COVER STORY • Can Economics Save the World from Rising Geopolitical Incertitude? • 3Interview with Dr. Heather Boushey, President & CEO of the Washington Center for Equitable
GrowthI

nstitutionalized Income
Inequality Hampers Social
Mobility

By Japan SPOTLIGHT
If income inequality remains fixed due to established conventions such as inheritance or genderinequality, it would result in further diminishing equality of opportunity, such as access to good educationor good health care. This would act to depress the economy structurally, as it would seriously hamper
upward mobility in society. Income inequality is a hugely important issue, and economists are expected tofind good methods of quantifying it.
Dr. Heather Boushey, the author of a new book, Unbound: How Inequality Constricts Our Economy andWhat We Can Do About It (Harvard University Press, 2019), president and CEO of the Washington Center
for Equitable Growth, kindly responded to our questions in the following interview.
(Interviewed on Sept. 4, 2019)

Introduction
JS: Please could you start by telling us

a little bit about your Center – its
mission and its main activities?

think economists have been working
on this issue since economics wasborn. Why do you think economists
have traditionally concentrated mainly
on market functions rather thanincome distribution?

Boushey: Thank you so much for reaching out toBoushey: I think that there are a number of
us and I am very glad to talk to you. The
reasons. First, what Piketty and Emmanuel Saez
Washington Center for Equitable Growth was
did in 2003 (in a Quarterly Journal of Economics
founded in November 2013, and I am one of thepaper) was to re-introduce to economists dataco-founders. It was founded to advance evidencethat they had not used for many generations. Thatbacked ideas and policies in pursuit of growthis the data from tax records. In the US and otherthat is strong, stable and broadly shared. We havecountries, starting in the 1960s and 1970s,
a unique institutional strategy: we work witheconomists have been increasingly reliant on
academics in the United States with a large
Dr. Heather Boushey
survey data. When you look at how they had beenacademic program that includes a call forthinking about understanding the economy, it was models. Not
proposals and an open and competitive grant program. We work
empirical theoretical work, but theory. The extent to which it waswith scholars to investigate whether and how inequality affects ourempirical work was often using large national or sub-national
economy and to explore all the different avenues. My team in
surveys to get experiences. Starting in the 1990s, the profession
Washington – which is about 40 people now – then takes thatstarted to undergo a significant shift where scholars began to gather
research and helps make sense of it so that it can be acceptable andtheir own data. They began to do natural or controlled experiments
useful to people who are in the policy-making community.
using new sources of data and information, and developing new
We have a blog, we use social media, and we do events with policy
methods that allowed them to show causality. When Piketty and Saez
makers for them to understand what this research means for theirlooked back at what Simon Kuznets had done in the mid-part of thework.
20th century using tax-return data, they found that inequality at thevery top of the income ladder was growing much faster than that
Income Inequality an Old Issue
survey data had shown. That opened up expanded computing
JS: The issue of income inequality has drawn lots ofcapacity and the ability to use new methods and computers toattention since Thomas Piketty’s book Capital in theevaluate all this data. This ushered in a new way of thinking about
Twenty-First Century was published in 2013. Yet I
the fact that economists can study inequality, and to see how
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COVER STORY 3

important this economic trend is.

Photo: Harvard University Press

Income Inequality & Politics
JS: Talking about politics, we are witnessing a rise inpopulism all over the world. Would you concur with
the idea that increasing income gaps could be driving
this populism?

Boushey: I think that the answer is “yes and”… Part of the reason
that people are frustrated with politicians is that the way that we havethought about the economy and the way that we have talked about
how to measure economic success has obscured the reality of risinginequality. This new movement of Piketty scholars and scholars that
we fund who understand this – this is on the cutting edge. Whatmost people hear about when they look at policymakers or when
they watch the news is data about the economy that doesn’t reflect
what is happening in their own lives. For example, on many news
stations they talk about the changes in the stock market; that does
not have anything to do with whether there are good jobs in yourcommunity. Or they will talk about indicators like changes in national
economic growth or output, and indicators like GDP. Over the periodof the 60s and 70s, GDP really was a great shorthand indicator for
how the economy was growing that was reflected in people’s lives.
When GDP went up by 2%, most Americans were seeing theirincomes rise by 2% because we had less inequality. Since the 1980s– and especially since the rise of these new populist movements –the macro-economic indicators like GDP don’t mean anything formost of us. GDP rises by 2% but the vast majority of Americans do
not see their economies rise that much. So when policy makers tout
a new policy for growth or the economy, there isn’t a connection
between what they are measuring and what is happening in family
lives. It is not just that inequality has risen; it is that the politicalclasses have not honored or recognized this significant change.

