Videos from the Glasshouse Forum-Stanford University conference "Inequality in a Time of Contraction", 12-13 November 2009
The conference “Inequality in a Time of Contraction” was a joint venture between The Stanford Center for the Study of Poverty and Inequality, Stanford Institute for Economic Policy Research and Glasshouse Forum. It took place at Stanford University on 12-13 November 2009.
The aim of the conference was to clarify the development of inequality in the West in recent decades and to try to identify the mechanisms driving the development. The ambition was further to tentatively explore possible effects of the Great Recession on inequality.
Read more about the conference and download the programme here.
Six of the speakers were interviewed by Chris Giles, Economics Editor of the Financial Times. Read a short summary of the presentations and watch the videos interviews below.
Anthony Atkinson, Senior Research Fellow at Nuffield College, Oxford, and Honorary Fellow of the London School of Economics, and perhaps the leading authority on the development of inequality, opened the conference with a comparative overview. He pointed out that inequality had risen not only in Anglo-Saxon countries like the UK and the US, but also in traditional welfare states like the Nordic countries and Germany.
How will the Great Recession affect inequality? The Great Depression resulted in what has been called the Great Compression, a reduction of inequality, but Atkinson called attention to the fact that recent crises, like the Asian financial crisis of 1997, have on the contrary led to increased inequality. That may very well be the case now as well; it all depends on how unemployment develops.
Listen to Chris Giles' interview with Anthony Atkinsons here [4.30 min].
Which strategies do different household categories have for coping with a crisis? In his paper “From Income to Consumption: Partial Insurance and the Transmission of Inequality”, Richard Blundell, Professor of Economics, University College London and Director of the Institute for Fiscal Studies, pointed out that poorer households with little wealth and without access to credit soon start to cut back on fundamental consumption. Experience from recent recessions shows that many of these households never managed to regain their income after the recession. That may be what is happening in this recession also, Blundell surmised.
Listen to Chris Giles' interview with Richard Blundell here [5.56 min].
What are the mechanisms behind the growing inequality? John Van Reenen, Professor, Department of Economics, London School of Economics, claimed that ICT (Information and Communication Technology) has had a polarizing effect on the labour market. The tasks in the middle of the skills distribution can be taken over by ICT, whereas manual non-routine tasks are much harder to replace. However, trade also has a polarizing effect, according to Van Reenen, but in a more indirect way. Companies that face competition from for instance China often respond by more intensive use of technology.
Listen to Chris Giles' interview with Johan Van Reenen here [8.48 min].
Those who caused the crisis will not be the hardest hit by it, said Richard Freeman, Herbert Ascherman Chair in Economics at Harvard University, when presenting his paper “When Inequality Gets too Big: Can Lower Inequality Help Economic Recovery and Reduce the Risk of Another Financial Meltdown”. Labour will suffer most and evidence so far points to increasing inequality. Labour will be affected both by unemployment and declining wealth, since house prices are falling. We have been focusing on the wrong things for a long time, like the incentives of the welfare mom, Freeman said. Her behaviour has relatively marginal consequences, whereas wrong incentives in the financial sector can damage society as a whole for a long time. It is also obvious that the flexibility reforms have not made the labour market better prepared for a crisis. Inequality creates instability in many ways. Stagnant real wages gives rise to excessive debt, as low income earners try to keep up their consumption. At the top of the income distribution it creates destructive incentives. We have also seen a development of crony capitalism in the West, small elites who try to perpetuate their privileged positions.
Listen to Chris Giles' interview with Richard Freeman here [6.15 min].
Kim Weeden, Associate Professor and Chair of the Department of Sociology, Cornell University, struck a similar note in her presentation of the paper “Why Standard Accounts of the Rise in Inequality are Wrong (and Why We Should Wish They Were Right)”. The standard account understands inequality to be the outcome of competitive market forces, but rising top incomes are on the contrary the result of a market failure, Weeden said. High income earners have been able to limit access to their domains and we need reforms that eliminate the barrier to access. If you formulate the problems in these terms, you may be able to get the support of the American voters in the struggle for equality. They are inclined to support free competition, but not redistributive policies.
Listen to Chris Giles' interview with Kim Weeden here [7.50 min].
To understand this you must look at the structure of inequality, not just the level, Jonas Pontusson, Professor of Politics, Princeton University, pointed out in this presentation of the paper “Inequality, Mobility, and Social Affinity in the Politics Redistribution”. Middle-income voters will be inclined to ally with low-income voters and support redistributive policies when the distance between the middle class and the poor is small relative to the distance between the middle class and the rich. Since this fits in with the situation in the US, why such small support for a redistributive policy? The reason is the racial heterogeneity of US society, says Pontusson. The middle class does not feel a social affinity with the lower income groups.
Listen to Chris Giles' interview with Jonas Pontusson here [7.40 min].
Maybe you have to pay a lot to get the best and the brightest, but perhaps the brightest are not always the best? How much inequality is too much? If economic inequality becomes too great, will people start to value other things instead?
Listen to the panel discussion [66Mb, to download right click > save target as] from 13 November about the consequences to the fabric of society and the dynamics of inequality. Panellists: Richard Freeman, Department of Economics, Harvard University; Robert Frank, Department of Economics, Cornell University; Guillermina Jasso, Department of Sociology, New York University; Jonas Pontusson, Department of Political Science, Princeton University; Anjini Kochar, SCID, Stanford University. Moderator: Chris Giles, Financial Times.