about it is we
don’t really understand what determines economic growth. That’s the first problem. It’s also the case if you
look at the post-war period, there really hadn’t been
enormous differences in growth rates, and there’ve been periods when certain countries pull ahead. There was a German economic miracle. There’s Japan, remember when Japan was a less successful economy. The United States in the last
few years, but in a sense, if you look over the
whole post-war period, the difference in sort
of ranking the countries, there’s hardly a changed
very much over this period. And, the United Kingdom’s
productivity is 80% of that of the United States in 1950, and it’s 80% today or something. We’ve essentially grown in parallel. So if there’s a strong
connection between inequality which we know to be different
in different countries, it should’ve shown up either way. It should either have shown
up in unequal countries grew faster or vice versa. So I’m a bit agnostic about this. – You’re worse than agnostic
on this, Paul, right? You’ve actually said it’s possible to have economic growth with just the rich buying lots and lots of yachts. It could work. – Yeah there are a couple things. Certainly arithmetically that’s possible. Look when we did have
as best I can make out, of course the data are
terrible, but the two great eras of pretty fast growth
in the United States over the longterm are
roughly speaking 1870 to 1914 thereabouts, maybe the ’20s
is I think are arguable, and 1947 to 1973. And, the first period was
one of extreme inequality, the Gilded Age. The second was one of remarkable equality. It was the America I grew up in. What do you learn? Both seem to be viable models. Now if you ask the question,
there was this debate. It was odd, debate between
me and Joe Stiglitz which was not really about
longterm economic growth but just about business cycle. And, the question was is
the extreme concentration of income in the hands of a
few people is that holding back consumer spending? And, Joe had some good
points about why that might be the case. My problem would be that consumer spending as a share of income remains quite high by historical standards. It’s hard to make this
story that we’re having inadequate consumer spending
because of inequality. But, we do have, if you
want to do an overlay, if you want to do a chart
of top 1% share of income versus ratio of household debt to income for the United States since
World War II, you will find that they match almost exactly. That at 1980 there’s a
breakpoint where the top 1% takes off, and household debt
takes off at the same time. And, we do think that household
debt is a pretty critical part of what’s gone wrong
with our economy now. So what’s your story? Did Reganite policies including
financial deregulation lead to a simultaneous
explosion of household debt and income inequality? Did income inequality rising
through consumption cascades lead to middle class families
going deeper and deeper into debt in attempt to buy
houses in good school districts? That’s the Elizabeth Warren story. Don’t know the answer to that. – How ’bout the Ragu Rajan,
that all of that sort of happens, the political accommodation to rising income inequality. – No, of the various
stories, that’s the one that turns out to be entirely wrong because Ragu Rajan tells the
story which is basically that Barney Frank somehow
forced banks to make loans to unqualified borrowers as a response to income inequality. And, it just isn’t there in the data. The Community Reinvestment
Act did not lead to a lot of that lending. Fannie and Freddie did not
do a lot of subprime lending until the very, very end of the process. So no, actually of the various stories, I guess there are three
main stories out there, and that’s the one
that’s definitely wrong. The other two, I don’t know. – And, Tony do you see this connection? – Well I think Paul’s quite careful to say it was association rather than connection. It was a coincidence is my view. Quite a lot of common things. Just take the case of the United Kingdom which obviously I know better. I think there it was a
coincidence of policies which for example
particularly those involved cutting back on state
provision of pensions which our pension system is much worse than all nations’ life insurance now. And, as a result of that,
that’s one of the things that drove the growth of the
financial services sector because basically people were on their own in terms of making their own
personal pension provision. And, it was therefore led to the expansion of the financial services
industry, but also it lead to an investment
in housing for income, that is buying houses to let
out which for many people is the main source of potential pensions. And, of course these things too together, it was a policy which was
carried out by government which did other things
like the cutting back state pensions which raised
inequality, but also had the same effect of generating
some of the conditions that led to the financial crisis. So it’s a story of coincidence
rather than any sense of causal connection. – By the way, just for
the American audience, following the U.K.
