President Obama’s top economic adviser is pushing back against pessimism about inequality in the U.S., with a new paper making the case that Obama’s policies have lowered inequality and that the U.S. economy can sustain growth and reduce inequality in the future.
In a paper for the Milken Institute released Friday, Council of Economic Advisers Chairman Jason Furman notes that income inequality has risen, but writes that just three changes to the tax code during the Obama administration have had “the equivalent of a rollback of about half a decade of drift toward greater inequality.”
Those changes are the expiration of the Bush tax cuts for high-income earners, new taxes on payrolls for Medicare and tax credits for low-income families.
Taken together, Furman argues, those policies will boost the economy by improving the safety net, eventually resulting in “$500 extra per year for a typical family of four.”
Furman, who has been the top White House economic adviser since June 2013, argues that greater equality can boost economic growth by fostering trust and political stability and ensuring that more people get education and engage in entrepreneurship.
“It is time – long past time – to reject the conventional wisdom that greater inequality is the inevitable consequence of allowing technological change and global economic integration to power growth,” Furman concludes. “There is just no compelling reason to believe that well-designed policies to narrow this widening gap would meaningfully reduce the level or growth of output, and every reason to believe they could provide a meaningful boost to working families.”
That conclusion is partly aimed at the work of the French economist Thomas Piketty, whose best-selling book Capital in the 21st Century attracted widespread attention this year for warning of the possibility that slow economic growth could yield ever-higher wealth inequality. Although Piketty’s book was extremely well received in the U.S. by liberals, Furman has written in criticism of some of Piketty’s findings before and returns to second-guessing some of Piketty’s claims in Friday’s paper.
Furman’s argument comes on the same day that Federal Reserve Chairwoman Janet Yellen spoke out about her worries about rising inequality in an unusual departure from her normal focus on monetary and regulatory policy. Yellen said Friday that “it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”
President Obama has called addressing inequality the “defining challenge of our time,” although in recent months, he has spoken more about expanding opportunity for the middle class and less about inequality specifically.
