A conversation about the post-pandemic U.S. economy, hosted by City College of New York’s Colin Powell School for Civic and Global Leadership
Oren Cass, executive director ofAmerican Compass
Lane Kenworthy, professor of sociology and Yankelovich Chair in Social Thought at the University of California-San Diego
Daniel DiSalvo, Professor and Chair of Political Science in the Colin Powell School at the City College of New York–CUNY and senior fellow at the Manhattan Institute
Andy Rich: Good afternoon, everybody. It’s great to see so many folks joining us this afternoon. I’m Andy Rich, I’m the dean on the Colin Powell School here at City College, which is our school of social sciences, and I want to welcome you to a conversation about economic justice in post-pandemic America. It is an event that has a question mark at the end of its title, as if to raise a question of whether economic justice can be achieved and what would it look like. I think it’s a good question.
This has been a tumultuous year. It’s been an unprecedented year on so many fronts. Just more than a year ago the pandemic led to a shutdown of the economy, the loss of tens of millions of jobs. A lot of pain and suffering and economic loss nationally and for sure in this community among our students and their families in particular it has been tough. But parts of the economy and especially stock markets seemed largely unaffected. In fact, markets are hitting new record highs almost every day right now, and the prospects for the post-pandemic American economy seem kind of bright, made brighter by extraordinary federal and fiscal stimulus that in many ways are redefining and reinvigorating the role of government. So, what are the prospects for economic justice in the months and the years to come? That is our subject for today.
We are pleased to have two guests, Lane Kenworthy, the professor of sociology at UC San Diego, and Oren Cass, executive director of American Compass. I’m going to turn it over to Dan DiSalvo, the chair of our political science department in just a moment for proper introductions and to moderate today’s discussion.
Before I do that, I want to thank Anne and Bernard Spitzer and Rajan Menon for making today’s event possible. Professor Menon is the Anne and Bernard Spitzer chair in political science here at City College. It is an endowed chair that has been so generously provided by the Spitzer family, and it’s that endowment that has made possible today’s event. The Spitzer lecture is an annual event for the Colin Powell School and for City College. It usually focuses on international and global affairs. Today our focus is domestic and that feels right in this moment, with so much at stake and so much unsettled here in the United States. So, my particular thanks to Rajan Menon for making today’s event possible. He is among our most distinguished colleagues, prolific as an author and on subjects that range from domestic to international affairs. He is also among our kindest colleagues. He is the epitome of collegial and a good colleague, and I know that I’m joined by many folks here in thanking him for his friendship and his generous spirit, including in making today’s event possible with a support from Anne and Bernard Spitzer.
We are pleased to be co-sponsoring today’s event with the Rifkind Center for the Humanities and I want to thank Mikhal Dekel who is the Rifkind Center director for her partnership on this and many things and for her help in making today’s event a success. Now it is my pleasure to turn things over to Dan DiSalvo. Professor DiSalvo is professor and chair of political science here at the Colin Powell School. He is also a senior fellow at the Manhattan Institute. His scholarship focuses on American political parties, elections, labor unions, state governments, and public policy. He is a prolific author. Dan, thank you also for putting today’s event together and for moderating.
Let me just turn it over to Dan and remind everybody a couple of things. One, that we are recording today’s conversation so that those who can’t be with us can watch it later. You should feel free to use the chat throughout today’s event, both to share reactions to what you’re hearing but also to post questions, and we will be pulling questions from the chat as the event goes on. Thanks for being here and let me turn it over to Dan.
Daniel DiSalvo: Thank you, Dean Rich. It’s my pleasure to welcome everyone here today, and I’m glad that so many of you have turned up. It’s a pleasure to see everyone. I’m really excited about this conversation. I think it’s incredibly topical and our two speakers are people whose work I really admire and respect, and students who have taken my courses have seen their names before and read some of their writings, and I certainly encourage those of you who are hearing them for the first time to look up what they’ve written and what they’ve done in print.
Our format for today will be just a general conversation. I’ll pose some questions to our two guests and let them go back and forth on some large and broad topics about U.S. domestic, economic, and social policy. From there we’ll eventually open it up formally to questions from all of you in the audience, but I’m going to be monitoring the chat. If good and sharp and pointed questions come up as we go, I’ll pick what you want to know up, and I’ll try to get it to our guests and get their responses.
As Dean Rich mentioned, our two guests are, first, Lane Kenworthy, who is a professor of sociology and Yankelovich Chair in Social Thought at the University of California–San Diego. He’s the author of many books and articles, most prominently Social Democratic Capitalism, The Good Society, How Big Should Our Government Be?, Social Democratic America, Progress for the Poor, Jobs with Equality, Egalitarian Capitalism, and In Search of National Economic Success. Our other guest is Oren Cass, who is the executive director of a fairly new and small, but punching above its weight think tank called American Compass. He is the author of The Once and Future Worker: A Vision for the Renewal of Work in America. He is a contributing opinion writer for the Financial Times, and his work also appears regularly in publications including The New York Times and The Wall Street Journal. Previously Oren worked as a management consultant for Bain Capital in Boston and Delhi. He served as domestic policy director for Massachusetts governor Mitt Romney’s 2012 presidential campaign and was a colleague of mine as a senior fellow at the Manhattan Institute for five years, and he holds a JD from Harvard Law School. If we were in person I would say, please give a round of applause for our two guests, but since we’re in the virtual world, it would be hard to hear.
I guess I’ll kick things off with a question of my own, and that is—this maybe will allow both of our guests to get out their broad views and see where we stand. So, Lane, Oren, what changes, especially with regard to government policy, would you like to see in the way the U.S. economy now operates? And how, if at all, government policies have been changed by the pandemic? Where are we now? Where should we be going in terms of U.S. economic policy? Lane, would you care to start us off?
Lane Kenworthy: Sure. So, I think job one is to green the economy because there’s a timeline on this. This is not something that I research or that I’m an expert on, but in my view, this is the most pressing and important thing to do. But I’ll focus on some other things. So, I think it would be a terrific idea if we can make some further advance in creating new government social programs or expanding the generosity or coverage of some ones that already exist. There’s a long list of things that we could do here. I think it’s not clear how the… Well, let me just mention some other things like health insurance, early education, paid parental leave, child allowance, sickness insurance, elder care, better housing assistance, better disability services, a boost to the EITC.
