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Cleaned-Up Transcript from October 15, 2012: Center for Latin American Studies: A Dialogue: Inequality in the Americas: Brad DeLong Opening Remarks

Harley Shaiken: Hello. I’d like to welcome everyone on behalf of the Center for Latin American Studies at UC Berkeley, and on behalf of the University of Chile's School of Economics and Business. This is part of a series that the University of Chile and Berkeley are doing: "Inequality: A Dialogue Across the Americas".

The issue of inequality in the United States is a central one at this moment, with an election upcoming with broad concerns about the economy. It is clearly also a central concern in Chile, and throughout the Americas. This is the second of a series that we are doing. The first was in early September, with former president Ricardo Lagos, of Chile and Robert Reich from here at Berkeley.

Today, I am going to introduce both our speakers, one in Berkeley, one in Chile, and then after brief opening presentations we will ask a question of a speaker in another country--in fact, on another continent.Then we will open for questions here at Berkeley, at the University of Chile, and several questions that we’ve received on the internet.

I’m very pleased that we have with us today, Professor Brad DeLong, of UC Berkeley, he’s in the Economics Department here at Berkeley. He is the Chair of the Political Economy major. He is also a research associate at the National Bureau of Economic Research. He was Deputy Assistant Secretary of the Treasury for Economic Policy, under President Clinton. He’s one of the most widely read, thoughtful, bold, and provocative--all of the above--bloggers and tweeters observing the economic scene today. After he speaks, I am very pleased that we will have Professor Oscar Landerretche, who is the director of the School of Economics and Business at the University of Chile. He is an editorial columnist for a Chilean Daily, La Tercera. We have two really informed and thoughtful people with us.

So please join me in welcoming Brad DeLong.

Brad DeLong: Thank you very much for inviting me. I am always happy to be here at the Center for Latin American Studies. I am even happier to be part of tho intercontinental dialogue, if only because the slow creation of--call it a global intellectual space--is what ought to be the twenty-first century mission of Universities like this one.

A thousand years ago, when the university starts in the West--it had started earlier elsewhere--the basic problem was a need for more well-educated people. Emperors needed judges. Popes needed theologians. Theologians and judges need to have and read books. But back in 1100 or so books were expensive.

Come 1100 or so, when the University of Bologna is founded, your average book requires about six months of skilled-monk labor-time to produce--preparing the parchment, preparing the ink, writing out the book, illustrating the manuscript, binding and covering it, and so forth. It was then much much cheaper to get all the budding judges and theologians together in a room in Bologna, or Naples, or Paris, or Oxford--and have somebody read them from the single copy of the book that existed while they took their notes. It would have been prohibitively expensive to create and distribute, to people distributed all over western Europe, each their own copy of one of these hideously expensive books.

Well, books are much cheaper now. But we still have universities. They are places where people can come together and easily talk to each other about important intellectual issues and principles.

We could have a better world if we could generalize this to the globe. If the entire globe could become one global university, rather than a collation of small individual intellectual hotspots tenuously linked, and with the rest of the world glowing less brightly with intellectual light. Today too small a relative proportion of the world’s population has full intellectual access. Fixing that is the business we’re in for the twenty-first century. Fixing that is the business that this particular technology experiment is in aid of.

And with that commercial for interdisciplinary distance learning and engagement, let me note that I have already used up a third of my introductory-comment time. Let me shift to inequality.

There are, broadly speaking, three dimensions of Inequality.

The first dimension is global inequality between nations. The fact is that the technologies of the industrial revolution--which are now the common heritage of all humankind--have been successfully implemented much much much much more in some parts of the world than in others. Up until 1975 I would say that the relative gap was growing. The rich North Atlantic plus Japan was successfully adapting these technologies extraordinarily rapidly. But by and large the rest of the world was adopting these technologies significantly more slowly,. Thus the relative gap between the North Atlantic core and the rest was in almost all cases growing rapidly, with the exception of the Southern Cone of South America which played a unique and puzzling role that shifted from decade to decade.

Since 1975, we have become much more optimistic. Our statistics about global inequality since 1975 have shown rapid increases in equality. They have shown an end to the 1800-1975 trend of rising inequality, whereby if you picked two people at random across the globe you would find the relative gap between their standards of living more unequal at later dates than earlier dates.

A potential problem with this shift is that this is entirely due to good growth performance over the past generation in two countries: China and India. That they have had a good generation is wonderful. Will they have another good generation? We hope so.

