Urban Wire Can strengthening the economy both reduce inequality and increase economic mobility?
Laudan Y. Aron
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President Obama has joined many pundits (see, for instance, Ezra Klein) in a growing national discussion about how to tackle two important and worrying trends within the United States - growing income inequality and declining social mobility.

Yet these are not the same goals. In a recent discussion between EJ Dionne of the Washington Post and David Brooks of the New York Times, Brooks argued that

If you emphasize inequality, then you tend toward a redistributive set of policies. If you emphasize social mobility, then you emphasize human capital policies such as early childhood education and college grants and things like that… [T]hey do point in slightly different directions. And if I were the Republicans, I would emphasize social mobility, giving people the tools to rise and compete rather than redistribution.

Dionne quickly pointed out that that inequality is often intertwined with limited social mobility, which then led to the real underlying question: are there policies that can make a difference on both fronts? Brooks argued that “the core of the inequality problem and the core of the mobility problem is a widening education premium… [And] giving people … the human capital tools to rise and compete is a lot better to me than to raise the tax rates and redistribute money downwards.”

My guess is that both Brooks and Dionne might very well agree that the following types of policies should rise to the top of the list of what we should do as a nation: high-quality childcare, early childhood education programs for young children, and early intervention and prevention (in the areas of health, education, and social services). And while we’re at it, we could make more level the playing field when it comes to K-12 public schools across the country – with respect to per-pupil funding, teacher quality, facilities, and after-school offerings. And let’s make sure our least-privileged young people have a fair shot at high-quality post-secondary education and career-focused training, including enhanced apprenticeship opportunities.

Those kinds of investments in human capital are not just palliative: they would lower poverty and improve the lives of millions of people today, all the while giving them the tools they need to climb the economic ladder. Equally important, they would reduce dependence on the social safety net, lowering future government spending.

But there’s another twist along this path—while Dionne acknowledges the costs of human capital investments and Brooks mentions higher tax rates, that’s not the only route.

In his forthcoming book tentatively titled “Dead Men Ruling,” my colleague Gene Steuerle shows that the government already spends over $50,000 per household each year, and this amount is growing significantly simply with economic growth. Social welfare spending comprises about $30,000, while households additionally benefit from other public goods. Even cross-national comparisons with other high-income countries reveal that our social welfare spending is quite generous, just behind Sweden when you include tax-based subsidies and private spending.

What distinguishes the United States from these other countries – countries that are beating on us on almost every measure of health, education, adult skills, and well-being – is how we spend that money. For instance, we spend a lot more on very high-cost healthcare (while historically leaving many without health insurance or access to care) and a lot less on children and families.

So here’s my take. With or without higher tax rates, we have the means now to employ a thoughtful human capital investment strategy to help stem both growing inequality and increasing economic immobility. We already have the way, now we need the will. 

Research Areas Wealth and financial well-being
Tags Poverty Wealth inequality