pensions retirement debate is an amazing thing
because you have all this, first of all made a total hash of it. Thatcher really, really messed up there. And, then you read the
reports, and they say let’s look around the world for models. And, where is there a model
of a really well designed pretty fiscally sound retirement system? And, it’s this thing
called Social Security in the United States. – Yes. – Is that true? Do you yearn for U.S.
style Social Security. – We would be better off
if we had it, I think. – So moving into another area where people are starting to talk a
lot about the potential malign impact of rising
income inequality is social mobility. What is really going on there? What kind of a connection
do we know exists? Do we know anything about that at all? – Yeah I think it’s good
you brought that up. We’re talking about inequality
because inequality is partly in terms of outcomes. We’ve been talking about people’s incomes and then wealth and earnings. But, most people, I think,
think that inequality of opportunity is another
very important dimension. And, for some people,
it’s probably the thing they care most about. So therefore, I think we
have to first of all ask how much opportunity there
is and how much mobility therefore allows between people in terms of their movement across generations, from one generation to
have better opportunities than their parents. And, of course the evidence there suggests that the United States and to some extent the United Kingdom, the
Anglo-Saxon countries are it turns out considerably less
mobile intergenerationally than continental Europe or
particularly the Scandinavian countries. – Okay so Paul can this possibly be true? America, land of opportunity,
land of the American dream, worse than old Europe? – I mean this has been apparent. I shouldn’t say, we were talking before, as Tony says, the data are terrible. This is something that
we have not collected lots of information on. But, the sense that
it’s true has been there for quite awhile. This is not news. And, our image of ourselves
as an upwardly mobile society is at least, a generation out of date, probably more than that. And, it’s not hard to think of why. Public schools are of
highly uneven quality. The amount of resources
it requires to get ahead in the world is, the cliff become higher. My colleague Allen Kruger,
currently wasting his time instead of at Princeton
advising the President on economic policy,
has this thing he calls The Great Gatsby curve that
shows, again correlation not causation, but there is
in fact a strong correlation between current level of income inequality and lack of intergenerational
social mobility. So sure. You wonder how much the legend of American
social mobility I think is partly the immigrant experience. So part of even, we were
never as socially mobile as we thought we were. It’s just that so many of
us came from, you know, from the villages in Southern Italy and shtetls in Belarus
and made that change. But, still something clearly
we are less mobile now, clearly. It’s just so much harder,
to comeback to the lack of middle class. It’s so much harder to
make a decent opportunity for your children unless you happen to already be born into
the right circumstances. – Are you willing to go so far as to say this is causation and not
just correlation, Tony? Take a risk. (laughing) – I think the causation,
well, the fact that we’re observing this in
mobility I mean of course it’s also connected with what
we’ve just been talking about. That is we’re concerned about
inequality of opportunity because of the unequal
rewards that there are. So we have to go back to the things we’ve already been talking about. If in fact everyone was paid much the same as whatever job they chose to do given the costs of
education, then of course we wouldn’t be so worried about this. It’s because the prizes of doing well have become so unequal that we’re actually so concerned about it. But, also it’s the fact the
prizes become so unequal means that the access to those occupations has also become harder. As Paul said, you have to climb further. But, I would just emphasize
that it’s actually very much an issue at the bottom rather than the top because mobility really
has two ends to it. And, it turns out that in Scandinavia, people at the top tend to
stay there as much as people in the United States stay there. It’s the other way around,
they go down gradually. Whereas what happens at the
bottom is it’s much harder to go up from the bottom in
the United States to the top. – There’s an extraordinary study which I’m sure you know,
and I’m just dragging it out of the depths of my imperfect memory, something about Swedish surnames. You can actually by looking at names you can tell people who were aristocratic centuries ago, and they still tend to be heavily overrepresented
in the upper classes now. So it is this amazing thing. You’re right even in
Scandinavia, the super elite tends to remain the super elite. But, to make it to upper