Should we have confidence? Perhaps we should. These two countries have each had a very good growth generation, together they are 40% of the human race, and so now an extra 40% of human beings are used to rapid economic growth--and perhaps they will demand it of their political leaders in the future. On the other hand, they are just two governments out of 170. What if over the next generation their quality of growth policy falls back and the next two replacement countries that experience growth miracles over the next generation are, say. Jamaica and Bermuda? Then the overall global statistics won’t look nearly as good.

That is our first dimension of inequality: global inequality.

For the second dimension of inequality let me turn to the United States and to the coming to the United States of what we now call the Second Gilded Age.

We used to have a framework for understanding the time dimension of inequality in the United States: we called it the "Kuznets Curve". The United States starts out as a country that is relatively equal--at least among white guys who speak English. Free land, lack of serfdom, the possibility of moving the west if you don’t like the wages you’re being offered in the east--all of these produce a middle-class society. Then comes 1870 or so, and things shift. The frontier closes. Industrial technologies emerge and they are highly productive and also capital intensive. So we move into a world of plutocrats and merchant princes: people in the cities, either off the farms or from overseas, competing against each other for jobs. And we get the extraordinarily stark widening of American income inequality up until the mid-1920’s or so.

This then calls forth a political reaction. Call it progressivism, call it social democracy, call it--in Europe--socialism. The idea is that the government needs to put its thumbs on the scale, heavily, to create an equal income distribution and a middle class society. Progressivism and its candidates are elected to power in democratic countries in the North Atlantic in the twentieth century--in spite of everything you say about Gramsci and hegemony and the ability of money to speak loudly in politics. Thus from 1925 to 1980 we see substantial reductions in inequality in the United States--the creation of a middle-class society, at first only for white guys and then, gradually, for others.

In 1980 things shift again. Since 1980 we have had an extraordinary explosion of inequality in the United States. This explosion has taken place along two dimensions.

First, we have seen extraordinarily rapid growth between the top twenty percent and the lower eighty percent. The benefits to achieving a college education skyrocket--for reasons that I don’t really have time to go into, and for reasons that are still somewhat uncertain.

Second, we have an even larger explosion of inequality between the top .01 percent, the top 15,000 households, and the rest of the top twenty percent. This second explosion is the most puzzling and remarkable feature of the past generation. It puts the American political system under substantial long term threat, if only because equality of opportunity in the next generation will require substantially greater equality of result in this generation than we see today: a world in which Republican presidential candidate Mitt Romney puts his wealth into a blind trust but that blind trust then decides just as a matter of chance that what it should fund Tagg Romney and he then raises money from interests that want the Romney clan to think well of them. That is not a society fulfilling a democratic commitment to equality of opportunity, not at all.

And there is a third dimension, for the rise of the 0.01% produces not just a plutocratic over-class in the United States but a transnational global plutocratic over-class. How many of the bond purchases by the People’s Bank of China over the past generation will wind up in the hands of relatives of Chinese Communist Party leaders? How many of them will be living in Gestad or Monaco or Beverly Hills in ten or fifteen years ago? How is social democratic politics and equality of opportunity going to be attainable in the world of the future? We know that money speaks loudly in politics, but plutocracy seems to be acquiring so much money that speaks very loudly indeed.

And let me stop there, so we can have a dialogue rather than a lecture.

Harley Shaiken: Thank you. That was a superb beginning. We very much appreciate you stressing the unique path-breaking nature of this event, and here is that path breaking nature: I'm now turning it over to Professor Oscar Landerretche, all the way south in Santiago, Chile.

Oscar Landerretche: Can you hear me? Harley?

Harley Shaiken: Yes

Oscar Landerretche: Let us start. First, I would like to thank the University of Berkeley, Harley Shaiken, and Brad DeLong for this opportunity. I agree completely with the idea that we have to do more of this sort of thing to get our faculties and our students to interact on these matters. I think it’s a very interesting comparative way of thinking about inequality because of the enormous differences between Chile and the United States. They are very obvious.

From the viewpoint of the Chilean economy, of a small open emerging economy, we have, of course, an unmoved mover of inequality--which is global inequality trends. As Brad DeLong pointed out, if in Chile we managed to make our country the most equal country in the world it probably wouldn’t affect global trends, because we’re very small. We just have to take those global trends. We are affected by them in different ways, depending on our relationship with the rest of the world. Chile is one of the most open countries and has been for a long time one of the most open countries in the world.

That’s the unmoved mover of inequality for us.

But, of course, that’s not all. A country is not only its trade and the relative prices that it brings. There are at least five different dimensions in which this inequality plays out.