So, there’s a wide variety of things that we could do, and there are more. Has the pandemic affected this? I don’t think it’s clear yet. There is a fairly widely held view that some of the cash assistance that the government distributed during the pandemic has made more Americans realize, well, this is a good thing, and maybe I’m in favor of it. That may well be true. In past economic downturns there has almost always been a kind of similar shift of opinions, but then it goes away not long after the downturn. So, whether this will be a lasting change I think is unclear. But one way in which it seems very likely to have mattered is that it changed who is in power in Washington, and for I think a variety of other reasons that are largely unrelated to the pandemic but maybe not entirely. The Democratic administration and Democratic Congresses seem willing to do more than they have for quite some time in the past.
So, I think there’s an opportunity. Nothing yet has been passed that is scheduled to last. So, the first big bill included a variety of things that were one time or one year advances. So, we’ll see how this plays out but I do think it looks like maybe we’re on the verge of adding on to our welfare state in I think largely helpful ways, although maybe we can talk more about the specifics. I’ll stop there.
Daniel DiSalvo: Okay. Oren, how do you assess matters as where we currently are?
Oren Cass: Well, I think Lane and I probably agree to a good degree on assessing what we’ve learned from COVID or what to make of it, which is I think certainly too soon to tell. As he pointed out, everything that’s been passed so far remains in the COVID frame. In my mind, that’s quite important and telling, and I think a good kind of area to focus on as a litmus test is what’s been going on in the child allowance debate, where the $1.9 trillion bill that the Biden administration has already moved through creates this sort of one year provision that essentially gives large amounts of money to all families with kids, regardless of their income, except at the very high end. There are sort of two ways to look at it. From one perspective it’s an extraordinarily revolutionary change in how we approach the welfare state and social insurance, but from a different perspective it is just the last gasps of how we approached COVID, which was to send everybody lots of money.
What was so unique about COVID even relative to prior downturns is that it was a public health crisis first and an economic crisis second, and what that meant was for a long period of time actually, we were actively trying to throw people out of work and asking them not to go to work. So, an awful lot of the sort of general fights we tend to have between the right and the left in America on questions about what sort of benefits we should provide to who, those went out the window for a time, and now they are coming back, and I think what remains to be seen is has there been a permanent shift in either party. The early signs is there have not been a permanent shift in the Republican Party. There is very strong resistance to something like the child allowance. Then in the Democratic Party I think the question is, is the middle of the Democratic Party now suddenly to the left of what Elizabeth Warren and Bernie Sanders were running on and proposing, or Hilary Clinton was running on proposing not that long ago? My suspicion is not, but that remains to be seen.
I think the other dimension that I would add into this, and where Lane and I will probably disagree most, is that it seems to me that the most pressing challenges and an area of focus for us should not be in the social welfare state and essentially how to redistribute money to folks that are being left behind, it should be focused on the actual structure of the economy and how to operate one that works well for everybody and that actually succeeds in spreading prosperity broadly. So, our focus at American Compass and my interest is much more for instance on how would we change how organized labor works in a way that could give workers more power. How would we change kind of public investment authorities and the role of Wall Street in ways that would actually get more investment to the parts of the economy that create good employment? How do we do place-based policy so that we don’t continue to see these divergencies in regional outcomes?
So, I think, as a fallback, there may be places where we need to strengthen the safety net, but I certainly don’t want that to be where we turn first or what we lead with, when in my mind the end goal should be not a systematic acceptance of greater inequality and more of the prosperity concentrated with fewer people and more redistribution to everybody else, but rather sort of figuring out how to make capitalism work well for as many people as possible.
Daniel DiSalvo: In some ways the end of your comments really lead into what was my second question and goes in some ways to this issue of the structure of the economy and how to respond to it. That’s been this huge policy debate that existed prior to the pandemic and, as you suggested, may be now coming back into focus, which is the issue of rising income inequality. President Obama famously argued that it was the defining challenge of our time. But some argue of course that income equality is not as big a problem as many people believe it to be, beyond some sort of basic notion of fairness. So, maybe I’d go back and forth to both of you and think about is there something about the structure of the economy that results in inequality or this income inequality and where would you rank income inequality or doing something about income inequality as a policy priority and why? Lane.
Lane Kenworthy: Well, I worry about inequality, but it’s actually not all that high on my list of things that I think we should try to tackle or that I would if I were a policy czar, I guess. I would put things like economic insecurity, poverty, opportunity ahead of this. Now, I think addressing these issues would probably lead to less income inequality, especially if we were to do it on the kind of pre-distribution side, as some say. But I don’t think it’s something that we necessarily need to be obsessed about. So, if for example a government here were to increase taxes proportionately, so everybody’s taxes increase by about the same percentage, and then use that money to expand a bunch of government services, universal or non universal, in ways that wouldn’t affect the distribution of income at all because receipt of services is not counted as part of your income. So our Gini coefficient, or the share of income going to the top 1% wouldn’t actually change much at all, but I think we have a much better society.
So, that’s the sense in which I don’t think income inequality needs to be really, really high on the list of objectives. I’ll let Oren speak. I’m happy to elaborate. Let me just say one other thing, sorry. Part of the reason why people worry about income inequality—there are normative or ethical concerns and I share them—but a big part of the reason these days I think is that there is a widespread view that income inequality has harmful effects on a lot of other things we care about, economic growth, democracy, health, happiness, and so on, and I think this is a very reasonable hypothesis, but I’ve looked at the data pretty carefully and I’m not very convinced that income inequality actually has these sorts of detrimental effects.
The one thing it clearly does matter for is income growth for middle income households, and that’s important, but the harmful effects I think are far less widespread than I would say is now a commonplace view on the American left.
Daniel DiSalvo: That’s very interesting, and we may probably come back to that issue as we go. But Oren, in your opening remarks you suggested that maybe income inequality was a bigger issue and the economic structure that produces it should be more of a priority. Could you elaborate?
Oren Cass: Yeah. I think this discussion is really going to sort of give a very good glimpse into some of the realignment that is probably going on in American politics because I think I probably am relatively more concerned about inequality than Lane is. Some of the caveats he placed on his comments I would agree with. I think in particular focusing on the top 1% or the very richest of the rich is misguided and that that doesn’t really have much effect on how life is for everybody else. It tends to be more sort of a form of grievance politics, even if there are certainly ethical fairness concerns associated with it. But what I really worry about is more what seems to me an almost bifurcation of the society, that roughly but not entirely is along the lines of college education and is showing a real sort of divergence between where you see sort of the median or what we would call historically the middle class, now more so the working class household and the more sort of middle upper income, college educated professional household.
