Inclusion has put a challenge to the progressive policy community. What is an all-encompassing issue that nobody really knows exists?

According to this logic, alternative and less familiar ways of framing rising economic inequality and insecurity aren't viable because they don't show up on the pollster's static list of "issues." But this ignores Perlstein's most important insight, that "the greatest politicians create their own issues, ones that no one knew existed." (An insight I couldn't help but notice that is very similar to my favorite one of the late philospher Richard Rorty: "the talent for speaking differently, rather for arguing well, is the chief instrument of cultural change.")

Here's a shot: exploitation and economic fairness.

Our neighbors "across the pond" are getting concerned about inequality, too. Check out this article from the Guardian.

It also makes the point that inequality might affect housing prices.

So here are reasons why it does matter. For a start, house prices have gone mad, partly because too much money is chasing too little property, not just in Mayfair but in places like Doncaster, where City tycoons are buying up whole buy-to-let streets.

That's always been my suspicion for housing prices in the US; I've just never seen an economist back it up. But it seems more than coincidence that some of the richest places (Manhattan, San Francisco) have the most ridiculous housing prices.

We've put up an analysis of the Hamilton Project's understanding of government and inequality. If you've been tracking our blogging on the subject, the thesis of the paper will come as no surprise: their attitude about government (it's incapable of doing much good) and inequality (it's probably fair and good for everyone, mostly) isn't particularly helpful.

Prompted Matt's harping on the Hamilton Project (see here, here, and here [but no so much here]) and my keen interest in economics, I've been trying to substantiate this thesis:

There is a real and important difference between pro-market policies and pro-business policies.

Although policies designed to encourage business growth may actually increase the size of the economic pie, it does not necessarily follow that those policies in fact (1) improve economic efficiency and (2) improve equity.

A final note on the Hamilton Project paper. A little less doom and gloom, this time.

Inequality, and the decoupling of productivity gains and growth in the median income, has not caused the Hamiltonians to reconsider their core beliefs about markets. They are generally concerned that living standards have not improved as much as one would expect, given productivity gains. But they do not draw from this well-known trend that there is anything either ineffective or unfair about how the market operates.

However, not all people in the advocacy and economics community are such true believers. In fact, interestingly enough, Hamilton Project co-founder Robert Rubin has said that institutional factors -or who has power in the marketplace- may have made a significant difference. In a recent interview with Jonathan Chait of the New Republic, he said (emph. mine):

To put that in harsh terms, it sounds like this troubling phenomenon might be out of the hands of public policy altogether, or at least not something you can control without massive harmful side effects?

RR: I don't think I'd agree with that. I think what we're both saying is that the economic environment is different from what we've experienced before. For the last 25 or 30 years there has been very low, almost negative, median real wage growth. It's been a longer term phenomenon, one exception being the last five years of the '90s. There's a lot of uncertainty and complexity, particularly with this enormous change in the global competitive environment. But I don't think I'd go from that to the conclusion that public policy can't play a very important role. I think I'd come to the conclusion that public policy needs to focus on this with tremendous intensity. I'd also add on the union thing one comment, I don't remember the name of the book, but wasn't it Countervailing Power by [John Kenneth] Galbraith, or do I have the name wrong?

That's certainly the phenomenon, I don't know if that was the name of the book.

RR: I think that was the name of the book, you can look it up and see. And the argument that [Galbraith] makes was something to effect that if you believe market-based economics, then you should have a market and labor as well. You need to have two sides to that market, that have at least enough power so that they can bargain with each other rather than one side having all the power and therefore being a price-setter. And that's always struck me as a rather sensible argument. Now where that leads you in terms of public policy, I'm not sure, but it does seem to me that the division of the benefits of productivity and of growth between labor and capital are based on some kind of negotiation in which you need some kind of, if not parity, then at least ... enough parity to have a real market.

Economists are also taking a fresh look at governmental institutions that influence market outcomes. In a recent paper (via Inclusionist), two MIT economists argue that changes in the global economy must be seen through in the context of changes in the minimum wage, unionization rules, and tax policy. This perspective leads them to conclude that government must strengthen interventionist policies to address inequality.

In our interpretation, the recent impacts of technology and trade have been amplified by the collapse of these institutions, a collapse which arose because economic forces led to a shift in the political environment over the 1970s and 1980s. If our interpretation is correct, no rebalancing of the labour force can restore a more equal distribution of productivity gains without government intervention and changes in private sector behavior.

Read the whole paper for more. But the point is that inequality is unfair- because market actors have been using their power to reward themselves for what they have not produced. Just because workers are more productive, doesn't mean that the market will reward them appropriately. Interventionist policies ensure that workers hang on to what they have earned by being more productive.