The first, and the favorite of most people talking about public issues, is the distribution of productivity and education.

The second is the distribution of bargaining capabilities.

The third is the economic structure of the economy--what you produce.

The fourth is your tax structure.

The fifth is your transfer and entitlement structure.

These five dimensions determine the answer to the question: How do we participate in world inequality? Or, if you prefer: What does our inequality share in the world's patterns? These five dimensions--you have to address them simultaneously--if you look, for example, you will see that as well as world inequality has increased during the last few decades. Although that world inequality trend has reversed because of the things that Brad pointed out, as this has happened the Chilean economy has become more and more open even than it was before.

If you look at the distribution of education, what we’ve had is an expansion in quantity and coverage of education--but not really in the quality. The numbers do show that has had a little bit of an impact, because even if you have relatively low-quality education if you expand it of course you achieve something with that. You’ve had basically no change in the distribution of bargaining capabilities at all. You’ve had basically no change in the tax structure. In the economic structure of the economy, you’ve had--well if not a Dutch disease--a sort of Chilean flu, not a full-throttle Dutch disease but the effect on the economy of the commodity price boom. Where we’ve seen more action is on the transfer and entitlement structure, where there has been substantial expansions in the last decade or so. That’s been very important. But the other ones haven’t been that important.

So, what’s been the result of this, in the context of world income inequality basically becoming worse?

What we’ve seen is that if you look at autonomous income inequality in Chile, it’s become mildly worse, and if you look at total income inequality in Chile--that is, autonomous income inequality, plus the efforts that the state makes with its social programs of entitlements and transfers and, in the case of Chile, the tax code--it’s basically neutral in distributive terms. Total income inequality has become a little bit better. Just a little bit.

Now, if you look at these two things, autonomous income inequality becoming a little bit worse, and total income inequality becoming a little bit better, you could argue that that’s a pretty good result given what’s going on the world--given that you’re a very very open economy. If you value economic openness--and there are good reasons to value it for small economy--then you could argue: well, the counterfactual could’ve been much much worse.

So that’s one sort of argument that you can have on inequality trends in Chile.

If you don’t value economic openness, then you could’ve had more aggressive results maybe--and that’s what maybe you’re observing in other Latin American countries such as Brazil and Argentina, which are not so open and can therefore, with not very very much more aggressive policies achieve a little bit more in terms of reducing income inequality in these las ten years.

The question is: why can’t we move more aggressively? Why isn’t it possible to advance more aggressively, considering that it’s very important to advance more aggressively because we are in one of the world’s most unequal regions?

The Economist just pointed out that it’s one of the regions that’s improving. But it’s improving from being the worst. So there’s a long way to go to get really cheerful about inequality in Latin America.

So why can’t we move more aggressively? I would say that these five areas of policy: education, labor, economic structure, what you produce, what sectors lead your growth, tax structure, transfer entitlements--all have major stakeholders and losers that you’re going to affect, while the winners in redistribution are usually abstract and diluted. That makes it very complicated to articulate a political strategy that sustains public policy efforts to increase equality, I think that’s the main thing we are facing here in Chile. Part of the social conflict that we’re living with here in our country has to do with the country sorting out a strategy to get these things together in some sort of policy. It’s very hard, because, you know, public discussion doesn’t have many dimensions.

Just to finish, I would say that it’s not very different from what one observes in the United States. Just to provoke a bit of discussion, if you look at Obama’s first term program there was some idea of modifying the relationship of the United States with the world economy. There were some proposals of, say, treating differently in tax terms firms that invested abroad or stayed in the states. There was some rhetoric about that. It probably had no real policy effect. In education there have been some efforts. Small efforts in economic structure. There has been a lot of talk about the green economy. But it’s very hard to get something really significant going. Except maybe what happened in Detroit, which was a specific bet--not on a new sector but on bringing back an old one, very successfully it seems. In tax structure it remains to be seen. In bargaining power, in labor relations, I believe there is not much there. But there is some effort in changing, sort of bargaining power with financial reform. So not in labor issues but in consumer financial issues and in transfers and entitlement. There has been some efforts in the health reform issues.