middle class status has become quite hard in the United States if you don’t start close to that point. – Just a few years ago,
we had a prime minister who was the 14th Earl of Hume
which suggests his family had been around for while. – But, what about the meritocrats
within the super elite? What about the Mark Zuckerbergs? Is there, in these kind
of winner take all races, is there some sort of
point at which getting those very extreme prizes
is actually correlated not just with your social
class but with your talent, your luck. – Well of course, but that’s, those are the people who make
headlines precisely because it’s unusual. God, it’s been awhile. My former colleague
Peter Tenman was looking at CEOs of U.S. corporations, and they are about who you would expect. So there will be a few
who are amazing rags to riches stories, but by and large, they are white males
from upper middle class or higher backgrounds, the whole thing. So I think that’s still
going to be very much true. Sports stars are going
to be very interesting, remarkable people and live
with remarkable stories, but there really aren’t very many of them. And, there are an awful lot of executives making vast sums of money
whom you’ve never heard of, who have utterly conventional backgrounds, and are in many cases, not
very interesting people, and in a fair number of
cases at least based on casual conversation not all that smart. But, were in the right place
and had the right background. – So Tony, Paul has just
referred to white males, and when we spoke about Plato as one does, you said we would get to gender later on. So how does gender
figure into all of this? Speaking as a person of gender. – Yes, I had noticed. A bit of my homework
for preparing for this I did look at what had happened
to male and female wages in the last 10 years, and the ratio of full time, full year workers has gone from 76% women earning of
men gone to 77% in 10 years. At which rate, you can work
it out, it’s going to take more than two centuries to reach equality. And, I think that’s an
indication that this issue which was clearly very much on the agenda in the 1960s and ’70s, and
indeed certainly it was one of the things that
happened in many countries was that that gap was
narrowed quite a lot. I think that’s gone off
the agenda, and there are a number of reasons why that’s happening. I think it’s particularly true at the top. The glass ceiling seems
to operate, if you look at the proportion of people in the top 1% who are women is very small. – Well actually coming
back to public services, childcare, just think
about the availability of state sponsored
childcare or lack thereof. That’s gonna make a huge
difference in gender roles across countries. You know it’s one of those things, again, we think of the United
States of being the place of, you know we pioneered
Women’s Rights or something, and I always find it, I
actually teach a class on welfare state economics. Why am I doing this? But, I’m having fun and I’m at that stage of life where I can. I always find the comparison
with France remarkable ’cause if you ask me what do you think is among prime age workers
25 to 54 what do you think is the relative employment
participation of women in France versus the United States? And, you would assume it
must be much higher here. It’s not, it’s identical. And, I’m sure that has to
do their ability to do that despite whatever
differences in social values must have a lot to do with the provision of social services that we
do not have in this country. They also spend about four times as we do on a school lunch by the way which has a lot of bearing on the
quality of nutrition. – Well we know that kid
who secretly blogged the horrors of his lunch at school, right? One of my personal heroes. So Tony, what is the political impact of rising inequality? – I think it varies
from country to country. Clearly as an outsider,
I’m somewhat surprised by your political campaign financing laws. – They’re not mine, I’m Canadian. I have no responsibility for it. Paul does. – Right, it’s all my fault. – Anyway, so I suspect
countries are very different in that sense. And, I think in the case
of the United Kingdom is probably much more
to do with the control of the media than it is with
funding political parties. And, that’s not so important. So in each country, I think
you have to look at and ask. I’m not a political scientist
I should immediately say. And, I think that’s something
which political scientists are beginning to look at. I think it’s clearly very
important, but it’s going to be very much a country specific answer. – A couple things are going on here. One is just the money in politics. Although I think that might
be somewhat overrated now as an issue. Certainly this last
election, what was striking was basically both
campaigns had enough money to completely saturate the airwaves. And, as it turned out, the
role of money in politics may actually have hurt the republicans because Sheldon Adelson could keep Newt Gingrich alive as