The authors even make the point that perhaps the roll-back of institutional safeguards has not made the economy grow any faster.

These microeconomic changes were not inevitable. Labor-market institutions appear to have many national idiosyncrasies. Lindert (2004) showed that different labor-market institutions in Western Europe and America are compatible with similar rates of economic growth. Nickell (1997) demonstrated that different labor-market institutions within Western Europe are compatible with similar rates of unemployment. Saez (2004) shows that rapidly rising incomes among the very rich appear in the U.S. , England and Canada (largely in response to U.S. competition.) but do not appear in most continental European countries or Japan.

So perhaps there's hope, after all.

Boy, this Hamilton Project paper is fascinating. Here's another paragraph to examine. It's a window into the values of the centrist economist.

At some point inequality in outcomes becomes so great that the quintessential American promise of equality of opportunity becomes unattainable. As Bradford DeLong (2007) has observed, "The very first thing that any society's wealthy try to buy with their wealth is a head start for their children. And the wealthier they are, the bigger the head start." No one begrudges any parent seeking the best opportunities for his or her children. But our economy and society work best when more opportuni-ties are available to all—a goal that progressive taxation can help serve.

Translation: inequality is not a problem because, well, either equality of opportunity or outcome has any inherent value. Equality is worth something if and only if it makes the economy more efficient.

Finally, extreme inequality threatens to undermine political support for a competitive market economy, the most successful recipe ever found for generating economic growth. Former Federal Reserve chairman Alan Greenspan (2007) has argued that "income inequality is where the capitalist system is most vulnerable. You can't have the capitalist system if an increasing number of people think it is unjust."

It does not occur to them that perhaps inequality is unfair- that those who have gained the most are being compensated for things they have not done, and that those who have not gained are not being compensated for what they do. But isn't that what the decoupling of productivity and median income signifies? Workers are more productive, but only the highest-paid are earning more.

No, that's impossible- the Daddy-market may be stern, but it is always fair.

Anyway, what's at issue here is the perception that the economy is unjust. The public will upset the proper functioning of the economy if they think it is unjust. Who cares if -god forbid- they're right?

So the Hamiltonian elevates GDP growth (AKA efficiency, I think) over all. It doesn't matter who gets what, or why they get it- what matters most is that the economy keeps growing and that the market is left alone.

Perhaps this is another reason why their prescriptions for what ails America are so modest, and why they rule out vigorous government intervention. They don't think there's much of a problem.

One last thought on the Hamilton Project- I believe they do not serve the cause of fighting inequality.

Stay with me on this one. Take this statement:

Industrial policies and direct market interventions can try to change the before-tax distribution of income. But ultimately such policies harm the economy—for example, excessively high living-wage laws can result in large job losses for low-skilled workers.

Factually, I believe the statement is wrong. Government intervention in markets can promote the common good. Everything that's known about health care provision is a case in point.

As for its politics, the statement gets to the heart of what's wrong with the Hamiltonian philosophy, which posits that government is wasteful but nice, and the market is cruel but efficient- the "Mommy-State and Daddy-Market" philosophy, one that seems to dominate the economics profession from Brookings all the way to George Mason University.

Hamilton's version of this story is less crazy than others. But it is fundamentally the same- it denigrates government and puts the market on a pedestal. Worse, all varieties of the message are legitimized when one comes from the "non-partisan" Brookings Institute.

Look, this kind of behavior just isn't helpful. It might have been cool in the '80s and the '90s, but it's not cool anymore. Our country now has big problems to face up to- inequality, the health care crisis, global warming, etc.- that can't be solved with tax breaks. It's going to take vigorous collective action, and our best collective institution is and will probably always be the federal government. Belittling it like the Hamiltonians do only serves the interests of people who don't want to do anything about these problems (a point made well in this interesting article on inequality by James Lardner).

That's why it's hard to swallow the Hamiltonian's professed interest in reducing inequality. If they really did, they would scale back their assault on government. But they don't take seriously anyone who believes in governmental efficacy, so why even bother with them?

In a no-need-to-read piece in today's Washington Post, someone named Robert J. Samuelson makes a hash out of a barely-discernible thesis relating in some way to rising inequality in America and why it really isn't such a bad thing:

• "It has not prevented most Americans from getting ahead."
• "On the whole, the economy that produces these growing inequalities outperforms the one that created [sic] more statistical equality."

Not sure which tense that sentence was in, but it's not as mind-numbing as this one, for those who like brain teasers:

• "The idea that everyone's wages should reflect inflation plus a few percentage points worsened both inflation and stability."

Quagmire indeed.