So I think it’s very similar what happens in two different countries at two very different moments of development. For the current Democratic administration, it’s very hard to coordinate efforts in all these areas. The problem is that you really need to coordinate efforts in all these areas, because if you want to do education reform, you have to talk about economic structure; if you want to do economic structure reform and have new sectors and develop new areas of production, you need to talk about bargaining, and labor market, and tax structure etc. The relationship between all these areas is a very complicated political issue. My view is that over there and over here people who are worried about the income distribution--if they’re worried because they value income distribution in itself, or if they’re worried or because they believe that very unequal societies may be very unstable and have slow growth, whatever the reason--it seems that this relationship between the public policy issues and challenges and democratic politics working to relate all these different areas is not working very well. It seems to be increasingly hard to do. So I think that we’re facing a very difficult set of challenges to address this problem. We will see during the next couple of years if we manage to do it.

I’ll leave it there so we can have a conversation.

Harley Shaiken: Clearly inequality is a critical issue in Chile, in the United States, in fact in North America and in South America. So, Brad, do you have a question for Oscar?

Brad DeLong: Let’s focus on education. My teachers Claudia Golden and Larry Katz make an impressive and largely convincing argument that the trends in inequality between the top twenty percent and the bottom eighty percent in the United States, at least, have been overwhelmingly driven by the race between technology and education. Technology has kept running at a more or less constant pace. Education has not. From, say, 1920 to 1980, the United States essentially followed the recipe of Berkeley chancellor Clark Kerr: the United States ought to provide as much education for free to its citizens as they wanted.

Devotees of the right approved of this policy. People who worship Ayn Rand and have read The Fountainhead a few too many times or Atlas Shrugged a few too many times thought that universal free public education was a way you could separate the sheep from the goats, the strivers from the moochers--a way that the strivers could strive and attain the eminence to that they deserve. People on the left noted that if you make education free you get an awful lot of educated and well-trained people, so the return to human capital goes down, the education premium that those who have been to college and have been trained in the professions can demand becomes a lot lower. And as your accountants and lawyers and doctors facing competition in the labor market can demand lower salaries, that leaves more money for the assembly line workers and the janitors and the home health aids and the nurses and the waitresses.

Around 1980, this strategy of growth and equality through education in the United States breaks down. Since then the costs of higher education have been rising at an extraordinarily rapid pace in the United States, as government subsidies are withdrawn, and as private colleges react to rising sticker costs of public colleges by raising their own sticker prices. In addition the universal commitment to pre-college high quality education has been in decline. This has stuck. Thus, unless we see a major change in American political economy, this education road that appears to have been very effective at promoting equality between the 1920s and the 1970s is now closed to the United States.

Chile has been massively upgrading its commitment to education in the past decade. Is this education road to growth and equality open to Chile now? Or if not why not?

Oscar Landerretche: Chile has in the last couple of years undertaken a very dramatic experiment. The short story is the following. During the last ten years, Chile universalized access to higher education through a very aggressive credit policy. It is very expensive and not very well designed, but if you look at Chile twelve years ago--you know we have fifteen, sixteen million people--we had 200,000 to 300,000 people studying in universities, technical colleges, etc. Now we have 1.2 million. That’s a very big change in a very few years.

The problem is that this generation of kids that have entered the university--some of which are sitting here with me--have a perception, especially in let’s say lesser universities, the newer ones, that are not proven, that the returns to education are just not there. There’s a study by conservative think tank, a sort of equivalent to the Heritage Foundation, that estimated that around forty percent of the careers being offered by the higher education system have a negative net present value in income terms. So the assumption that’s been applied here--that you’re going to fill the market with all these professionals and someway the economy is going to create the jobs for them--is a radical supply-side aggressive policy where what you’re doing is not making physical capital very cheap like the classical sort of Reaganomics, but you’re making human capital extremely available. Somehow, magically, the economy is going to create all these jobs for lawyers and anthropologists and designers. But you don’t have that in an economy that is very centered in commodities.

So, the problem with Chile is that we don’t have the economic structure to absorb the educated that the United States had with that policy. Even ten years into this--so it’s very recent--the perception by these kids is that it’s not working. Many of them have these expensive loans. They come out to the market and they feel that they don’t have any employment. So we’re going in the direction of what you see in Buenos Aires--very sophisticated taxi drivers that would be very interesting to drive around with, but very frustrated and very very angry politics. Once again Chile’s experimenting--or it has experimented already--with a very radical approach to higher education. I believe it’s not going to work. We have to change gears in a way. That’s my view.

Brad DeLong: Israel did it in the 1990s. It managed to reconfigure its place in the European division of labor, to accommodate a population that suddenly became much much more educated to a remarkable degree very very quickly. Israel is not that much small in economy than Chile.

