Tomorrow Without Fear

In 1946, Chester Bowles, director of the Office of Price Administration during WWII (and popularizer of the soap opera before that) wrote a remarkable book about how to maintain a full employment economy after demobilizing from the war—and how creating a just distribution of income would be fundamental to the success of that effort. 

There are two aspects of this book that stand out to me. First is its economic point. Income inequality causes many problems, including several I’ve explored in my research. But Bowles highlights one that is perhaps most fundamental and yet under-appreciated today: inequality is a major constraint on economic growth. And it constrains growth in the most direct way possible: because poor people buy more things when their incomes go up, while rich people don’t. As he puts it: 

Let us suppose that one per cent of the population were to receive 95 per cent of our entire national income, with the remaining 5 per cent spread among the rest of us. Could our system—could any system—work on that basis? One per cent of the people couldn’t possibly consume 95% of all the goods and services which the rest of us could produce.

And surely if they couldn’t consume our annual output, they would have no reason to use their savings to build more and more plants and facilities to produce more and more goods which they couldn’t consume. In a system as unbalanced as that there couldn’t be much production and not many of us could find jobs. 

I’ve taken this extreme case, not because it makes any sense but because it demonstrates the nonsense of the contention that the way our national income is divided among us has nothing to do with how much we produce or how many of us have jobs. On the contrary, the distribution of our annual income has almost everything to do with our total production and employment.

Chester Bowles, Tomorrow Without Fear

The idea that inequality constrains growth is coming back into fashion among economists today–it’s at the heart of the secular stagnation debate, for instance. EPI even wrote a report about it. But it’s not nearly as widely discussed as it was back in the 1940s and 1950s.

The other thing I love about this book is the rhetoric. Bowles became a multimillionaire (during the Great Depression) by writing advertisements, and it’s clear he knew what he was doing. The way he channels can-do, commonsense American spirit in the service of a progressive economic vision is something progressives today could learn from. In his view, fixing the economy is a straightforward matter of “learning to live better” in light of our continual technological progress. Here’s how he introduces the need to boost incomes among the poor and middle class:

The problem of 140 million people learning to live better and better year after year sounds easy and pleasant. But strangely enough we shall probably find it a somewhat difficult task.

It will be difficult because what it requires is that we get a lot more purchasing power–in other words, a lot more money–out into the hands of a lot more people, particularly those people who need it most and who in our system have always had the most difficulty in getting it–the wage earner, the farmer, the lower-income groups generally.

This means a different distribution of our national income than we’ve had before. And the redistribution of income is a subject which many people find distasteful to talk about–much less to do something about. 

But talk about it and do something about It we must, because this is not a matter of taste; it is a matter of national economic necessity.

Chester Bowles, Tomorrow Without Fear

Then there are the illustrations. How do you use drawings to convey the idea that stagnant wages amid rising productivity will induce unemployment as demand fails to keep up with supply? Like this: 

Unfortunately, Tomorrow Without Fear is no longer in print. But you can learn more about the book at this website. Email me if you’re interested in reading a copy, or have ideas about how to spread its message.

Income Inequality and the Persistence of Racial Economic Disparities

50 years after the civil rights movement, racial economic inequality remains a major fact of American life. In fact, the gap in family income between blacks and whites has not changed since the 1960s:

The utter lack of progress is striking, especially since racial gaps have narrowed in other areas: college attainment, high school test scores, and life expectancy have all seen some convergence between blacks and whites, though there remains much work to be done.

In a paper published in Sociological Science, I show that the intransigent racial income gap results from two opposing trends. Since the 1960s, there has been improvement in the relative position of blacks compared to whites. Despite continued disparities in parental wealth, access to educational resources, andtreatment in the labor market, the median African American has moved up the income distribution, from the 25th percentile of family income in 1968 to the 35th percentile today:

But this improvement in rank occurred just as macroeconomic shifts were causing wages to stagnate for the poor and middle class, and an ever-increasing share of national income to be allocated to the rich. Because of this dramatic growth in income inequality, the earnings at the 35th percentile have plummeted relative to the national mean:

Whites remain richer than average, so a decline relative to the national mean also means a decline relative to whites as a group. On net these two trends–improving relative position and increasing income inequality– have canceled each other out, such that there has been no overall change in the black-white family income gap.

If income inequality hadn’t gone up, the racial income gap would have decreased by about 30% over the past 50 years:

By the same token, if not for the improvement in the relative position of blacks, the gap would have increased by about the same amount:

These results show how racial inequality and economic inequality are fundamentally intertwined. This is a point that many civil rights leaders have made over the years, but today it tends to get lost in the discourse over whether social justice or economic justice should be prioritized in national politics.

Learn more by reading the paper, or download the data here!

Mechanism Design for Social Good

I presented at the second annual workshop on Mechanism Design for Social Good, held in conjunction with EC2018 at Cornell University. My talk was entitled “Mechanism Design and Marginal Distributions.”

Most social outcomes result from the combination of two factors. Marginal distributions are the set of possible outcomes that are available, while allocation processes determine which people get which outcomes. 

Most social scientists and most policy discussions focus their attention on allocation processes, with the goal of making them more fair. But as I described in my talk, many of our pressing social problems cannot be solved by better allocating our existing sets of outcomes. Instead, we need to focus our energy and attention on creating the better sets of outcomes that we want. 

I gave examples from my work on upward mobility and racial equality, but similar dynamics exist in issues from health care to education to housing.  They often result from poor social decision-making: it’s hard to aggregate from individual preferences to social choices, and the ways we do it right now in the United States are inadequate and vulnerable to pressure from wealthy donors and organized interests. Better mechanism design (ranked choice voting, for instance!) can help!

Here are the slides from my talk (you can download them here):