a candidate much longer than was good for the GOP. So that sort of thing happened. What strikes me, what I
see is the access issue. The fact of the matter is
that men of great wealth, almost always men of
great wealth, have access. They get into the room
particularly from the financial industry not only do
they get into the room, but they tend to be impressive. Whatever remarks I was making about CEOs, not true, finance people
are smart, they’re funny. – Jamie Diamond? – Very impressive guy
right, great head of hair. And, that’s also important. Never mind. That has a role. There was this great title of
a book, Simon Johnson book, 13 Bankers, where there was
something being proposed, and the phone call was I got 13 bankers in the room here with the President saying we can’t do this. And, that’s gonna happen. Adam Smith writes about
this, about the tendency to assume because someone
is important and wealthy that they must actually be someone who should command
sympathy, and all of that. And, that role of access,
that role of being taken seriously because you
must be a serious person otherwise how could you
possibly be so rich? I think actually has a surprisingly large distorting effect on policy. – So do you buy this sort
of whole cognitive capture school of thought? – Very much. And, there is the
revolving door, and it is a little bit, look at how many. I think the Obama
administration by and large has its heart in the right place,
and it’s been doing a lot. I’ve obviously been pretty
harsh on some things, but look at the revolving
door even of Obama administration officials going off and taking jobs on Wall Street afterwards. That’s got to have an impact. Again, not a lot of people
twirling their mustaches and thinking I’m gonna
really screw the consumers on this regulation ’cause
then I’ll get a great job at Citi Group. But, the thought of
where you’re going to be four years later has got to
have an impact on policy. – To take a slightly more positive view, it does seem to me, at least for example– – Paul can be depressing. – One of the things that’s
becoming quite important, I think, in the U.K. is
internet organized campaigns for example which have actually are a way, you know the most recent
one was trying to stop the use of chemicals which were
killing the bee population. This was a European decision
which was going to be taken. Enough countries have
already essentially indicated they were going to vote against the bees, for chemical companies. And, there were petitions
in a number of countries, and they turned around. It was thrown out. – I will say, I’m not
entirely pessimistic. Actually one of the things I will say about policy debates is
that we have infrastructure, think tanks and all of
that on both sides now. It used to be that it was pretty much only on the conservative side financed with vast gobs of money. And, now there is an
infrastructure on the other side, progressive think tank infrastructure, which is vastly less well funded. But, can get it’s message
out largely thanks to the internet, so you don’t have to have the blast faxes and all of the stuff that was happening. And, for whatever reason, by and large, intellectually runs rings
around the conservative side. – And, that mystifies you? – Not that I think they’re
right more often than not, but the fact they are so
much better at doing the job which we can talk about. But, I think actually part,
not being so well funded may actually be an advantage. That the people who go to work for them are much more committed as
opposed to being just careerists. The quality of discussion
on all of these issues including the ones we’re
talking about right now is actually much better
than it ever has been in my lifetime. We’re actually having a
better quality of discussion, better analysis, more rapid fire response, even if I think that
something like, you know, these austerity policies
were a terrible mistake which continues. We actually had a much
better pushback on it intellectually on it
than we would have had I think 10 years ago. – Okay I have one last
question to ask you both, and then we’ll throw it
open to everybody else. So please get your questions ready. We have microphones here. I won’t be rude when
I go to my Blackberry. I know I’m the last person
in the universe who has one. It will be checking to
see if people have sent questions on Twitter. So my last question, Tony
and then to you Paul, will be you’ve made a real
point, and you’ve been really careful about this,
Tony, in sort of saying, you know, the world is not uniform. This is a story that varies
very much country by country. Who is getting it right? In some of your papers,
you’ve talked about also finding these global economic
forces that are global, are affecting all of us. Which country is handling it really well, and maybe we could
learn from that country? – I think actually we
can learn from each other since there are, for
example, I’m being engaged in discussions about a European action to help unemployment benefit. Interestingly it was