On the other hand, distance matters a lot. Israel is very close to the population centers of Europe. When you want to sell the work of your most highly-trained and educated workers abroad it is a lot easier if you just have to fly from Tel Aviv to Zurich than of you have the fifteen-hour flight from Santiago to Los Angeles. Is it that long? It’s only twelve hours.

Harley Shaiken: It only seems like fifteen hours

Brad DeLong: So perhaps Chile will be the first country to over-invest in higher education. From our perspective it’ll be interesting to watch what happens. From your perspective there’s rather more at stake.

Oscare Landerretche: Indeed.

Harley Shaiken: Oscar, you can comment on that. Then please ask a question of Brad.

Oscar Landerretche: I think that what we’re seeing here is we are sort of working our way into some strategies to get this to work. What we’re seeing is that we need to be very aggressive in all these areas that I was mentioning. And one of the reasons that makes our story a bit different from Israel, or other countries, is that we also have the issue of Dutch disease here. It’s not exactly Dutch disease, but it’s very close to being Dutch disease. It’s very hard, because at the same time you’re making all these one million kids available with all their degrees and their studies, you have this really amazing booming copper price and foodstuffs which have had very very clear consequences. You can see what happens with the exchange rate cycle. That makes it very very hard. We have to sort of work our way around that.

I was curious about, a parallel with the U.S actually. The U.S is a big economy, but in a way it seems to me that you haven’t really had a Dutch disease with a commodity boom but I sort of feel that what’s happened with the financial services sector--from the viewpoint of the classical industrial sort of economy in the United States, is basically a Dutch disease thing.

You have this big shock in a sector that makes everything very expensive for everybody else. You're dealing with the social consequences: the white angry middle-aged ex-industrial worker, that goes into the Tea Party. This sort of dynamic has been seen in other countries.

I was wondering how that effects the sort of political discussion on inequality, because it seems to me that the same happens in Chile--we have this enormous copper price that you really have to make an enormous effort to fight against it,if you want to have other sectors.

It seems to me that the financial sector in the U.S. is not going to go away anywhere. It’s just going to be a very very important sector. It is going to continue to pressure the rest of the structure. It doesn’t seem to me the government will be able to replicate the effort it made in Detroit in many other places.

So I don’t know what you think, I mean how plausible it is, to face that dilemma.

Harley Shaiken: Brad?

Brad DeLong: Excuse me. Our technological multimedia masters want me up at the podium--they say the camera angles are better.

With respect to the copper disease, the people who actually know about it in the offices to the left and the right of me--Maury Obstfeld and barry Eichengreen--do strongly recommend dealing with it via the Norwegian model: large sovereign wealth funds invested abroad funded and financed by a government taxing commodity export earnings that is willing to say: this is safeguarding your great grandchildren’s inheritance, and that is why we’re doing this.

This is the way to have a stable and well-functioning economy, and also to pile up wealth for the future, when you are subject to the commodity-export cycle.

It’s been very successful for Norway. I think it’s certainly worth considering for Chile.

As for the other question, yes, over the past generation the U.S. government has decided more or less by accident--in the same way, that Britain decided by accident to conquer two-thirds of the world starting in 1750--that it wants to shift seven percent of GDP out of manufacturing and other sectors and into what the market was telling us were the sectors of the future.

So we shifted three percent of GDP into health care administration, and four percent of GDP into finance.

Now even at the time we noticed that shifting an extra three percent of GDP into health care administration was a huge mistake. What the extra three percent of people working in health care administration are doing was working for insurance companies trying to find ways not to pay for the treatment of sick people. They are not only not producing anything useful, they simply increase risk and fear--and make people scared that if they do go to the doctor they then will not understand the bill they get and will not be able to pay it.

We still have a three dollar dispute with NorCal Radiology. It impacts our credit rating. It does not make us terribly happy.

There is also the four percent increase in the share of GDP going to finance. This, too, is surely a zero or a negative sum game.

Consider one of Mitt Romney’s big backers--I’m picking on Mitt Romney more than usual these days, I’m not quite sure why--Anthony Scaramucci. Wall Street mogul. Thinks that what the world really needs is far less regulation of Wall Street, and far more room for Anthony Scaramucci to go about his business.

What is his business? His business is charging people one percent of their wealth each year for the privilege of hearing him tell them which hedge funds will do best over the next year and thus which hedge funds they should invest in.

Now if Anthony Scaramucci actually knew enough about hedge funds to know which would do best over the next year, he would be making even more money by running a successful hedge fund himself. He would be competing with Renaissance or Bridgewater. He’d be up there as someone who was making money for his clients. But he doesn't.