There are ways in which you can say, well, it doesn’t matter how well, if some people are doing even better as long as everybody is doing well, but I think there are two things to say about that. One is that may be true, but that’s not actually what’s happening. What we have is one group doing well and one group that’s sort of roughly treading water or staying in place, and I don’t think we should expect, sort of if anything else, good political outcomes and stability over time if you have an economic system that is simply not working for a significant share of the population. But secondly, I think we have to acknowledge the very real ways in which that divergence has tangible effects on people’s lives.
So, if you think about just things like what it means for the cost of health care and medical care, what it means for cultural assumptions and judgements about different kinds of work, about different education levels. What it means is you have agglomeration effects and our education system essentially skims at least the most academically talented folks out of most communities in this country, sends them to a few places, mostly in coastal cities and the encourages them to stay there. That I think has very damaging effects on the communities where those people no longer are. So, I think there are a lot of ways that a healthy society just relies on cross subsidization essentially. Not so much financial as social in a lot of cases, but relies on dynamics where people’s networks, people’s communities, people’s local economies have mixes of people in them. As you get more inequality, as you get that divergence, I think we’re getting a real sorting that has very tangible, very negative effects for those on the short end of the stick, even if their incomes aren’t noticeably different from what they would’ve been in past decades and especially importantly in my view, and this maybe goes to some of our disagreement, even if we’re sending them lots of great benefits and transfer programs.
I think it’s indisputably true that Americans at every income level, from a percentile perspective, are better off in material terms than they were in the past in terms of just the amount and quality of stuff they have and that they have access to, and that is a good thing. We should be glad about that, but I think we also have to recognize that it’s not adequate and that doubling down on that model is certainly not going to solve our problems, and I think in some respects can compound them.
Daniel DiSalvo: That’s very interesting, and I actually want to give Lane a little bit of an opportunity here to respond to that because at first I sort of thought, well, maybe here’s a convergence, which is that the issue is a kind of middle income fragility or precariousness that both of you want to address, but it seemed then that maybe the proposals to addressing it were quite different. Lane, what’s your reaction?
Lane Kenworthy: Oren’s putting his finger I think on what are really a multitude of interrelated problems. One way to think about them is that we could help address a lot of them through a single process. Another is to be a little skeptical that that’s going to work. So, for example, if we were to bring back a lot of manufacturing jobs to the United States, it’s possible that that would also help deal with place-based inequality, and here I’m bringing a related or another issue into the conversation, but it’s also possible that it wouldn’t, because even if we were to succeed in not just reviving manufacturing but also bring a lot of manufacturing jobs, those are two separate things, they might end up located in areas that don’t help the kinds of struggling towns and cities that have been left behind so far that a lot of us think it would be important to help.
Just another reference point here. So, if we think about segregation by education as a problem, and I agree, it’s not as desirable as if we had more mixing, but there is some recent evidence from even a country like Denmark, which has far, far less income inequality, that suggests that this kind of segregation, which then spills over into schools, even very well run, very well financed public schools that on the surface are quite egalitarian, and in some ways genuinely are really egalitarian. But we end up getting some of the same effects that you observe in typical American metropolitan areas where you get an agglomeration of upper middle class to affluent families living in certain areas and that feeds into the schools, which on the surface are funded pretty equally, but because there’s so much extra money flowing in from parents and extra time that they spend, the schools in reality are very, very different.
So, these are the kinds of reasons why I think thinking about this problem from the vantage point or beginning with income inequality may not be nearly as helpful as some these days are thinking. I should say, just as a side point here, that in some respects I’m thrilled that so many Americans, including policymakers, are interested now in income inequality. I’ve been working on this issue for 25 years or so, and 10–15 years ago, maybe 15 years ago, I wouldn’t have imagined that it would be this front and center in American policy discourse. So, in that respect I think we move forward, but in another sense I’m a little worried that we’ve moved too far forward and that too much focus is now put on income inequality itself as opposed to what are in some ways separate problems, separate pieces.
Daniel DiSalvo: Oren, I want to give you a chance to respond to Lane’s reaction here, and also he brought up sort of a little bit of where I was going, which is thinking about some of these issues about how to address this. Some have argued that a revival of American manufacturing jobs—there’s a difference between, as Lane wisely put it, a difference between increasing manufacturing, which has been increasing, but whether manufacturing jobs or particular types of jobs. What, if any, government policies there are that would spur such a revival of manufacturing jobs, or we might think even more broadly about what could be done on restructuring work in America that would perhaps rebound to these beneficial effects of improving communities throughout the country? And you’ve written a lot about that, so maybe you’d like to respond on both those points.
Oren Cass: Yeah, sure. I think one place that I think Lane makes the point very well is that I think it’s important not to talk about income inequality sort of for its own sake, that there may be ethical concerns there but I think we’re both focused on it more as a symptom and that there are other problems that we actually care about. So, if you could address those without resolving, if you address those and you still had high levels of income inequality, that that could be just fine, but I do think it’s important to say we have to find a way to address those problems. That if we are potentially resigning ourselves to say well, it is just the nature of economic or technological progress that our society is going to sort of drift off in this way, I think it’s almost certainly just not sustainable for a democratic republic.
So, I think we have to be a lot more aggressive in asking, well, what do we change then? Whereas I think a lot of our policy discussions tend to start from an assumption that we can’t change a whole lot of things, so then we might just sort of have to shrug. So, whether that’s saying, look, globalization is simply incompatible with a kind of healthy democratic republic with broad-based economic prosperity and a sense of mutual obligation, then what has to give there is globalization, not the latter, I would say. In terms of what it means in terms of concrete policy I think manufacturing is an example of an issue that I talk about a lot just because I think it makes very tangible a lot of the sort of economic policy questions we’ve gotten wrong. That for many decades now it was the attitude of policy makers that for instance manufacturing doesn’t matter, that if one set of jobs leaves that’s fine, there will be a different set of jobs that gets created instead, and that’s the wonder of the free market. The reality is that it did not work out that way, and that among other things, having a diversified economy has a lot of value from a regional perspective, from a skills perspective, from an innovation perspective and in terms of your growth trajectory.
