Notes on inequality — solutions and responses

Education seems central to the response to both inequality and income stagnation. However, there is an emerging consensus that what we need now is not  just more education, but focused education that helps workers adapt to change and truly prepares kids to compete — the question is what that means and how to do it.

Clinton administration economist, Alan Blinder wrote:

Simply providing more education is probably a good thing on balance, especially if a more educated labor force is a more flexible labor force, one that can cope more readily with nonroutine tasks and occupational change. However, education is far from a panacea, and the examples given earlier show that the rich countries will retain many jobs that require little education. In the future, how children are educated may prove to be more important than how much. But educational specialists have not even begun to think about this problem. They should start right now.

Paul Krugman wrote this in 1996, assigned to write as if he were looking backwards from 2096:

In the 1990’s, everyone believed that education was the key to economic success. A college degree, even a postgraduate degree, was essential for anyone who wanted a good job as one of those ”symbolic analysts.”

But computers are proficient at analyzing symbols; it is the messiness of the real world that they have trouble with. Furthermore, symbols can be transmitted easily to Asmara or La Paz and analyzed there for a fraction of the cost in Boston. Therefore, many of the jobs that once required a college degree have been eliminated. The others can be done by any intelligent person, whether or not she has studied world literature.

Krugman referred back to those recently comments in a piece titled “Falling demand for brains.”

Harry Holzer, a former Chief Economist for the Department of Labor wrote in the Huffington Post:

Rather than focusing only on academic skills and higher education alone, we need education and workforce policies that more effectively are linked to sectors and employers where good jobs are being generated. Education institutions (like community colleges in the U.S.) and other training providers must work more directly with employers and industry associations, and must use data on employment growth and job vacancies to target high-demand and higher-wage sectors.

It is not enough just to send our students to college, where so many drift and ultimately drop out or get degrees in low-paying fields. They also need information and career counseling that helps them choose good-paying fields of study, and more courses offered in areas where demand is strong. They might also need real-world work experience to strengthen their skills and their connections to employers. And those who need remedial classes to improve their basic skills should find such help directly provided in their occupational training classes, and not in stand-alone classes that now generate very high dropout rates.

Harvard Business School Professor Clayton Christensen comments in the same vein:

Today, the educational skills necessary to start companies that focus on empowering innovations are scarce. Yet our leaders are wasting education by shoveling out billions in Pell Grants and subsidized loans to students who graduate with skills and majors that employers cannot use.

At the federal level, the conversation about inequality and middle-class income stagnation leads in some additional directions:

• Raise top marginal tax rates — the findings that top incomes have surged and tax policy has further widened inequality lends support to arguments to raise top federal rates 0n income taxes — to reduce the deficit and to fund shared priorities. Some also argue for creating tax incentives to invest for the longer term.
• Improve the safety net — we need to understand that we are in a long period of transition and provide more allowance for people losing jobs and remaining unemployed.
• Recognize that the middle class is strained and protect them from financial instruments which allow them to over-leverage themselves into financial ruin — Elizabeth Warren’s contribution.
• Lighten the burden on the middle-class by controlling health care costs. Obamacare made a start by reducing the risk of catastrophic costs for individuals, but there is much more to do on controlling overall costs.
• Continue the recovery — clearly a federal macro policy issue.

Apart from the last item, all of the above have some state level dimensions, especially health care cost control, which involves local industry restructuring. But education, perhaps the most positive element of the response, is primarily a state-local challenge.

In the end, I share the view that we are in a difficult period of change that can lead us to a better place.

Maybe the biggest reason for optimism is that there is still a strong argument that both globalization and automation help the economy in the long run. This argument remains popular with economists: Trade allows countries to specialize in what they do best, while technology creates opportunities to extend and improve life that never before existed.

Previous periods of rapid economic change also created problems that seemed to be permanent but were not. Neither the cotton gin nor the steam engine nor the automobile created mass unemployment.