Madland v. Streeter

Madland v. Streeter
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POLICIES FOR THE NEXT ADMINISTRATION. PART 10: ECONOMIC INEQUALITY

Authors from Part 10 of our policies series respond. (Previously: David Madland, "A Path Forward for the Middle Class and the Country;" Ryan Streeter, "Economic Participation Matters Most.")

 

Response to Ryan Streeter

By David Madland

The policies that Mr. Streeter proposes — better high-school certifications, more apprenticeships, and greater business starts — are good as far as they go. Unfortunately, they will hardly make a dent in the wage crisis we face.

Increasing skills is something we need to do, yet even as educational attainment has increased across society over the past four decades, wages have remained stagnant. What’s worse is that even the most skilled and prepared haven’t been seeing wage gains: Wages for young college graduates are less than what they were in 2001 in real terms.

Helping new businesses get started through clubs and partnerships is also good. But doing so is unlikely to move the needle much — not just because any impact on wages is likely to be very indirect, but also because a key reason entrepreneurship is down is that the middle class is struggling and no longer has the wealth necessary to start new businesses.

While Mr. Streeter’s policies are fine, his argument leaves a lot to be desired. He implies that his favored policies will deal with four decades of wage stagnation, but the evidence indicates they will only help on the margins. Does Donald Trump support these policies? He doesn’t say, likely because Trump’s economic plan fails to address these issues. In contrast, Hillary Clinton includes vocational education, expanding apprenticeships, and boosting entrepreneurship and innovation as pieces of her broader economic plan. Indeed, Mr. Streeter fails to mention who might actually support his own favored policies.

Perhaps most troublingly, Mr. Streeter implies that progressives support absolute equality of conditions and that extreme inequality is necessary to make the economy work. I certainly don’t make an argument for perfect equality and am unaware of anyone in the mainstream that does. My guess is that he needs this straw man to divert attention from the facts.

The facts are as follows. Economic inequality in the U.S. is extreme by historical levels and compared to other countries. There is no evidence that this level of inequality has helped the economy. There is a fair amount of evidence that extreme inequality has harmed the economy, starting with the Great Recession, caused by the wealthy and corporations changing banking rules to their benefit and by the excessive debt of the middle class. Conservative, trickle-down policies drove much of the rise in inequality and hollowing out of the middle class. Now conservatives are finally starting to recognize that at least some elements of the economic mess they fostered — such as wage stagnation and low mobility — are a problem. But conservatives still do not have solutions that will effectively address the economic challenges our country faces.

(For the opposing point of view, see Ryan Streeter, "Economic Participation Matters Most.")

 

Response to David Madland

By Ryan Streeter

David Madland and I agree that lower- and middle-income workers in America should be earning more and enjoying the benefits of a growing economy more than they have been over the past generation.

And if I were confident that his four policy pathways would raise the incomes, quality of life, and future prospects of middle-class workers, I would support them. My concern with his proposals is that they would not, ultimately, have the desired effect.

Take minimum wage and collective bargaining. Even if we agreed on an amount for a higher, living wage, one has to ask how much this would affect mobility, not to mention inequality, when you consider that half of minimum wage earners are under 25 years old, nearly a quarter are teenagers, and 60 percent work part-time. An OECD study on unions over 35 years in 17 countries found large employment losses in the categories of workers for whom higher wages were negotiated. And inequality has grown in states with differing minimum wages and in countries with tougher labor standards, which suggests we should look to other policy changes to help boost wages. This is why I argue that we should focus more energy and attention on economic participation through skill development, on-the-job training, and connectivity to higher performing parts of the economy.

Tax policy is an area where, hopefully, we can find consensus in the coming few years. It is a common refrain to say that the rich need to “pay their fair share” and that we need more progressivity, as Madland does. But as the OECD has found, the U.S. already has the most progressive tax system among developed countries when you consider the top 10 percent’s share of tax revenue. But we do a worse job using that revenue in inequality-reducing ways. The Nordic countries are less progressive than the U.S., yet they collect more in taxes and have a more efficiently designed welfare state. As an alternative to either the Trump or Clinton proposals, I would urge readers to consider the Ryan-Brady “A Better Way” tax-reform proposal, which departs from other Republican proposals and is designed to start cleaning up a tax code that, as Madland says, allows for too many “shenanigans.”

One reason for optimism is that there is now broad agreement among conservatives and liberals that something’s not working for America’s workers. We have real problems stemming from cronyism, a poorly designed tax code, and a mismatch between how we train and educate people and where the market is going. We should look at what is working to address these problems and try to emulate and scale these solutions. I think it is especially important to understand why people are moving up and out of the middle class. Education levels and household composition are the big drivers in growing inequality among the 99 percent, so our policy environment needs to reflect those facts. 

(For the opposing point of view, see David Madland, "A Path Forward for the Middle Class and the Country.")

 

David Madland is the author of Hollowed Out: Why The Economy Doesn’t Work Without a Strong Middle Class and a Senior Fellow at the Center for American Progress Action Fund.

Ryan Streeter is the Executive Director of the Center for Politics and Government at the University of Texas at Austin.

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