It is January 10, and you are finally getting over the unintended effects of your New Year’s Eve celebration. You also read my last two blog posts and are ready to drop your subscription.
So I thought I would begin 2017 by really spouting off. Hopefully, this spout will antagonize many of you – at least those of you who cling to the old politics.
I title this one “Show Me the Money” because that’s what people in Missouri say.
When you say this phrase, it means you want some evidence that something is valuable and that it is worth paying for. Robbers sometimes say the same thing but I am not dealing with those robbers today.
"Show Me the Money" is what I hope we collectively say to our politicians this year. Let’s face it: the Blue team is out of office now and they are not happy that the Red team is going to try to undo everything now Blue or Blue-er. We can be sure that even though the Republicans have majorities in Congress, they will be tested over and over. Supreme Court justices, energy policy, health care, tax policy, you name it – the screaming will be loud and colorful.
That’s where “Show Me the Money” comes in. Wouldn’t it be refreshing if instead of name-calling our fully paid and pensioned representatives of the people decided to have real discussions and debates about policy effectiveness? Maybe they could throw out a theory or two? Maybe they could argue over some real data? Maybe they could look at goals relative to results of their policies?
I am a macroeconomist, and therefore I would like to stick to what I know. I have opinions about lots of policies but one important one concerns income inequality. It turns out that despite me being the best professor ever on the planet, there were other professors teaching silly things like finance and nuclear physics who made more money than me. And similarly, I made more money than most high school teachers and a few plumbers.
So it is pretty clear just looking at my boring life that incomes are not equal. But if we look even farther, most of us who have any heart at all realize that there is a very wide gulf between the rich and the poor in America.
That bothers a lot of people. Many people believe that this gulf should be made smaller. Some want it to vanish altogether but probably most people just want it smaller. So it might seem reasonable that we have a debate about what to do to accomplish that. But try as I might, I don’t see anyone in Washington DC approaching this topic from a rational vantage point. Often the level of the argument does not exceed the intuitive but thoughtless idea that if we just take a dollar from a rich person and give that dollar to a poor person, then the problem would be solved.
In my perfect world, we might make some headway by doing the following. First, define the problem warts and all. Second, think about policies that might effectively improve the situation. Third, identify unintended consequences of the policy and deal with those too.
In the case of income distribution, problem identification is critical. Those who seem to worry the loudest about income distribution have in mind a comparison between the very rich and the very poor. But let's suppose, for example, the numbers tell us that much of the income gap is between the upper 1% and the upper 5%. We might not classify that as a big problem. Instead, maybe the income gap mostly impacts those who make $20k per year versus those who make $30k. Maybe you see that as a big enough problem. But clearly the remedy for that specific challenge is different than the usual perception about the richest and poorest. Maybe when we get done measuring, we find that there is no big distribution problem. Perhaps, instead, the problem is that economic growth lifted most boats but didn’t lift them enough. That’s not a problem of the distribution of income. That is a problem of not enough income for those at the bottom. But we won't know what the problem is until we stop lobbing F-bombs and start looking seriously at some data.
Once we have isolated a real distribution of income problem, then we need to find a matching solution. To do that, we might need to examine other country’s experiences with similar problems. And that is made tricky because, unlike white mice, countries can be very dissimilar. So doing thought experiments on policy among various countries is not as easy as picking out the best singing voice in Europe. For example, I took a quick look at the rankings of country income distributions done by the United Nations and the US Central Intelligence Agency (https://en.wikipedia.org/wiki/List_of_countries_by_income_equality ).
Here are some of the countries with much more equal income distributions than the USA: Ukraine, Norway, Kyrgyzstan, Afghanistan, Denmark, Iraq, Sudan, India – can I stop now? Clearly the US does not want to follow the economic policies of all these countries.
How can we make permanent improvements in income equality across the citizens of the USA? Since we have never explicitly considered income distribution to be among our country's policy goals, we don’t have a lot of experience answering this question. It would nice if we trusted our elected representatives to do this in the same way that Eli Lilly scientists and executives try to solve Alzheimer’s disease.
Finally, there is the issue of unintended consequences. In our zeal to solve social and economic problems, we often forget that things don’t always work out as planned. I am sure that Lyndon B. Johnson would be quite shocked to learn that his great war on poverty created many more poor people than existed in the 1960s. An earnest examination of poverty programs or any other programs designed to improve income distribution should commence. What has worked? What hasn’t worked. Come on dudes – be honest!
What is the real problem today and in the future? What policies have been used to eradicate or mitigate these problems? How can we learn from the past about approaches that work? What are the risks arising from these policies? How can we parcel out the citizen’s money in ways that we would all be proud of? Under Trump, we don’t know what to expect. Maybe he and his new advisers can forget partisan bickering and approach our problems like real scientists and executives? Or maybe I need another JD?