"An economy full of opportunity just is an economy in which the fruits of economic growth are shared more equally."

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Elizabeth Warren has the best answer to a dilemma that's puzzled Democrats for years
By Matthew Yglesias, May 14, 2015

"When the top 10 percent gets 100 percent of the income growth over the course of a generation, then the America of opportunity is vanishing."

With that simple sentence, delivered Wednesday afternoon at a small celebration in honor of the 25th anniversary of the American Prospect, Elizabeth Warren cut through a dilemma that has proved surprisingly bedeviling to Democrats for years. The party's leading thinkers, you see, want to talk about economic inequality, and have wanted to for some time. But polls and focus groups consistently show that the public is more interested in questions of opportunity and mobility than in questions of distribution per se.

That's why Jeb Bush's not-quite-a-campaign is called Right to Rise — the idea of mobility serves as a parry and counterattack to complaints about inequality.

Warren's solution is one of those things that's so obvious when you hear it that you can't believe it's new. But as best I can tell, it is. Warren has solved the Democrats' inequality dilemma by simply brushing the dichotomy aside. An economy full of opportunity just is an economy in which the fruits of economic growth are shared more equally.  

"Our best hope for economic justice," she said, "is to create more economic opportunity. And the only way to create more economic opportunity is economic growth."

This is way better than Democrats' last argument

This is a substantial improvement over the Democrats' last argument about the inequality/opportunity linkage that turned on something they called the Great Gatsby Curve. This was a cross-country statistical analysis that showed relative economic mobility is higher in countries where inequality is lower.


White House
Great Gatsby Curve.

In all countries, in other words, a kid born into the top tenth of the income distribution is more likely to grow up to be in the top tenth of the income distribution than is a kid from the bottom tenth. But the extent to which this is true varies, and it's more true in countries where the top 10 percent have a larger share of total income.

This is certainly an interesting finding, though like all brute correlations it's not necessarily a persuasive argument about causation. What's more, it appeals to a somewhat esoteric notion of intergenerational income elasticity — the extent to which one's income correlates with one's fathers — that is a little unfamiliar to most people.

The other problem is the Great Gatsby Curve appears to favor a dynamic of pure churn. A poor kid working his way up to the middle class is an inspiring story, but in this chart it's part of a measure of pure relative mobility — so some middle-class kid tumbling into poverty also helps the numbers, even though it's a lot less inspiring.

Last but by no means least, there are serious questions as to whether the Great Gatsby Curve correlation is even real. Even worse, detailed analysis of the United States specifically does not show a decline in intergenerational mobility since 1971, even though inequality has skyrocketed.

Warren's agenda for broadly shared prosperity

Warren drastically improved on this research dead end by reconceptualizing the opportunity question in less comparative terms. The dream of upward mobility, in her telling, is not to improve one's lot in life relative to the children of other people with more prosperous parents. It's simply to enjoy a rapidly rising standard of living; to grow up to have a better life than one's parents.

The content of Warren's address is important, too, but not exactly novel at this point.

She called for tougher enforcement of Wall Street regulations, and a return to the rules that forced commercial banking and investment banking to be done by separate entities. She wants to see more labor unions and more spending on transportation infrastructure, broadband internet, and basic research. She called for investments in preschool and after-school programs. She wants to see more spending on Social Security. She wants more subsidies for college students — "every person should get a good education without debt."

This is a big, ambitious agenda but essentially a restatement of what have long been the hopes and dreams of the left-wing of the Democratic Party.

What Warren does differently is pitch this as an agenda for economic growth rather than social justice. Or, rather, to argue that they are one and the same.

Some unanswered substantive questions

Of course, no agenda is without its flaws.

Warren's core purpose was to speak nostalgically of the pre-1975 economy when Wall Street was tamed and public investment in infrastructure, education, and research was high. What she didn't grapple with is the fact that getting there today would require much higher taxes. In 2015, federal revenue is expected to be 17.7 percent of GDP. In 1975, it was 17.3 percent, and in 1965 it was 16.4 percent.

America was able to match all that public investment with relatively low taxes because we spent way less money on Social Security, Medicare, Medicaid, and other health insurance programs. But Warren doesn't want to cut those programs — she's called for expanding Social Security, for instance.

In practice, in other words, Warren's agenda for a revived investment state is more of a leap into an uncertain future and less of a common-sense return to the tried and true policies of the past.

Still, even if Warren goes further than many of her Democratic counterparts, essentially the whole party is pushing in this general direction. And in her framing and rhetoric, she's done the best job I've heard of connecting intellectuals' and wonks' concerns about inequality with normal people's worries about economic mobility. Every speechwriter for every Democrat in the country should be paying attention.
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