This year’s Common Ground on the causes, consequences and policy responses to income inequality in the United States (U.S.) occurred on Monday, Nov. 15. The guest speakers were Greg Mankiw, the Chair of the Council of Economic Advisers for the Bush administration, and Christina Romer, the Chair of the Council of Economic Advisers for the Obama administration. While each administration had vastly different economic policies, Mankiw and Romer hold similar positions, apart from possible solutions.
Mankiw centered his discussion on the increase of technology that replaces the need for unskilled workers, compared to education, which creates skilled workers. Additionally, he expressed confidence in our society’s ability to find a way of making up for the inequality caused by the rapid increase in technology, which he noted we have done in the past. Mankiw believes that improving education is the best way to lessen inequality, but he stressed the difficulties in creating good policy and the vital importance of limited government intervention. Romer agreed, for the most part, with this basic framework, although she expressed a more hands-on approach to solving inequality, preferring action even if the consequences of doing so are not crystal-clear. The event intended to facilitate a civil discussion between two different parties, not a debate, so there is not a clear winner.
Romer provided a better explanation to fix the problem of technology, education, and inequality. She actively advocated for certain policies which would increase human capital, whereas Mankiw merely stated that it is hard to know what to do. Mankiw’s argument relies upon past trends of humans surpassing inequality. However, the rate of technological change is currently unparalleled in its rapidity. We cannot simply have confidence that inequality will work itself out when we are living in such an unprecedented time. The discussion about the Build Back Better Bill, specifically the part about free community college, illustrates this principle. Romer believes that free community college is the next step to increase education rates, and she supports a progressive tax to obtain funding. Mankiw likes the idea of free community college, but thinks that it should be instituted through a flat tax rate, a position similar to his concerning Social Security. However, I think that a progressive tax is essential to fund a program that is meant to reduce inequality. Given that low-income people require more economic help relative to those with higher incomes, it does not make sense that each socioeconomic group should have to pay the same proportion of taxes for projects that are meant to aid those with greater need, especially as COVID-19 has abetted current trends of inequality. Mankiw’s preference for a flat tax rate limits his possibilities; by not fully tapping into the wealthiest tax brackets, his vision runs the risk of raising insufficient funds to fully tackle the issue of inequality at hand.
The globalization that has occurred in the past 20 years changes the nature of inequality. It will continue to be cheaper for more developed countries to outsource their unskilled labor to less developed countries to keep costs down. Simply put, until there is no significant discrepancy between how much a worker from the US and any other nation is paid for a certain task, the demand for unskilled workers domestically will continue to decrease, as it will remain cheaper for employers to produce in foreign countries. Additionally, technology has been increasing exponentially in the past 20 years. Our rate of technological growth is so much larger than preceding periods where counting on humans to adapt is not a safe bet. The government has a responsibility to its people to work to increase their citizens’ quality of life; it is better to try and do something about a problem, even if those efforts end up in vain, than to just hope that it will resolve itself.