So, for instance, I don’t think it’s right to say well, if a lot of manufacturing came back or if manufacturing grew in America, who knows, maybe it would all be in Silicon Valley or New York City anyway. That is not the nature of manufacturing, which requires a lot of space, which relies on a lot of natural resources and raw materials, which tends to have a lot of environmental effects. So, the same comparative advantage logic that we so excitedly apply in the global context I think we need to recognize applies in the domestic context as well, and that greater diversification rather than specialization, greater dispersion rather than agglomeration, those things have real value.
So, when you talk about, well, okay, what are the policies that we would have that would do that, we could go on and on for hours. I’ll highlight a couple of categories that we could talk about in more depth. One, as I mentioned, is the globalization point, and we could recognize that trade deficits aren’t actually a good thing. Trading our assets for other country’s goods is not a sustainable long-run strategy for America. So, actually being skeptical of trading arrangements and obstructing trading arrangements where among other things massive subsidies on the other side skew what gets made where, I think is actually really important.
I think, conversely, we have to channel a lot more domestic investment toward these kinds of activities. You can make sort of a standard market failure case if you want to, that the spillover benefits and social value of a more broadly dispersed picture of investment would be hugely valuable for the country, whereas today you have about 85% of venture capital going to the West Coast and the Northeast, and upwards of 75% going just into software and biotech. You see sort of massive disinvestment in others parts of the economy. So, I think there are things we need to change about the way the financial sector operates. I think there are things we need to change the way we approach education. We have this kind of college for all model that works great, and we spend $150 billion a year on college kids and virtually nothing on noncollege pathways. Well, guess who that’s working out better for?
So, I mentioned labor briefly. I think a very different approach to labor unions would be useful. I think much greater government investment in R&D would be useful. So, there’s a lot we can do, but it starts from the premise that there is an actual policy objective here and that the best outcome for America isn’t simply what the market has declared to be most efficient, it’s the market that is actually going to support a healthy republic.
Daniel DiSalvo: That’s very interesting. Lane, I’d like to get your reactions. In your remarks, you sort of suggested that we shouldn’t focus on some of these big structural factors of the economy, perhaps globalization, revival of manufacturing through different policy tools, but instead be focusing on social insurance policies and growth of the welfare state. Am I summarizing your view accurately or what might you add to it?
Lane Kenworthy: Yeah, I think that’s right, and let me say another thing that I think Oren and I almost certainly agree on is that employment matters a lot. So, the kind of welfare state that I’m in favor of and that I think we can see from our own experience, but also that of other countries, is that a modern welfare state that includes a lot of services that make it easy for people to—and in fact incentivize them to—be in paid employment, can work very well and has spillover effects on the economy, on people’s lives, on the affordability of a large government. So, that’s what we should be aiming for.
On manufacturing, and I’ll add labor unions here as well, I’m completely sympathetic to the goal of increasing manufacturing jobs and revitalizing labor unions, but I’m very pessimistic that this is going to work. I find it hard to envision an America where 30 years from now manufacturing hasn’t continued to more or less go in the same path that agriculture has over the last 150 years where more of it is done by machines and more of it is done abroad. We can try to forestall that, but this has been a pattern in every one of the rich democratic nations since roughly 1970. Manufacturing employment as a share of the working age population has been slowly but very steadily going down, that’s true even in Germany, in Japan, and more recently South Korea, which have done very well in manufacturing. Haven’t declined there quite as far as they have here, but they also started a little bit higher.
With labor unions, I’m not suggesting we shouldn’t try a little harder, but I don’t think we should be obsessed about trying to turn back this tide. Instead, I think we should try to work around it and work with it. There are lots and lots of service jobs and there are lots and lots of things we can do, and here too I very much agree with Oren that we should put a lot more emphasis on figuring out how to help, with training, retraining, job placement, apprenticeships, people who aren’t going to go to college or at least are not going to complete a four-year college degree.
On labor unions, my pessimism stems essentially from the same thing: just observing the data. There’s a story often told here in the United States that we’re alone among the rich democratic countries that’s seeing a collapse or a sharp downward trend in unionization, that started in the 1980s when Ronald Reagan decided to fire the air traffic controllers. It’s just not true, labor union density or unionization has been declining here since roughly the mid 1950s. It’s been a slow but steady, relentless decline in the private sector, but overall we’re now down to about 10%. But the biggest things that nobody seems to, or very few people seem to pay attention to, is that the exact same thing has been happening since the 1970s in almost every other rich democratic nation. There are only five exceptions, and those have a very peculiar setup whereby you can only get access to unemployment insurance if you’re a labor union member, so they’ve retained unionization rates in the 50s, 60s and 70%, but in every other country the path looks pretty similar to us.
Now, there are other things that you can do as a country that allow unions to continue to be influential, even if they represent fewer and fewer workers, so there are various collective bargaining arrangements and practices that ensure that whatever is agreed on by unions in the still unionized sector spills over to the rest of the economy. France is perhaps the most interesting example there. Fewer than 10% of employees are unionized in France too, but about 95% end up having their wages set by what happens in the unionized sector. So, there are things to do, and I very much support attempts to try to do this, but here too I’m skeptical just because of the reality of the data here and in other similar countries.
Daniel DiSalvo: That’s really interesting. Oren, you’ve written a lot about organized labor and about its potential prospects or how it might be reformed to be more consonant with the current economy rather than just a very small slice of it. So perhaps your perspective on what role, if any, organized labor might play in the future of the economy, and I’m going to add one piece coming through the chat that’s a little bit directed to both of you, but I’m going to give it to you, Oren, which is a concern about corporate consolidation—that is, too much concentration in too few firms. Is that an issue for the democratic republic, for future economic growth, how do you see that? So, you could say two sides here, the corporate sector and the labor sector. Where do we stand? What do you think we should do going forward?
Oren Cass: So, on the labor question, I think Lane actually described the situation very well, which is that organized labor is a much more complicated concept than we tend to appreciate in America. I think our vision of unions is Sally Field as Norma Rae up on the table with the sign that says union, turning around silently, but in much of, well, I would say most of certainly the Western world, organized labor means something completely different. Among other things, Europe is almost entirely right to work. The idea that you would sort of have a fight in your workplace about whether to have a union, and then you vote, and it’s either 50% plus one and now you’re all unionized or it’s not and now you’re not. That’s actually a sort of very peculiar and I would say very bad way to do labor.
