I write today about Obama’s war on inequality. One point I make is that in his speech last week the president suggested we know that inequality hurts economic growth, when the research is much too uncertain to support that conclusion (some of it finds a correlation between inequality and growth). As if to underline this point, John Podesta of the Center for American Progress has a piece in Politico acknowledging all we don’t know about the effects of inequality and announcing a new outfit to study it called the Washington Center for Equitable Growth.
Here is President Obama in his speech at the Center for American Progress:
So let me repeat: The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream, our way of life, and what we stand for around the globe. And it is not simply a moral claim that I’m making here. There are practical consequences to rising inequality and reduced mobility.
For one thing, these trends are bad for our economy. One study finds that growth is more fragile and recessions are more frequent in countries with greater inequality. And that makes sense. When families have less to spend, that means businesses have fewer customers, and households rack up greater mortgage and credit card debt; meanwhile, concentrated wealth at the top is less likely to result in the kind of broadly based consumer spending that drives our economy, and together with lax regulation, may contribute to risky speculative bubbles.
Here is the head of the Center for American Progress (who is about to join the White House):
For the last three decades, the U.S. economy has been growing dramatically more unequal and less mobile by nearly every measure. The fact is that we don’t know nearly enough about what high inequality means for economic growth and stability. We need a better understanding of how inequality affects demand for goods and services and macroeconomic and financial imbalances. We are in the dark on whether and how inequality affects entrepreneurship, or whether it alters the effectiveness of our economic and political institutions, or how it affects individuals’ ability to access education and productively employ their skills and talents.
That’s why we’ve established the new Washington Center for Equitable Growth (WCEG), a long-term effort to support serious, sustained inquiry into structural challenges facing our economy…
With the guidance of distinguished academic economists and thinkers from around the country, WCEG will start by asking questions about the relationship between inequality and economic growth—questions for which we don’t purport to have the answers.
Why does anyone need this new center when the president of the United States already purports to have those answers?