The Reimagining the Economy launch event featured two panels in line with our initiative’s broader goals and objectives. On the first panel, Reimagining the Economy: Economics and Beyond, Professors Danielle Allen, Edward Glaeser, and Dani Rodrik (moderator), unpacked how different academic disciplines are engaging with the theme of economic inclusion. The second panel, featuring Dr. Heather Boushey , Member of the Council of Economic Advisers, and Congressman Ro Khanna (CA-17) in conversation with Gordon Hanson, dove into the political and policy implications of implementing economic reform. Several common themes and issues emerged across the two panels:

 

 

Panelists on both panels identified a range of challenges afflicting the U.S. economy, with Boushey observing that the United States had fallen behind because policymakers have not taken its development problems as seriously as those in other countries have. Policymakers must think seriously about developing a long-term economic strategy. Glaeser presented a range of “symptoms” of America’s economic dysfunction, including the decline in intergenerational mobility, exorbitant cost of housing in many of the most economically vibrant parts of the country, and high levels of joblessness among prime-age men in the more economically depressed regions.

While the productivity of the American economy has grown since the 1970s, real wages have not. The gains of increased efficiency have failed to go to workers. In this context, Boushey laid out the five pillars of the current administration’s economic blueprint: building an economy that empowers workers, supports their right to organize, and gives them a voice; enhancing productive capacity so that goods can be made and built in America; making products and services such as healthcare or childcare affordable for everyday Americans; ensuring American industry is less concentrated and more competitive on the global stage by building strong supply chains; and prioritizing work and not wealth by not raising taxes on anyone making less than $400,000 per year. By investing in developing the workforce through community colleges and vocational education, and investing in America’s economic infrastructure, the focus can shift to building an economy where everyday workers are able to take advantage.

Institutional challenges

While economists have plenty of ideas about policy solutions for these issues, for Glaeser, the underlying problem is rooted in institutional quality: “there’s an institutional baggage that needs to change before any public policy can be implemented.” Effective policy reforms to tackle these issues have not been put in place because decision-making bodies remain controlled by insiders who have an incentive to skew policy in favor of themselves and at the expense of outsiders. Examples of these are neighborhoods that prevent construction due to “NIMBY” homeowners in a community, or occupational licensing rules set up by professionals that restrict out-of-state professionals from setting up shop. Ultimately Glaeser believes that if we want to even the playing field, battles will need to be fought at the state and local levels.

A need for local experimentation

Both panels concluded that there is an overwhelming need for local experimentation and place-based policies. This is critical to help identify policies to improve the lives of people in regions that have been left behind and determine how to design systems that prevent the concentration of power.

Even though Glaeser expressed some skepticism of industrial policy, he emphasized the need to be pragmatic and think about government interventions in a place-based manner – “there ought to be labor policy and other policies to help jobless people and people in declining regions as a matter of improving welfare in a way that redistribution cannot.”  The path forward must consist of the government taking accountability for the lack of response in recent decades and re-orienting policy to consider place. When approaching difficult issues facing American communities, policy makers should think about the challenges individual communities are facing, brainstorm solutions that are appropriate given the situation and then craft policy that is tailored to place.

The need to think about place-based solutions also came up as panelists discussed how to best address a few specific policy issues that will be particularly relevant in the coming years. One prominent challenge is the energy transition that must occur to mitigate the effects of climate change. Khanna believes that given the contentiousness of the issue, the focus and messaging from policy makers should center on building a strong economy rather than exclusively on transitioning to clean energy. The panelists agreed that the climate challenge will require policy makers to consider place, as regions will face specific and different impacts. Similarly, Boushey noted that certain communities will be hit particularly hard by environmental changes (i.e. natural disasters or rising sea levels) and thus, the government must be very intentional in allocating resources and investing in industries strategically.

What is an economy for, anyway?

Eventually though, Allen raised a fundamental question about the framing of economic development challenges. The goal of an economy is to promote human flourishing and that the best way to do that is by not only focusing on people’s private lives, but their public lives as well. With that in mind, the economy needs to be set up to empower participants in their communities and workplaces and allow them to be involved in decision-making and integrated into production processes. In this context, Allen highlighted that economics’ primary concern with efficiency and redistribution often results in a short-sighted focus on taxes as the primary policy instrument for improving welfare. Instead, we ought to also be considering relational structures, focusing on issues such as housing, transportation, and good jobs.

Khanna reinforced this view, noting that policymakers need to return to the fundamental question of what purpose the economy serves. The government has not done an adequate job of helping American communities adjust to de-industrialization, which has had devastating impacts on American citizens and has manifested in high rates of divorce, substance abuse and suicide.

There also needs to be thought given to how systems affect the dynamics of power. Allen cited Robert Michel’s “iron law of oligarchy,” which posits that human societies over time inevitably move in the direction of oligarchy, concentrating power in the hands of selected elites. An inclusive economy needs to have systems in place that counteract this iron law.

 

Jessie Dickens and Frank Keat contributed to this report.