Dismal Scientists

It is curious that in American politics, "values" issues are always social issues but never economic ones. Yet how the disadvantaged among us are treated is clearly a reflection of who we are as a people. Similarly, how workers are treated on the job -- their safety, their working conditions, their remuneration -- also speaks volumes about our values as a nation. This is also true for child poverty.

After reading Is the Market Moral? by Rebecca Blank and William McGurn, a new Brookings Institution book sponsored by the Pew Forum on Religion and Public Life, I began to consider how small a role religious, even secular, values play in discussions of economic policies and trends.

Of course, economists contend that economics is a science. "Tell me what you want to do and I will tell you the best way to do it" is the economist's usual stance. (Actually, as one economist said, his role is to say, "Tell me what you want and I'll tell you why you can't have it.") Clearly, there's no room for values. The underlying assumption is that unfettered markets produce the best outcomes, except in a few very specified situations: externalities (such as pollution imposed on society but not reflected in producers' costs), monopolies, and other "market failure" cases everyone has had to study in Econ 101. Some economists (Martin Feldstein, for one) have contended that inequality is not a proper concern for economists. They should be concerned only with determining how to maximize the output of goods and services.

It is important to examine whether unfettered markets are the appropriate means of organizing our economy, both in terms of the values we seek to see reflected in our society and for achieving our economic goals. One's view of the proper role of individuals, institutions, and government in the economy is determined, in large part, by one's assessment of the merits of "unfettered markets." The U.S. economic-policy debate is in fact dominated by the assumption that unfettered markets work best, a view that's applied to our domestic economy and to that of other countries through international financial institutions that the United States controls. John Kerry's recent statement that he is "not a redistributionist" indicates how dominant this view has become.

Yet there is plenty of room for applying values to the economy. An economy can be structured in many different ways and yet achieve the same amount of efficiency, i.e., produce the same outputs with the same inputs. This was the conclusion of a book that Rebecca Blank edited for the National Bureau of Economic Research (NBER) a decade ago. Major European countries, for example, have a set of policies that are far different from ours: a strong social insurance system, government provision of health care, higher taxes, and far less inequality. Yet these countries have seen faster productivity growth -- the gain in economic efficiency -- than the United States for most of the last four decades. At first, this trend was mainly a process of "catching up" to the United States, the technological leader. However, many of these countries have now surpassed the United States in productivity.

It seems impolite in America to mention this, but we live in a class society. Let's just say there are various groups differentiated by their income and power, and that the positions of these groups are strongly maintained over time. It's not that there isn't any upward and downward mobility; it's just that there's not enough of it to make having a favorable, or unfavorable, class position seem like a temporary arrangement

There has been a dramatic upward shift in income over the last few decades. In fact, inequality has grown far more in the United States over the last three decades than at anytime in the last century, and far more than in any other advanced country.

Using some data from NBER researchers Thomas Pikkety and Emanuel Saez, it is possible to illustrate how large both the income redistribution and the scale of inequality in America has been:

  • The top 1 percent of families earned 9.3 percent of all income in 1980. By 2000, this income share had increased to 19.6 percent. Correspondingly, the income share of the bottom 90 percent declined from 66 percent to 53.9 percent. There were small gains (1.9 percentage points) in the income shares of the remaining group, the 90th to 99th percentiles.
  • From 1980 to 2000, the incomes of the upper 1 percent increased 179 percent, while those of the bottom 90 percent increased by 8 percent.
  • In 1970, the ratio of top executive earnings to that of the average worker was 38.6 to 1. This ratio increased to 101.1 by 1980, to 222 by 1990, and to 1046 in 1999.

Because of the inequality in the United States, even though our per-capita income is higher than many countries, our low-income families are not better off than those in other places where per-capita income is lower. And even though we think of ourselves as a mobile society compared with Europe, recent research indicates that the United States has less class mobility than previously believed, nor has it changed much over the last few decades.

And even if income were distributed according to merit or to the value of one's skills, we would still need to care for those worst-off and guarantee them a decent standard of living. Moreover, children do not start off with the same amount of resources -- monetary assets or family "social capital" -- so economic outcomes depend at least as much on background as on effort or character.

The social class a person belongs to really matters -- it determines your health, how long you live, where you live, your exposure to crime, your success in school, and the likely success of your children. A task force of the American Political Science Association has recently concluded that inequality in income and resources translates into inequalities in participation and effectiveness in our democracy.

This leads me to think that economic issues are just as much "values" issues as any of those that are more frequently discussed. Moreover, the teachings of the various faiths have much to say on economic matters. I daresay that there's no reason to believe that unfettered markets provide us with the type of society our faiths guide us to have in terms of the lives of the poor, the treatment of workers, and the solidarity of our communities.

Lawrence Mishel is the president of the Economic Policy Institute (EPI). He writes a monthly column on economic issues for the Prospect's online edition.

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