important. His argument that so long as the rate of return on capitalis higher than a sense of the rate of return on wages – even in an eraof high income equality – you see the income gap between thewealthy and the poor is to be further expanded by a high wealthinequality. Once you have wealth inequality, that creates obstruction
and distortions in our whole economy; that wealth means that there
are people holding onto that wealth rather than a society where
people can get access to capital and start their own businesses orwhere children who did not grow up rich can go to the best colleges.
I do think that this is a deep and important insight that he has
regarding economics, politics and social sciences more generally.

JS: Would you agree with Piketty’s analysis of

JS: In light of today’s economic situation and rising

economic inequality regarding the difference
between interest rates and wage increases?

Boushey: I edited a book looking at his work, and certainly the data
he has complied is amazing and I do think it is relevant and very

Publisher: Harvard University Press
Available at: https://www.hup.harvard.edu/catalog.
php?isbn=9780674919310

populism, do you think that economists’ main
responsibility for achieving sustainable growth
should be focused on mitigating income inequality?
Higher income inequality would not only lead toresolving social issues but also re-stabilizing market
Japan SPOTLIGHT • November / December 201913

COVER STORY 3

economies.
Boushey: I have a book coming out next month that argues that
inequality constricts our economy. I argue that high income andwealth inequality creates obstruction for people who aren’t alreadyrich to engage in the economy and move up the ladder. It particularly
creates obstruction in the areas of health and education. In the US
we have just had a scandal whereby parents are buying theirchildren’s acceptance into elite colleges when these entrances aresupposed to be based on merit and getting high scores on exams.
These rich parents were basically buying seats for their children eventhough they didn’t qualify, which means that the children who
weren’t wealthy and might have been highly skilled don’t have theaccess to opportunity. That means that the economy does not benefit
from their skills and talent, so that is the way that it obstructs
growth. You also see evidence of inequality in market powers acrossfirms, and in the way that wealth inequality and income inequality
affect political influence.
Both of these are subversions of how the market is functioning.
We are in an era of rising economic concentration and in a way thatis not for the public good but which allows some firms at the top to
obliterate their competitors because they have all the market power
and are able to charge higher prices, pay lower wages, and don’t
have to worry about providing high-quality goods and services. Thatis a subversion of our market economy, and at the same time you
see the role of money in politics where our politics in the US has
been focused on tax benefits for the very wealthy, while starving the
public services that would create widespread opportunity.
Finally, we see economic inequality distort investment andconsumption. There are a lot of scholars who trace the financial
crisis back to the growth of inequality through the mechanism of therising supply of credit. You have so much wealth circling around theeconomy looking for something to do, and what it ended up doing
was to transform into increased credit supplies and too manyfamilies had credit pushed on them, which did not end well. So I do
think that there are these destructive aspects of inequality that are
dragging our economy down generally, and this is the theme of thebook that I have coming out next month.

Institutional Drivers of Inequality
JS: You mentioned in your paper included in the book

After Piketty, The Agenda for Economics andInequality published in May 2017 that equality ofopportunity should be assured by institutions but is
not. Inheritance could affect the wealth gap between
the rich and the poor, and you argue that women in
the US are institutionally disadvantaged in theinheritance of wealth. Could you elaborate on thisplease?

