“Inequality and its discontents”: Introduction

[On September 22nd I had the honour of giving the 2014 Mabel Timlin Lecture—“Inequality and its Discontents”—at the University of Saskatchewan. This post is the introduction, and the full lecture will be published in the near future.]

On the afternoon of December 6th, 2011, President Obama stood at the podium of the Osawatomie High School in Osawatomie Kansas to give a speech, a speech referred to on the White House website as simply “Remarks by the President on the Economy in Osawatomie, Kansas”.

This particular town was chosen for this particular speech not simply because the President’s mother was born in Kansas, and certainly not because the President wished just to speak to as many people from a town with a population of somewhere between 4,000 and 5,000 who could fit into a high school auditorium, but quite clearly because he wanted to speak to all Americans about a topic that had a clear echo from the past, an echo that he hoped would amplify his own message.

It was also in Osawatomie, almost exactly a hundred years earlier, in 1910, that Theodore Roosevelt delivered a speech before, reportedly, 30,000 people, that articulated a vision of a “new nationalism,” a vision for a new policy agenda to tackle the high and growing inequality that had come to characterize the turn of the century American economy. When President Obama proclaimed “that this kind of inequality — a level that we haven’t seen since the Great Depression — hurts us all,” he was underscoring how dramatically the outcomes of economic growth had changed, but also calling forth a vision of government activism that Americans had not heard for many decades.

While the President of the United States may feel he needs the particular props of geography to draw inspiration from history, Prince Charles certainly does not. His very presence is enough.

And His Royal Highness, perhaps not with the hubris of a Teddy Roosevelt, but certainly with equal gravitas, opened a conference held in London on May 27th, 2014 by suggesting “the need for a new form of inclusive capitalism.” It seems only fitting that the heir to the British throne would not use the word “inequality” in an address of this sort, and while a good part of his remarks dealt with environmental challenges, he was certainly clear in expressing a serious and more general concern about the workings of the economy, and the short term calculus that has little regard for civic, or for that matter civil, society.

At the same conference—“Inclusive Capitalism: Building Value, Renewing Trust”—Mark Carney, the Governor of the Bank of England, was much less circumspect saying that inclusive capitalism “is fundamentally about delivering a basic social contract comprised of relative equality of outcomes; equality of opportunity; and fairness across generations,” and suggested that there is a growing unease that this “trinity of distributive justice” was breaking down, an unease confirmed by “hard data.”

As many of you know, over the course of his career Mr. Carney has straddled the role of public servant and business person, and while at one point remarks by a central banker, or for that matter leaders of the business community, about inequality may not have been common, that is hardly the case now, Standard & Poor’s offering only one example in a report on “How Increasing Income Inequality Is Dampening U.S. Economic Growth, And Possible Ways To Change The Tide.”

But none of these authorities speaks with more weight—though members of the British monarchy may not entirely agree—than the Pope, who also got into the game by releasing a blistering indictment of the workings of the global economy in the aftermath of the Great Recession. Pope Francis described the birth of a “new tyranny,” stating that:

While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. … To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.

[Evangelii Gaudium : Apostolic Exhortation on the Proclamation of the Gospel in Today’s World (24 November 2013), pages 47-48.]

Presidents and Princes, Popes and high priests of capitalism, all, it now seems, have an opinion on the nature and consequences of inequality, and they all think it is a problem worthy of public policy attention.

“Higher levels of income inequality,” The Standard & Poor’s report says, “increase political pressures, discouraging trade, investment, and hiring. … [I]ncome inequality can lead affluent households … to increase savings and decrease consumption, while those with less means increase consumer borrowing to sustain consumption … until those options run out. When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession.” This is good, solid Keynesian economics, the kind that Mabel Timlin, I’m certain, would have been proud.

In other words, inequality is a concern because it makes the macro-economy more volatile and difficult to manage, leading to lower economic growth, and little, if any, improvement in the living standards of the broad majority.

In this sense it is little wonder that the Great Recession has brought the prospects of the “middle class” to the forefront of public policy discussion and linked its fate to the distribution of incomes: seeing the economic pie shrink in front of your very eyes may well indeed make the average citizen wonder a bit more intensely about how the slices are being shared. A public policy narrative based on inequality resonates in the United States, where the impact of the Great Recession was greatest, or at least that was the hope behind President Obama’s Osawatomie speech, which was surely intended to frame the political discourse in advance of the 2012 Presidential election.

This narrative has, it seems to me, four elements:

1. inequality has, in fact, increased;
2. this has consequences—moral or material—for the well-being of the broad majority;
3. it is both possible and necessary for public policy to do something about it; and
4. in addressing inequality policy will also solve other related problems like social exclusion.

One wonders if this story resonates in Canada in the same way that it did in the United States. Canadians will go to the polls at some point during 2015 to elect a new federal government, and it is no doubt the case that all the leaders of the major political parties have started to consider and refine their platforms, hoping during the coming months to shape the public discourse in their favour.

But Canada 2014 is not America 2011. It is fair to say that the recession did not have the sharp edges, and the recovery was quicker and more robust, north of the 49th parallel. And it seems that in policy discussions Canadians have also relied on an alternative narrative, one certainly also present in American debates, that may well carry more weight.

This narrative is also based on “hard” facts to suggest that:

1. inequality has, in fact, not increased;
2. that even if it has the consequences are benign;
3. that even if they are not benign there is little that can be done about it; and finally
4. even if public policy has punch, the effort directed to a fight against inequality diverts attention from more pressing problems, like absolute poverty.

In this lecture I would like to tell two stories about inequality‐‐‐one from the perspective of those who feel it is not a problem worth the worry, and the other from the perspective of those who see it, to quote from another of President Obama’s speeches, as “the defining challenge of our time.”

I would like to tell these stories to clarify their underlying logic, but also to clarify the challenges facing Canadians, and suggest what public policy should do about them. But I also have another motive. I would like to underscore the value of economic and statistical theory to a public policy discussion of this sort. It seems to me that with an appreciation of some basic elements of method and measurement it is much easier to turn stories we tell ourselves into a conversation between ourselves, a conversation about public policy and how it can best serve our needs and wants.