actually proposed when they first proposed the Euro. They said this has to be
accompanied by unemployment benefits Europe wide. They forgot about it unfortunately. But, I think we can learn
there from the United States’ extended unemployment
insurance for example. We only have 26 weeks
unemployment insurance in the U.K. 26 weeks. I’ve forgot what it is
here, 78 or how many weeks, do you have? – Well in the U.S. normally it’s 26, but we’ve had extensions. But, the extensions are going away fast. – Right okay. – You used to be able to learn. – Exactly that’s a good example. The other way around I
think the United States could perhaps think
rather hard about what is a high priority in the
European Union which is child poverty. I mean there’s no doubt
there’s a political drive to try and reduce child
poverty in the European Union. And, things like child
benefits for example which we’ve a universal
income for children, investing in the future. – Paid to mothers. – Paid to mothers, a
very good point, exactly. So I think– – I’m not being facetious. Studies show it’s much more effective. – Child support is paid to mothers. Yes exactly. And, it does show that
it has a different effect on what the money is spent on. So it thinks that’s the sort of thing. Also if you look, I mentioned
Latin American earlier on, and I think there again
some thing being achieved by for example the kind of programs often linked to education,
providing again family support in Mexico, Brazil, other countries, these are clear things we can learn from. That’s one reason why these
highly unequal countries in many cases have become
somewhat less unequal. – It’s funny I was thinking
the various variants, the European caricature
jokes, hell being a German policemen, and British cooks and all that, and heaven being a British
policeman, and French cooks, and all of that. So in terms of social policies, I think heaven would
be, different countries do things right. Heaven would be French
Healthcare, American retirement security, Finnish
education, I think we can go down the line. There’s a list of, you know– – Whose taxation? – I’m not sure about that actually. I’m not sure anyone does that right. Actually you want to imagine
that there are countries that get everything right,
but actual social policies are a patchwork. They happen through a series
of historical accidents. And, in some cases, they
lead to pretty effective, clean solutions in countries
where everything else is a mess like our Social Security system. Or, they lead to
mysteriously effective things like French Healthcare which somehow is extremely high quality and very low cost. So we should all learn from each other. – Okay that’s a rousing final thought before we hit the questions, please. – Thank you. Thank you for a terrific
discussion and great moderation so far. I’m Kathleen Hayes. I work for Bloomberg Radio
so talk about these kinds of things frequently. Could you both perhaps just
address a little bit more one thing I don’t think was addressed maybe because you both dismiss it. But, if you look in
particular at the U.S. economy and Paul you mentioned
that ’47 to ’73 was a time of prosperity and equality. Following that time is
when we started to see more competition from
China, a move to embrace this new potential
market for all our goods, of course which turned
out to be like the movie Mars Attacks, you know,
you go to shake the hand, the President does, Jack
Nicolson, and the Martian just zaps you. I mean the Chinese have proved to be huge competitors more
than buying are goods. And, we can see that helped to hollow out our manufacturing sector. So that’s one trend. So we’ve had less of a middle
class in part because of that. Manufacturing jobs, you didn’t
need a college education. Now another trend that
many people are embracing is robotics at a time when
people don’t have jobs and we need to find jobs, we’re gonna have these labor saving robots. So how does that effect income inequality? What kind of policy do
we need to address it? – We tend to construct the discussion about inequality in terms
of one group of workers skilled and one group
of workers unskilled, and that the skilled workers were gaining, and the unskilled workers were losing because of, as you said,
of international trade. But, actually the issue
may now be much more all workers potentially losing as capital becomes more important. Incidentally my teacher
in Cambridge, James Meade, wrote a book in 1960 arguing exactly this. He called it automation. He didn’t identify that
is was going to be China or other things. But, I think he did identify,
and he definitely raised the issue as then the
question become crucial as to who owns the capital
and who gets the profits. As we’ve seen in many
countries, share of profits is going up, that then raises
crucial distributional issues which are different from the
ones we’ve tended to talk about so far. – And, it does seem that that link between productivity and
wages and even employment has broken down. So what can you do about that? – Well then the question
