A number of the recent comments on inequality
have pointed to last year's testimony by Alan Greenspan
before a Senate committee. For example, Heather
Boushey in her WSJ debate
with Russell Roberts:
Even Alan Greenspan agrees that growing inequality poses significant
problems for the U.S. economy.
And Paul Krugman in his NYT op-ed:
And I'm with Alan Greenspan, who - surprisingly, given his libertarian
roots - has repeatedly warned that growing inequality poses a threat to
If you're like me, you're asking: "OK, what did Greenspan really
is a link to his testimony. This allows us (unlike
Boushey and Krugman) to put the comments about inequality
Greenspan is famous for delphic utterances that leave people
arguing about their import for months afterward. But here
he is utterly clear about what he thinks is the underlying problem:
Another critical long-run economic challenge facing the United States is
the need to ensure that our workforce is equipped with the requisite
skills to compete effectively in an environment of rapid technological
progress and global competition. … At the risk of some
oversimplification, if the skill composition of our workforce meshed
fully with the needs of our increasingly complex capital stock,
wage-skill differentials would be stable, and percentage changes in wage
rates would be the same for all job grades. But for 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
Cliff's Notes summary (of what Greenspan says he's already
changes in demand for skilled vs. unskilled labor drive wage trends
in opposite directions.
Then comes the part that all the lefties quote:
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.
Greenspan then provides his obvious solution:
As I have noted on previous occasions, strengthening 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.
I may (probably will) comment further on Greenspan's testimony,
but for now,
it's worth pointing out that Krugman is particularly shameless
about "quoting" Greenspan while actually in fervent disagreement
with his underlying thesis. His column was spurred by new Fed Chairman
Bernanke's comments essentially saying the same thing
Responding to a question from Representative Barney Frank about income
inequality, [Bernanke] declared that "the most important factor" in rising
inequality "is the rising skill premium, the increased return to
Krugman is indignant:
That's a fundamental misreading of what's happening to American
society. What we're seeing isn't the rise of a fairly broad class
of knowledge workers. Instead, we're seeing the rise of a narrow
oligarchy: income and wealth are becoming increasingly concentrated
in the hands of a small, privileged elite.
So, really, Krugman (et. al.) and Greenspan/Bernanke are
really talking about different things, both called "inequality."
But it's intentionally confusing when Krugman and his ilk
dishonestly quote Greenspan in support of their thesis.
Greenspan's view of the "inequality problem" is "solved" by broad training
initiatives to put the skill distribution of the American workforce
more in line with demand. Roughly speaking: work on inequality by
shoring up the bottom side of the distribution.
Krugman's "inequality problem" (on the other hand) can't be solved
that way. Because even then, we'll still have that "small, privileged
elite" that so chaps his hide. (We will swallow, for now, the cognitive
dissonance involved in reading a NYT columnist
railing against a "small, privileged elite.")
Clearly the solution must
involve taking those other folks down a peg or two, or nineteen.
What do we do, specifically? Krugman
is typically coy, but ominous, writing: "It may take some time before we muster
the political will to counter that threat."
Krugman probably doesn't advocate countering the "threat" of
inequality by putting the Forbes 400
concentration camps or anything.
I would guess, if you pressed him, he'd
simply argue for
levels of taxation on income and wealth,
with appropriate "regulation" to insure that victims of this
high-income taxpayers can't escape avoid it.
Or perhaps the lack of a plan simply indicates that
all the "eat the rich" rhetoric about inequality
is just a cynically-designed
issue to inflame the populace, which they desperately hope
will help the Democrats win back
political power. When and if that happens, the issue will be
safely consigned to the memory hole.
Update: Welcome, AmSpecBlog readers, and humble thanks to Shawn Macomber for the link.