So, my interest is in sort of separating out the idea of labor and what it is we want to accomplish from unions and big labor as they operate in America today. I think if you kind of think about what would we want labor to do, there are I would say three things. One is we would want it to give workers more power in the labor market. That is that we would expect a greater share of national income to flow to workers if they had relatively greater bargaining power, and so we should want to create that.
Second is I think we should want to give workers a genuine form of representation and voice in the workplace, partly just for its own sake and partly because if you have workers on equal footing with management they can actually work out a lot of things for themselves that right now we look to regulation to work out. This is I think something you see in Europe in a lot of cases where you actually see industry and the trade unions basically telling the government to get out of it, that they would rather work it out. So, I think there is a real opportunity for a sort of … If you think of something like the gig economy context, you obviously can’t have normal unions. The California AB5 type model I think is a disaster as well. Ideally what you would have is say the ridesharing platforms having a legitimate organization that actually represented drivers able to sit down and bargain about some things.
Then thirdly, I think it’s just really important to recognize the role that labor plays in society as just an institution that is there to support workers that plays a valuable role in the community, that helps bring people into the workforce, that plays a role in training. As Lane mentioned, in some countries in Europe also then can be a way of providing social services, so to the extent that you are expanding the welfare state, and you can do it in essentially a more local and self-driven way in some instances.
So, all of those things strike me as entirely achievable in theory. I think certainly the trends in labor in the United States have been bad for a long time, but I think the political dynamics have also been bad for a long time. I think there is a tremendous opportunity, again, if we don’t just sort of look within the confines of the few things we’re going to allow ourselves to touch, but actually ask what are the problems we have today and how are we going to get ourselves on a different trajectory. I think this is an area that has a huge potential and in some ways would look more like some of the things European countries have, like Lane was describing where the bargaining is at the industry level, not within a company. Some could be about providing benefits and so forth, but I think we just need to take a much broader view of what that could look like.
On the corporate side, I tend to think the concentration concern is a little bit overblown, mostly because I think that sort of empirical data is conflicted at best on what’s really happening there. The one thing I would emphasize on the corporate side is that I think we really need to think about essentially what are the set of constraints that we put on corporations. The biggest fans of the free market rightly celebrate the extraordinary power of competition and free enterprise to essentially solve whatever problem is put in front of them. Until you put the problem in front of them, like, okay, well, succeed with the workers that you have here. Then everyone sets their hair on fire and says, “That’s impossible.” Where everything is going to fall apart, or until you say okay, we’re not going to allow that sort of financial engineering, and then well, that’s going to be a disaster, it’s not actually.
I think capitalism isn’t this kind of state of nature thing. It is a system that we set up with rules to create a competition that we think is going to have good outcomes. If we look around and say capitalism is not generating the kind of outcomes that we need it to, then the answer isn’t to give up on capitalism, it’s to do among other things what we had to do about 100 years ago and say the world has changed and we need to rethink the kinds of constraints within which we ask the market to operate.
Daniel DiSalvo: Lane, you’ve written a lot about … I’ve got some other questions about this, and I can see some things coming up in the chat about this. But you’ve written a lot about the Nordic countries, many of which have very strong corporate sectors, very favorable tax regimes that favor some of their larger corporations. One thinks of smaller countries like Sweden, which have lots of global brands for a country of just over 10 million people. Do you see this kind of corporate consolidation issue as a problem? Then I want to tack onto that question, another one which is in some ways this issue that’s been plaguing, you could say that it’s part of the global economy, we talked a lot about you could say the capitalist side, but also on the labor side, the migration of people. Which is to say clearly Western European countries, the United States have been animated by immigration politics.
Can you speak a little bit to the intersection of immigration and the welfare state? In particular, some in Europe at least have argued that a larger expansive immigration policy is incompatible with a robust or vigorous welfare state. So maybe you could take your cut at each of those two questions.
Lane Kenworthy: Sure. So briefly on corporate consolidation. I too don’t yet see reason to worry a lot. I think this needs to be monitored extensively, but the two big things that you’d expect to, the two big problematic things that you’d expect to see if you got too much of this, a slowing down of innovation and rapidly rising prices, I don’t think we see this in most of the sectors where there is, at least in the US economy right now, where there is worry about corporate consolidation. So yes, keep a watchful eye, but this doesn’t seem to me a huge problem at the moment.
On immigration and the welfare state. So, I think it’s worth separating this into at least two different questions. One, is a diverse society an obstacle to building a big welfare state, if you don’t already have one? There I think the historical and comparative answer is yes. This has been one of the reasons why the United States has lagged behind a bit in the construction of public social programs. Now, it doesn’t mean we don’t have a welfare state, it just means that it’s not as generous and we don’t cover quite as many risks as the leading countries like Sweden, Denmark, Norway and so on. Immigration has been part of that, but diversity broadly reduces the sentiment that I care about everybody else. So, that’s a problem.
A second question is, if you’ve already got a big welfare state and then you begin to increase immigration, is that going to lead to reduced support for the welfare state? So, put more explicitly, the question here is what’s going to happen in Sweden, and Denmark, and other European countries, Germany too, as they begin to allow in more immigrants. My take on this is that we don’t know the answer yet, but it’s instructive I think to observe that at least so far there hasn’t been a decline in support for public social programs in these countries. Instead, there’s been a decline in support for immigration.
So, Sweden is maybe the best test case, because unlike the other Nordic countries it’s been really open, and in fact, more open than any other rich democratic nation over the last 30 years and allowing in refugees especially, which tend to create the most diversity in a society in the shortest period of time. The anti-immigrant party in Sweden, the Sweden Democrats, was up to 17% I believe in the last election, from effectively zero 25 years ago. Denmark and the other Nordic countries have chosen a different path, so even the social democrats in Denmark have been much less willing to open the doors to immigrants, including refugees. Although anti-immigrant parties have been influential in Denmark, I think it’s possible to draw a conclusion that in this moment that their politics have been less disrupted overall by an anti-immigrant party.
But the big picture here I think is that first, it’s too soon to really tell, and second, there’s no real sign of a dramatic drop in support for the welfare state. In fact, I think it’s instructive to note that almost all of the European anti-immigrant parties have becomes stanch defenders of a big public safety net, they just want it for only native born citizens rather than for everyone. This is not a great thing, I don’t think. That’s what we know so far.