who gets, as it were, the productivity? It’s a question of then the distribution of national income
between wages and profits. – There’s a funny. I fell into it right now. We do tend to talk about
in the United States still as if all of the
inequality issues involved earned income. Skilled versus unskilled
labor, maybe then the hedge fund managers and CEOs
which was pretty much true until about 2000 that
there was not much change in the distribution between
labor broadly defined and capital. But, we have actually now seen a substantial shift of
income away from labor in general towards capital
which could be the robots. It could be increased monopoly power because we’ve also kind of
let antitrust enforcement go away. There’s arguments to be
made in both those cases. And, I think part of the
answer if something like that is what’s happening, part of the answer is that we do need, something
Tony did bring up, we need to be taxing unearned income. – [Kathleen] How ’bout entrepreneurship and innovation, do you
have any hope in that? We see poor people in parts of Africa, investments starting to come in. People using mobile phones
to start, solar tech, all kinds of new things. Does that give you any hope that some of the change could
come from the bottom up? – Some of it. We can hope that that happens. But, what if in fact, what if big data makes it possible for robots to do a lot, we don’t know where we’re
going with all of this stuff. – Robots to write columns
in the New York times. – There’s actually already
substantial outsourcing of financial reporting to India going on. There’s a whole set of issues. I don’t think you can
count on any of that. And, we certainly, well
that was one of our favorite moments in last year’s
late, unlamented campaign which was one candidate urging people to do whatever it takes,
go out and borrow money from your parents to start a business. Not everybody can do that. – Okay. I’d like to mention first the
upward mobility that you said, Professor Krugman, is
not as evident today. But, I see it very evident
in who gets scholarships for universities and for graduate schools, and these are mainly
children of immigrants, very under privileged. There is tremendous upward
mobility in that sense today in the United States. But, what I had wanted to
mention is the discussion of poverty which in the United
Nations is a major issue. You know there was the
Millennium Development Goals that were adopted in 2000. And, it has had a significant effect on poverty alleviation
in the developing world. The followup to the MDGs is now, (audience member speaking) thank you, the Sustainable Development
Goals and this is universal. It is both developed and
developing countries, and I want to know, thank you, what your opinion is, or what you think should be part of the
Sustainable Development Goals for poverty alleviation on a global scale? – I’m just gonna punt
because I just haven’t done my homework on those issues. – Maybe Tony has? – First thing, I would just say is that of course those goals in
themselves are quite remarkable. If I’d been told 20
years ago, 30 years ago that we would actually agree,
every country in the world except possibly North
Korea, most countries agreed to sign up to the MGDs. That’s actually a remarkable
development in itself. So I think that’s the
first thing we should say. That’s rather good what’s happened. We’ve gone some way
towards achieving them. Of course, clearly the problem is that although we may in
aggregate have met a number of the goals, individual
countries have not done that. So I think my own view is quite simple. It should continue the current process with identifying those areas of the world where we’ve actually failed so far particularly on the
poverty alleviation goal which is particularly in the case of the African countries. So I think my answer is
we shouldn’t necessarily redesign these goals. We need to persist in
trying to achieve them on a global basis rather than
aggregate basis in total. – And, Paul, I do want
to ask you to comment on this point which I
actually hear quite a bit especially from those same rich guy types that actually all this
stuff about social mobility having groaned to a
halt is patently untrue because the very bright
children of immigrants all go to Stuyvesant, and
then they go to Harvard, and then they go work on Wall Street. – Yeah the very, very bright kids, right? Remember Pell grants
cut back scholarships. Yes, I mean if you can
make it to the point of being in high school
and being recognized as a very bright kid,
and Princeton quality then sure Princeton has
the money, and they will, but that is an incredibly
tiny number of people, and there are so many
obstacles on the path to getting there. They know. There’s been some recent research about, C.C. Ross when I think about it. How many bright students
are simply unaware of these opportunities because they are essentially socially
excluded from that network. So no, the notion, again
