Larry Katz Weighs in on What Should Be Done About Inequality

Ezra Klein:

TAPPED: LAWRENCE KATZ SPEAKS. One last thing on yesterday's David Brooks column. My friend Reihan Salam wondered why I was so dismissive of the piece, and he was right to. In short, I've done a lot of reading into the economic literature on inequality and never, ever come across what Brooks was saying. Moreover, I'd read a fair amount of Lawrence Katz's work on inequality and it also failed to support Brooks' thesis. Something seemed wildly awry.

So I employed the top secret journalistic technique of picking up the damn phone (or PUDP, in TAP office parlance), and gave Katz a call. His answers confirmed my suspicions. Before he even talked about the column, he e-mailed to say that "I obviously don't have anything to do with the 'spin' [Brooks] gives the material and certainly nothing to do with the numbers he cites in the first half of his column." And when I got him on the phone, he repudiated nearly every aspect of the piece. "There are," he said, "clear market forces that have to do with the demand for talented individuals, but the current period is not that different from the past for that type of thing. In the past, however, we've done a very good job expanding access to education to keep up with growth, providing bargaining power to those left behind, and using government policy to help them. What's changed in the last twenty years is that we've eroded those ameliorating institutions."

In other words, Brooks used Katz as a good example of "the second and much more persuasive school of thought on inequality" that rejects the decline in unions, increases in CEO pay, loss of wages, and all the other standard critiques of the left. The only problem? Katz is not that sort of economist. He mentioned the importance of unions four or five times during our ten minute talk, and kept returning to the idea that the demand for new skills is nothing new and nothing specific to America -- what's different is its translation into rampant inequality. He is also a former Clinton administration economist, and so the distortion of his views gave a bipartisan imprimatur to Brooks' remarks, allowing Brooks to place a wedge between the good "Clinton" Democrats and the bad, populist liberals.

I can't speak of intentions; I don't know if Brooks misunderstood Katz -- who, like me, he spoke to -- or distorted him, or just wrote unclearly. But the opinions in that column are not those of Katz. Even the part Brooks directly attributes -- the primacy of "skills," or so-called skills-based technial change -- is misleading. As Katz told me (and as others, like Emmanuel Saez, have pointed out), "Those market forces aren't new, and other countries have had them without the inequality we've had." In other words, France has computers and customer service too, and they've not seen the startling increase in inequality that we have.

So what does Katz think we should do? "Talented Americans aren't going to stop working if their tax rate is 42 percent," he told me. "So I would scale back cuts at the top end and use the revenue to expand the EITC to increase its generosity and its reach -- it should be doing more for young singles. We should clearly have a National Labor Relations Board that's more open-minded, so it's easier to unionize...And over the long run we need to do things to provide health care to a larger group, offer training and wage insurance to people who lose jobs, and create greater educational opportunities [throughout society]." So there you have it, Lawrence Katz wants unions, health care, more expansive wage subsidies, and a more progressive tax code. The question, I guess, is whether Brooks really does agree with him.