Daniel DiSalvo: Oren, do you share that perspective? Do you think there are particular challenges for the types of structural economic reforms or perhaps sustaining our social welfare state here in the United States to intersect with our complex debates over immigration policy?
Oren Cass: I think I would defer to Lane’s sort of assessment of the political trade-offs there. I don’t know them as well in the European countries, and certainly what he said sounds consistent with what I do know. What strikes me though is two other issues. One is the very straightforward tension between immigration policy and social welfare policy, which I think he indicated to, which is sometimes we like to come up with these complicated trilemmas, of the three different things that you can only choose two and the political scientists are all very pleased with themselves. It’s much easier here, right? It’s open immigration policies, generous social welfare policies, choose one. I think there is a real tension that we are not working through very well in this country right now between on the one hand defining compassion as effectively open borders, which every time I suggest that the Democratic Party is effectively for open borders I’m quickly reprimanded, but the Biden administration is making that case very easy for me in its early months. On the flip side, saying we want to have more generous programs for everybody who’s here.
The reality is those things are in tension. I think the correct choice you can make a case for any of them. What you can’t make the case for is the idea that we are essentially not going to control who comes into the country and we are going to continue expanding the welfare state and think that that is a sustainable equilibrium. So, I highlight that mostly saying I think we have to grapple with, but then to your question about the structural question, I do think there’s an element of that here as well, which is that I think immigration policy bears very directly on the shape of our labor markets and the types of evolution we see in the domestic economy. I think the approach that the US has taken for decades now of essentially welcoming very high numbers of relatively less skilled immigrants into the country has not been beneficial and conducive to the kinds of progress we want to make for the less skilled folks already in the country.
So, I think that’s another trade-off, and I guess you start to get to a trilemma then, but in my mind I guess as I’ve said since the start of this conversation, task one should be how do we make it so we actually have good economic outcomes in the market, and I think that argues for relatively stricter immigration policies. Then I think, among other things, that that opens up more space to then have the discussion of where we might want to expand social policy as well.
Daniel DiSalvo: Yeah. I have so many more questions for both of you, but I’ve got a ton of questions percolating, coming up in the chat. So, I’m just going to pick a couple of them and throw them out to both of you. Maybe I’ll give this first one to Lane, from Kelsey Cohen. She says, “Does the generous welfare state discourage the population working?” Or maybe I can give my gloss on that, which would say, how would you respond to those who argue that greater government redistribution results in lower economic growth? Is there a case or a concern there? And that could be a question for both of you, but Lane, maybe you want to take your stab at it first.
Lane Kenworthy: Sure. At some point, social programs can get too generous, too expansive, and thereby discourage work and lead to a slower economic growth. I think the experience of the United States and all of these rich democratic countries suggest very strongly this experience over the last 100 years of building a welfare state, slowly but steadily, suggests that at the point where we have been, which I think at its most generous level if you think about overall government spending was maybe in Sweden in the mid 1990s at about 55%, close to 60%, of GDP. Just for a reference point, here in the United States we tax and spend somewhere in the neighborhood of 35% of GDP.
It’s possible that that was the point that Sweden reached the point where it began to hurt economic growth, but we don’t know—it was only one case. It was in the midst of an economic downturn. Anyway, the long run experience I think strongly suggests that at least up to 50–55% of GDP is very unlikely to reduce economic growth, unless you just do it terribly. I mean, if you waste all the money then perhaps so, but just in terms of the volume on taxing and spending, unlikely.
On employment, I think the same conclusion is true. Some of the countries with the largest governments and the most generous and expansive social programs currently are also the ones with the highest employment rates. This has been true in the Nordic countries for a long time and it continues to be true, and they’ve had a very different experience from the United States over the last 20 years. So, our employment rate was growing quite rapidly in the 1960s, ’70s, ’80s and ’90s, but since 2000 it’s shrunk a little bit, whereas some European countries have seen theirs continue to grow. I think in part because they’ve done better on family friendly programs like childcare, paid parental leave and others. So, overall I think there’s reason to be skeptical that the United States is anywhere close to the tipping point where we would reduce economic growth or employment just by expanding our welfare state or government spending.
On particular programs though, no question, and you have to be really attentive. Sweden had a sickness insurance program in the 1980s that very clearly had gone too far. It caused a lot of people to be out sick in Sweden on any given day. The Netherlands had a disability program in the 1970s and ’80s that similarly had gone too far. In both cases they realized this after a little while and cut them back. Probably it was true that our AFDC program in the ’60s, ’70s, ’80s and maybe even through the mid 1990s was structured in such a way, coupled with a very low wage floor in the labor market, that it probably had a disincentive effect, and especially also coupled with considerations of eligibility or lack of eligibility for Medicaid.
So, you have to be really attentive on particular programs, and I know Oren for example has a strong view about the child allowance, which I probably disagree with the child allowance of about 3,000 bucks a year discouraging work. I tentatively disagree with this based on the experience of other countries, but I don’t think we know enough yet to be sure. So, if we’re going to do that permanently, which I favor doing, I think we’d want to be really attentive to effects on the labor market, but yeah, I’ll stop there at risk of going on too long on that.
Daniel DiSalvo: Oren, what’s your reaction or some of the things that you propose? I know you’ve taken some fire from people on the center right of the political spectrum, that some of the reforms that you’ve proposed, the things about labor unions and others, restructuring the economy or the child allowance would have a negative effect on growth or encourage dependence, or not keep enough people in work. Do you share Lane’s analysis or how you dissent from it?
Oren Cass: Well, I certainly share the structure of the analysis, which is I think he very nicely separated sort of the macroeconomic question from the microeconomic question. At the macroeconomic level I think it’s really important just to start from an acknowledgement that when we’re talking about taxing and spending we’re talking about how we want to acknowledge, how we want to allocate the nation’s resources. There’s this sort of modern monetary theory stuff that kind of imagines you can just keep printing more money forever, but at the end of the day the percentages he described are exactly the right way to think about it. Right now we tax about 35% and about 65% of the spending is in the private economy. If you want to say the government is going to direct 45–50% of where the spending goes you can do that, but you have to recognize that that means you’re cutting back on others who otherwise would’ve directed the resources.