it’s one of those things you look around, yeah you
look around the Princeton campus and sure we’ve got some kids from amazingly deprived backgrounds who are incredibly smart,
and they’re doing fine, but boy, that is such a
tiny piece of the American universe that it just shows in a way how divorced our elite
has become from the lived experience of life for most Americans. – Please. – My question was very similar to that. There’s been a lot of
coverage now, student debt is over a trillion dollars. What are the immediate, and I’d also say, the longer term impacts gonna
be both on income inequality as well as this social mobility question? – It’s scary stuff. Even short run macroeconomics, you know, a trillion dollars is
starting to be real money, so that’s kinda scary. And, the impact, and so much of it. I don’t know. I have this urge while
I’m riding the subway here to rips those ads for the
various technical schools to rip them down because you know that a large fraction of them are ripoff operations that are
going to leave students with crippling debt and no job prospects. No, this is a terrible
thing that’s happening in America right now. – That brings up something
we haven’t talked about very much which is that inequality applies not just sort of amongst rich and poor, it also is a questions
between generations. And, I think one of the
things which particularly on the austerity programs
it’s very obvious, cutting back of provision for young people coupling with increasing fees and costs for young people is
having an unfair effect on different generations. Whereas, we tended to protect much more the benefits going to my generation. I keep my bus pass, but
they close down youth clubs. – So the old are winning
the generational wars, or the older sorry. Please. – Sorry, so in my social
studies class in school, we’ve learned that the way
our economic system works is that there is a cycle. There’s a recession, but there is a peak, but then in 2008 I kept
hearing, “Oh my God, “we’re all gonna die.” So what I’m asking is,
Mr. Krugman has very much in his columns said the
things that are wrong with our economy which is great. It’s making people aware,
but since there’s always been a cycle even if it
take hundreds of years for it to go up and down, is it possibe that we’re kinda over reacting? Or, are we going to even
ourselves out eventually? – Okay I think that’s
a questions for Paul. So are we overreacting, boom and bust a natural part of the economic cycle? – No. This is a one in three generations crisis. There has been nothing
like this since the 1930s. And, there are various ways
that I can go on and on, on and on about it, but
just think about the fact that normally even during
recessions we don’t have a lot of longterm unemployment in America. People find jobs fairly quickly. Maybe they’re not as good
as the job they lost, but they find jobs fairly quickly. Now we have well over
4,000,000 people who’ve been out of work for more than six months, and increasing evidence
that once you’ve been unemployed that long,
you’re never gonna get a job again. This is completely different. The last time we saw anything
like this was the 1930s. And, we didn’t really
come out of the slump of the 1930s until we
launched a large public works stimulus program known
as the second World War. There is no end in sight to this thing we have right now or certainly
not clearly in sight. No complacency at this
point, think about it. If you had said in early 2008, “We’re still gonna have
extremely high unemployment, “millions of people long term unemployed, “Europe actually back in recession “in the middle of 2013,
people would’ve thought “you were crazily pessimistic.” And, that is where we are. – Okay, I’m gonna turn
a little bit to Twitter. First of all, Miles Corak who is the guy who did the research
behind The Gatsby curve is very glad that you mentioned his curve. So there you go, you’re welcome, Miles. – I should have mentioned Miles. I went to Allen because he popularized it. – He wasn’t scolding. He was happy. And, then a question from
Twitter which I’ll address to you Tony which is what
about another potential danger that inequality
posses to capitalism which is that it makes it harder for potential innovators
to get access to capital? – Yes. It’s clearly an issue. If you just look at the discussions that virtually every country is
having about the problems of recovery a lot of it is
directed at the problems of financing small scale business. And, in a sense, that’s
where probably much of the innovation’s gonna come from. And, that’s an area
which given a structure, I wouldn’t say so much
necessarily inequality it’s the structure of the financial system which is a problem. I’m not an expert I should also say. But, I think it’s rather
more than necessarily than inequality has any
particular role in that. – Okay, our time is very soon running out. So I’m gonna take two last
questions both together, and then we’ll let you answer them, and we will have to wrap up then. So please your question. – My question is about
