Pun Salad

In previous posts (here, here, here, here, here, here) I think I've at least convinced myself that "inequality" as currently discussed is (at least) two different "problems", each spurred by different and incompatible visions. The first, exemplified by Paul Krugman, et. al. is all about the very tippy-top of the income/wealth distribution: one percent of the population or less. This view is seemingly fueled entirely by resentment of the "rich", relies on fallacies for argument, and can't point convincingly to any specific social ills caused by having a relative handful of people at high income levels. Adherents offer no "solution" other than taking (more of) the income/wealth of "the rich" via taxation. This is often termed "redistribution", but generally there's more interest in the taking part; the arguments showing how "redistribution" will help the non-"rich" are weak to non-existent.

The second vision is typified by Alan Greenspan's Senate testimony last year. I briefly discussed the testimony a couple days back, mainly to argue that Krugman (et. al.) took Greenspan's "inequality" concerns out of context to bless their vision. But I'd like to look at Greenspan's comments on their own here.

[F]or the past twenty years, the supply of skilled, particularly highly skilled, workers has failed to keep up with a persistent rise in the demand for such skills. Conversely, the demand for lesser-skilled workers has declined, especially in response to growing international competition. The failure of our society to enhance the skills of a significant segment of our workforce has left a disproportionate share with lesser skills. The effect, of course, is to widen the wage gap between the skilled and the lesser skilled.

Greenspan makes it clear (well, as clear as he ever does) that his vision of the "inequality" problem is about large population segments, not a mere percent or fraction thereof.

In a democratic society, such a stark bifurcation of wealth and income trends among large segments of the population can fuel resentment and political polarization. These social developments can lead to political clashes and misguided economic policies that work to the detriment of the economy and society as a whole.

This is superficially reasonable, especially given the tentative phrasing about what "can" happen. But (wait a minute, Al), are we really seeing that much resentment now? Dan Drezner says "there is surprisingly little grumbling about [about inequality] within the mainstream political discourse". This repeats a point he made nearly three years ago, where he drew supporting arguments from David Brooks (here and here).

How about political polarization? Everyone says there's a lot of these days; is it due to the wage gap between high- and low-skilled workers? I think that's a tough argument to make. For example, here's a Brookings Institution "Policy Brief" by Pietro Nivola that examines a number of likely causes of current polarization; economic factors don't make his list.

Are "misguided economic policies" in the offing as a result of inequality? Professor Drezner mentions protectionism as a possible candidate. Fine; but I'd tend to vote for simple xenophobia as a more likely cause of increased protectionist sentiment over inequality.

So I don't find Greenspan's claims for the baleful effects of the wage gap too convincing. But that's OK; surely a workforce which (on average) is skilled below its potential is a Bad Thing on its face; we don't really need to make indirect arguments about its further effects on resentment, polarization, etc.

So how to fix that? Greenspan again:

[S]trengthening elementary and secondary schooling in the United States--especially in the core disciplines of math, science, and written and verbal communications--is one crucial element in avoiding such outcomes. We need to reduce the relative excess of lesser-skilled workers and enhance the number of skilled workers by expediting the acquisition of skills by all students, both through formal education and on-the-job training.

Appealing to improved education is an obvious choice. It's a no-brainer! (Heh.) Krugman, however, is scornful about this sort of thing:

The notion that it's all about returns to education suggests that nobody is to blame for rising inequality, that it's just a case of supply and demand at work. And it also suggests that the way to mitigate inequality is to improve our educational system - and better education is a value to which just about every politician in America pays at least lip service.

In short: if there's nobody to blame, and it can't be used as a partisan issue, I'm not very interested!

For more reasonable folks, Greenspan's education solution is at least better than redistributionist schemes. In a certain sense, we "know" how to teach skills to willing learners. And all we have to do is to implement that through the current schooling system. Easy!

But it's not a quick fix, is it? Years elapse before any additional educational magic at the elementary level works its way into the workforce.

My guess would be that plain old market forces would be a better bet than yet another educational reform. Not very sexy. The most efficacious role for the state might be simple and similarly non-sexy: to get out of the way.