Now, in some places there is a fairly direct one-to-one swap. So, for instance in health care if you nationalize health care to some extent it’s the same spending on the same stuff, it’s just flowing through a different pipe, but then there are other places I think where if you say we’re going to create a national childcare program, let’s say, then you’re very explicitly taking resources and workers and activity that otherwise would’ve been elsewhere and instead saying that’s going to be in childcare now. So, I think in general, and this comes up in the infrastructure debates as well, public spending can be productive and innovation enhancing, and it can be destructive. It’s a question on what you’re spending the money on and what therefore are you not spending money on.
I think the microeconomic question is the vital one: what are the sort of incentives that you’re creating for people and what are the conditions you’re supporting? And I think Lane and I agree entirely that we want to promote work. You need to have programs that are structured well and don’t have bad incentives. I think maybe the place where I’m relatively more concerned is less at the margin, are we giving you more benefit and taking it away if you work more and so forth, and more just what we establish as the baseline. The extreme form of this is universal basic income. But short of that, if you create a sort of package of benefits that says even if you don’t work at all you are going to have healthcare, housing, food, cash to spend and so on and so forth, and actually it’s going to look an awful lot like what you would have in a relatively low wage job, as someone with less education in the economy, I think that’s a really dangerous situation to create. I think it’s dangerous just economically to allow for that level of support and the way it will affect people’s behavior, and I think it’s dangerous culturally to essentially shift the basic obligation for providing from people themselves to the government.
I mean, one of the reasons people work and the value they get from it is feeling like they’ve actually done something, accomplished something, provided for themselves and their family. If you say, “Well actually, we’ve already done that. The work is more of the extracurricular activity.” I think that has very concerning and dangerous implications and really repeats the mistakes that to some extent we made in the ’60s and hopefully learned from a little bit. So, I think that the child allowance in a perfect example, and I’ll just say something briefly about this and then actually would love to get Lane’s reaction to it. I’m broadly very supportive of the idea of child allowances in the sense that I think we should be trying to get more resources to households with kids and that that would be a very good use of government spending, and I’m happy to raise taxes to do it.
What I don’t want to do is create a situation that says, even if you have never worked and have no intention of working, if you have two or three kids you now have $10,000 a year of cash coming your way on top of the health care and food and housing and so forth, benefits that we provide. It seems to me that it would be much better to say there is going to be some sort of basic work requirement, essentially along the lines of what we do with programs like Social Security, where we say we’re not checking in on you every week to see if you’re looking for work, but you need to have some history of work. You need to have had some earnings in the last year in your household if you expect us to be providing cash as well. So, that’s a case where I’d say I would like to see it be a fairly basic minimal requirement, but I do think saying this is a benefit for households that are also working to support themselves is important to the effective operation of the program and it’s important to the principle of reciprocity, to the idea that the system of social insurance is for people who are in fact engaged in and contributing to the society.
Daniel DiSalvo: Well, since you posed the question, I’ll let Lane respond, both on the narrow issue of the child allowance question but also perhaps more broadly on the point you mentioned, which also a number of people in our audience picked up on, on the idea of the universal basic income or of whether the ensemble of programs at the lower end effectively translate into some kind of UBI. Is that wise or prudent policy? Lane, what’s your reaction?
Lane Kenworthy: So, I’m very pragmatic about this. I think we ought to do whatever makes people’s lives best, or the most number of people’s lives best while making sure that we don’t exclude particular groups. So, if you were going to start from scratch and design a welfare state that would work in an early 21st century economy, I’m not entirely sure what you would pick, but what I would probably do is look around and see what works and start with that, and then see how it works in your society. That’s why I’m so fond of the Nordic model. It seems to work very well in encouraging people to work, and getting enough people into the workforce, reducing economic insecurity, reducing poverty, allowing considerable, not perfect, but considerable equality of opportunity and contributing to health and happiness without sacrificing economic growth or a variety of other things, including community that we want in a good society.
So, what does that mean in practice? Well, with the child allowance, will it go too far in allowing access to good stuff without requiring work? I don’t think we know, but in the abstract you could say the same thing about public schools. Is it a good idea to allow people to send their kids to school without requiring them to work? Well, it turned out that worked just fine. Is it a good idea to give people good health insurance without requiring them to be in paid employment? I think the case of every other rich democracy tells us, and even our own situation here, tells us yeah, that’s okay. You can have a good society and still a lot of people would be in paid employment. Is it a good idea to give everyone a child allowance of about 3,000 bucks a year? I don’t think we know the answer to that yet. I think there’s some reason for optimism based on the European and more recent Canadian experience, but we don’t know how this is going to play out in the United States if we actually try it.
I lean towards saying yes, let’s try it, because a lot of these families could really use this cash, and I think there are other things that we already do and could do more of to encourage employment, but we’ll have to see. On the universal basic income I think, so my take on this, again, is entirely pragmatic. If we reach a point where artificial intelligence gets so good that robots are able to do all the kinds of in person services that we now think robots will never be able to do, we may reach a point in 50 years or 250 years where there’s just no reason why anybody would want to hire another human to do anything. At that point I don’t think we have any choice, we have to go for a universal basic income because there just won’t be enough jobs around, but we’re potentially a long way from that, and right now I think the arguments against a UBI are stronger than the arguments for them. When you add onto that the uncertainty, no country has ever done anything like the kind of $12,000–$15,000 a year basic income that some are proposing, so we just don’t know.
We do, on the other hand, know that a Nordic-style or American-style at the lower extreme welfare state works pretty well, and so why not build on that and improve that? One other quick thing I’ll mention about the basic income. There’s a real problem with the math, if you want to get to a level of generosity that would enable people to have real choice about whether or not to work, and that is I think the real core goal of a lot of basic income proponents, and that is that it’s really expensive. If you provide something like $15,000 a year to all adults, that’s a massive expenditure that would almost certainly have to displace some maybe many existing social programs, and I think because those programs are targeted to deal with specific needs, whether it’s health care or disability, or promoting employment or schooling, I would rather stick with a society where we’re addressing those specific needs rather than giving people a bunch of money and relying on them to make good choices for themselves and their kids about how to spend that money. Some people would do great at that, others might not do so well.
It’s exactly the reason why we have a Social Security system, that it’s just not a great idea to rely on people to make great choices about saving enough money and making smart investment decisions about their future. Okay, I’ll stop there.