inequality and retired people. And, I’d like to know if
you’re a retired person, middle class, and you
have your money invested in treasury bond mutual funds
which are making 0% now, is it necessary to shoot yourself? (laughing) – Okay that’s a good question
sure to help us conclude on a cheering note. Please sir. – Are public goods best
served by public institutions or private individuals? I’m thinking about for example Bill Gates who has recently announced
that within two years, he wants to be able to eradicate
polio around the world. Were he to pay higher tax
rates and given those funds to the federal government
would that objective be achieved as efficiently
as if he were to try and do it through his foundation? – Okay those are two excellent questions. And, I’m gonna add a third. This is gonna be an example of nepotism. Janet’s father Fred who
is 84 years old sent in a question by email, and you
touched on this earlier, Paul. He’s basically worried that
New York also is becoming sort of a rentier metropolis
where all the global plutocrats are congregating. Is that a downside for
the people of New York? So those are three questions. You can choose to answer all of them, you can’t choose to answer none of them. You could choose to answer
just your favorite one. Tony, please go first. – Well the answer to the
first question is no. – Don’t shoot yourself okay good. (laughing) – [Audience Member] Thank you. (laughing) – I think the point you
raised is a fair one. I had just said of course that the old were not hit so hard by
the austerity programs. I was referring then to
the provision of services. But, I think your point is clearly right that the zero interest rates
is hitting elderly people. Of course, again it depends on your system of social security. I think underlines my long term belief that basically it’s
only through government providing pension schemes
which you can actually provide an effective guarantee for
pensions for people in old age. (clapping) That’s what you don’t
exactly have at the moment. – Okay, Paul. – Yeah okay I’ll leave that one. – Do you want to do the
philanthro-capitalism? – Yeah let’s talk about
philanthropy which is a wonderful thing. And, much praise to
those who engage in it. But, two things to say. First of all, a lot of the public goods we need are beyond the scale
of what even a Bill Gates could afford to do. You know in a $16 trillion economy that’s just looking at the United States, we’re gonna require
public goods on a scale that even very, very wealthy people are going to not be able to finance. And, the other is that while there are some estimable, wonderful billionaires who do very good things with their money, Bill Gates, actually George Soros. There are also quite a few who are entirely despicable human beings. (laughing) And, we don’t get to make that decision about who gets to be a billionaire, and many of them are
buying themselves yachts that are bigger than the
Titanic or whatever else they may be doing. You just cannot count. We should praise and
laud the wealthy people who do public good with their wealth, but we should also realize
that many of them won’t. – Okay, and I’m gonna ask a
final, final blitz question of each of you. So what is the one thing
if you were sort of, Paul was talking about his
fondness for science fiction also before we started. He’s even blogged about it. So let’s imagine some
science fiction world where each one of you is
appointed sort of master of the universe. You can introduce one public policy change to influence this whole suite of problems we’ve been talking about. What would be the one that
you would implement, Tony? – Only one? – [Chrystia] Okay you can do three. – I’ll do two. One is I would certainly like to see a proper global tax regime. Not necessarily intergalactic,
but I mean global. – [Chrystia] We’ll leave that to Paul. – And, the other thing
is I basically think that the idea of a basic
income for children is something every country ought to have. – Basic income for
children, not for everybody? – No, children I was assuming
I was limited to some degree. But, I suppose I’ll stop at children yeah. – The late Robert Heilbroner used to talk about good society, and he had this place of his
imagination that he called slightly imaginary Sweden
which was sort of Scandinavia but done better with better weather. (laughing) – [Chrystia] Global warming
could take care of that. – And, slightly more bubbly people, I guess Danes rather than Swedes. Look, a well run, welfare state, well run, modern, welfare
state is a pretty decent kind of society. And, it can be done. And, we have done it pretty
well in various parts of the Western world, and I
think it’s more a question of getting back to those ideals than it is about searching for some
science fictional solution. We basically do know how to do this. We just have chosen not to. – Okay well thank you both. (clapping)

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