Boushey: One of the things we know is that what constrain economic
inequality are institutions, like governments through progressive
taxation and progressive spending. Or institutions like unions thatprovide some boundaries on economic inequality, or institutions likea legal infrastructure that focuses on anti-trust. Those institutions
have become much weaker in the US or in fact non-existent. So as
the inequality rises, one thing that we learn from Piketty is that if
income inequality translates into wealth inequality, then the way thatpeople will become wealthy in our society may not be through being
smart and innovative or coming up with a great idea or doing a good
job at work, but rather through inheriting their fortune. I argue in mychapter in After Piketty that we have to think about what this means
for gender equity. At least in the US, traditionally, parents give moreof their wealth to sons than daughters, and marriage among wealthyelites becomes much more important. The trend now for marriage
among the elites is often between two individuals who are highly
skilled and earn a lot in the labor market – two lawyers or two
doctors, for example. But if you have a world where wealth istransferred through inheritance, it creates an incentive for families tofocus on preserving and growing their wealth through marriage,
which has traditionally not been something that has led toemancipation for women. In a world where value in the economy isbased on what you contribute, that creates a lot of incentive to value
women and men much more equally, but in a society where wealth iscreated by handing down money from generation to generation, thatcreates a lot less incentive for gender equity.
JS: How do you think we can mitigate income

inequality effectively? You highlight some

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COVER STORY 3

institutional drivers of income inequality and also
cultural issues. How can we correct these
institutional issues or cultural issues in favor ofincome equality?
Boushey: This is a great question. First, I think that we need to give
people access to the information to understand the problem. We
want policymakers to show the public what economic growth looks
like across the income distribution. The first is changing theconversation from the metric of success being just GDP to sayingthat we need to look across the income spectrum in order tounderstand economic success.
Then, I think we need to craft a policy agenda that addresses theconcentration of resources and addresses creating more economic
opportunity. To address the concentration, a wealth tax or other waysof taxing income at the top. Addressing market concentration andensuring that we have more competitive markets are very important.
Then we need to create a counter balance in giving workers thecapacity to be a counterweight to businesses in a way that unions
traditionally were. I don’t think this involves just going back to what
unions used to do, but rather finding ways for civil society to create
those counterbalances through either unions or government orcommunity groups. It is also important to invest in universal
opportunity and childcare and early childhood education in the US, toensure that inequality is not creating obstruction to upward mobility.

What inequality means is that there is a difference in income
across people; but that does not tell you whether or not all the
income is with people in the top 1% or if there is a huge middle classand a significant chunk of poor people. Looking at the percentiles
across the distribution, it is very important that you understand whatform inequality is taking because that is important for policy andpolitics.

Mitigating Inequality
JS: Is a wealth tax a good idea for mitigating wealthinequality?

Better Indicator to Measure Income Equality

Boushey: In a world where the vast majority of wealth is owned by asmall few and where income gains are transferring into wealthconcentration, a wealth tax becomes much more important than aworld where you have a large middle class with a few rich people but
are not that rich, and a large number of poor people. In such asociety, a wealth tax might not be so important, but in the kind of
inequality that we are seeing today which is growing so fast in termsof wealth distribution, that makes the case for why a wealth tax is so
important because you want to open up that economy. Otherwise, wewill become an aristocracy again! If you have this concentration of
wealth among a small group of people, you will be soon dominatedby that small group, so wealth taxes open that up, and if you use
those resources to increase opportunity then you are creating a morecompetitive economy overall, a much more vital economy.

JS: Finally, you mentioned that GDP might not be a

JS: The causes of rising inequality seem to be quite

good indicator to show economic performance;
perhaps the indicator for income equality could bediversified? The Gini coefficient is to my knowledge
the only indicator to show income inequality.

Boushey: We have done work building on research by Piketty andSaez and Gabriel Zucman, and their World Income Database where
they are creating what they call distributional national accounts.
These take GDP and look at what it looks like across the income
distribution. Instead of just having one single data point – i.e. “GDPwas 3%” – you have how much income growth occurred across theincome spectrum that aggregates up to that 3%.

diversified among nations and so it would seem
important for each country to share information
regarding income inequality and how to deal with it.

Boushey: There are a lot of scholars working on this idea. The world
income database is tracking inequality across countries and many of
those scholars are working on understanding the differences. I
couldn’t agree more that this is an important goal.

Written with the cooperation of Joel Challender, who is a translator, interpreter,
researcher and writer specializing in Japanese disaster preparedness.

Japan SPOTLIGHT • November / December 201915