Daniel DiSalvo: I know we’re getting tight on time, but I do have a couple more questions coming from the chat. So maybe I’ll throw out a couple themes from the chat and let each of you respond to those. So, there’s really two central thrusts of things coming up from students and from the audience. One is education. Should more money be invested in education in the United States? And could education serve as some kind of panacea that would correct some of the economic and social dislocations that we’ve seen over the last generation? So what dimensions of education policy should we be focusing on and thinking seriously about? Is it K-12, is it higher education, free college, or is it some sort of vocational training, or as Oren put it earlier, other channels out of high school and directly into the labor market? So, that’s one theme.
Then the second theme that’s really come up is, in your estimation, has the U.S. government done enough in response to the pandemic or has it done too much, too little, just right in aiding Americans through this last difficult year? While some people lost their jobs, other people’s stock portfolios increased. Has the policy mix, let’s say in the short run, been… How would you evaluate it? Maybe Oren, you want to take a stab at those two questions and then we’ll come back to Lane.
Oren Cass: Sure. On the education question I think there’s a huge opportunity here, but it’s not the one we tend to focus on. We have for a very long time been viewing education as a panacea that essentially if we have any mismatch between what the economy seems to want and what we have, let’s just find some way essentially to turn everybody into what the economy wants. That if we just make everybody a college graduate then essentially these problems would go away. It’s really important to emphasize how badly we have failed at that. I mean, we have on a per-student basis roughly doubled real spending over the last 40 years, while making no progress in standardized test scores. We certainly send a lot more people to college, but the share that actually complete a four year degree has not gone up very much, for many it’s gone up almost not at all. Of those who do complete a degree, about 40% then end up in jobs that don’t require a degree anyway.
So, I have this kind of heuristic that I encourage people to think about, which is, start with 100 9th graders. Keep in mind that about 20 of them still aren’t even going to complete high school or certainly with a meaningfully successful degree. Another 20 aren’t even going to go to college. 20 are going to go to college and not complete it. 20 are going to complete it but not end up in a job that required a degree, and you’re really down to less than one in five who actually go high school to college to career in what we sort of have defined as the path that works in this society.
So, it seems to me we really need to go in a very different direction with it, which is to acknowledge that college is a great thing for some people and we want to have it available for those it makes sense for, though a pretty good test if it makes sense is if it actually makes sense to pay for it, and because there’s going to be an economic return rather than essentially trying to eliminate the cost to get a lot of people for whom it does not have an economic return into it. We really need to invest much, much more in alternative pathways. For less than we spend for trying to get someone through college, we could have a program that by the middle of high school also starts introducing them to different careers, gets them into the workforce part-time. Get them to subsidize their first couple years of employment, get them to age 20 with an industry credential, savings in the bank, job experience. That would be a much better path for the majority of Americans. So, how we fund, how we structure our school system, how we define success and sort of how we talk about it politically I think really needs to shift dramatically. But there’s real opportunity there if we do it right.
On the pandemic relief, I guess what I’d say, putting aside the public health side of things and just looking at the economic response, I think frankly it was quite good. I think the CARES Act was quite good, the initial response, the PPP response for small businesses, the cash to households. I think the data has borne out that generally speaking obviously there’s been a tremendous amount of hardship this past year, but all things considered we got folks through the storm pretty well.
The sort of divergences between Main Street and Wall Street are frustrating, but they are not a function of the pandemic and the relief effort, they are a reflection of structural problems we’ve already had that we absolutely need to address, but mid-pandemic I don’t think was the time to try and tackle them. The one part I would probably take issue with was the $1.9 trillion package that was implemented at the start of the Biden administration, coming so close on the heels of them 6 or 900 billion that had been passed right before it and at a time when vaccines were coming online, unemployment was dropping, the economy was actually starting to grow somewhat healthily.
So, I think we’ve probably gone a little further than we needed to here at the end, but in general I think we should probably be willing to recognize that to some extent the system worked and the government responded in the way it needed to.
Daniel DiSalvo: Lane, do you share the assessment on education and then on the pandemic response?
Lane Kenworthy: I fully agree we should do a lot more to help people who are not going to get a four-year college degree and it wouldn’t be very expensive to do, completely sensible. I would add on early education. So, I think we could create a fantastic Danish, Swedish-style system where people could get their kids in childcare centers and pre-school starting at age 12 months. For about 1% of GDP I think it’d be a wonderful thing to help people balance work and family. Probably would help reduce inequality of opportunity. So, this is almost entirely win-win and not very expensive.
I would also go for free college in state public four-year universities. I think we’re likely to see more and more people continue to go to college. Oren is right that a lot of people don’t necessarily need it and may not in the end benefit from it, but man, it’s such a hard thing to figure out what you want to do with your life at age 18, much less age 14, if you’re thinking about an apprenticeship program. Lots of people should be able to go to college and spend another two to four years figuring that out, maybe even more. We’re a very rich society, we can afford that, we should make it a little easier and make sure that people who do that aren’t saddled with real life impediments in the form of big debt.
I mostly agree on the pandemic response. I would just say one other thing, which is that there’s this contrast between the way we approached it and the way a lot of Western European countries approached it. They provided a lot of money to encourage employers not to fire people or let them go and to keep companies in business. We took the approach more of just giving money to people, which meant that a fair number of people lost their jobs. I’m pretty agnostic, I don’t think we know yet which of these two approaches worked better, but I don’t really have a problem with the way we approached this. It might in the end up facilitating a little bit of more rapid adjustment in the economy from sector to sector, but I really don’t think we know the answer yet. Overall though, I think in this respect helping people survive it economically I think we did better than I probably would’ve guessed last March.
Daniel DiSalvo: Well, I guess I think it is an optimistic note, I’ll take that. We could go on much longer, but I know many students have classes coming up at two o’clock, and this has been such a fruitful and rich discussion that’s covered an enormous amount of ground. I think all the students and others who attended have profited from it. I know I have. Again, I would invite everyone to give you a resounding round of applause, but we probably won’t hear it, but I would just say that they can say in the chat thanks to our speakers and I just would offer my thanks for both of you for taking time out from your busy schedule to come and speak to us here at the Powell School. And with that, we’ll conclude today’s Spitzer conversation on economic justice, and again, I thank both of you.
Oren Cass: This was really great. Thank you.
Daniel DiSalvo: You’re welcome.
Lane Kenworthy: Yeah, thanks a lot.