He’s in a position where lots of people want an expert to tell them what to do, have been told by their friends that he is the expert to listen to.

As near as I can see, what the extra four percent of U.S. GDP devoted to finance is doing is taking money not so much from the bottom eighty percent but from the rest of the top ten percent that wants to know where to put their money--through price pressure, through arbitrage, through fees. It doesn't do anything productive in terms of spreading risk, improving corporate governance, or diminishing moral hazard in the credit channel--rather the reverse. But it does increase uncertainty. And it has brought us our current depression.

So we have moved seven percent of the U.S. economy into activities that are at best completely unproductive. Now we have to figure out how to move resources out of these sectors. At the moment we’re unable to do so because we’re still fighting the lesser depression and trying to keep it from turning into a greater depression.

Any advice as to how to deal with our short run problem, so we can then turn to the long run problem of structural adjustment, would I think be very welcome.

Harley Shaiken: Now we’re going to open it up to questions from both audiences. If we could start perhaps with a question from Chile, to either of the speakers?

Chilean Audience Member: Can you hear me now? Okay, so here goes the question. I would really like to know from Brad, what are the prospects that he sees for inequality in the U.S.? In other words, what are the drivers for equality in the United States? As we look ahead, if we are optimistic, to what extent does the pursue of more equality in the U.S. is limited or constrained by global forces? In other words, by the fact that the U.S. has to be competitive in the global economy or by the fact that there are other kinds of power pressures for the U.S. being a big power and so on?

Brad DeLong: This is I think an argument from my old teacher Richard Freeman, about how in the eighties and nineties effectively 2 billion workers were added to the potential global manufacturing work force. Developments in communication and trade, the coming of the container, the coming of the Deng Xiaoping policy reforms in China, reform in India, confidence these policy changes would persist--all these meant that businesses all around the world wondering where to locate manufacturing could be confident that they could if they wanted to, if it made sense, draw on a labor force that was 2 billion bigger than it had been in the 1970s.

In that context, the fact that the United States had a lot of highly-skilled manufacturing workers who had an immense productivity edge was no long an effective factor in world production. Thus the claim is that an awful lot of the rise in inequality in the United States between 1980 and today is the result of this global pressure on the American economy.

Back in the mid 1990s when I was working for the Clinton Administration, I wrote a bunch of memos about how this was then nonsense--that is, it was simply too small to matter.

Since the mid 1990s, this factor has become significantly larger.

But I’d say it’s still in fourth place as far as the increase in U.S. inequality is concerned.

First place has been the education factor--the fact the United States is no longer clearly the most educated country in the world, and the education system is no longer is putting downward pressure on wage inequality.

Second place is the shift in the tax and transfer system--the fact that our tax and transfer system as a whole is less progressive than it was a generation ago, and that in fact it’s regarded as Kenyan Muslim socialism to even return taxes on the rich back to their levels of the Clinton Administration. Don’t laugh too much. It really is the case that the bar for what is called "communism" has been significantly lowered. Now it's the policies of Bill Clinton that are "communistic" according to Fox News.

Third are the social structural and economic changes that allow the princes of Wall Street and the plutocrat CEOs to successfully charge what they do charge. If this were 1960 or so, and George Romney as head of American Motors proposed for himself the kind of pay scale that the Presidents of GM and Ford get today--you would’ve seen an immediate explosion from the UAW. The UAW would’ve been out there striking everything and closing down the entire U.S. auto industry within sixteen hours. That no longer happen. That plus the willingness of the upper ten percent to pay extraordinary amounts for advice to what their investments should be is, I think, largely a socio-cultural change. I would call that third.

Global pressures are fourth. They are there, but they are not half but more like ten percent of the process.

And with that ten percent we should in fact be willing to deal. We still are the most favored nation by luck in history. We thus have responsibility to manage the international system as a whole. We have a responsibility to be the importer of last resort for countries that are trying to develop by building up their own industries.

Harley Shaiken: Now we’ll have a question from here in Berkeley, does anyone have a question for either Oscar or Brad? Why don’t we take your question, and then I have a question from the internet. Wait one moment until we get you the microphone.

Audience Member in Berkeley: Hello. This question is for Oscar. You were asking why Chile cannot move more aggressively to improve its inequality issue, and you mentioned that the winners are pretty much more abstract, while the losers are pretty evident and they have real interests at stake Can you elaborate a little bit more on that and on what other issues are hindering the advance of further equality in Chile?

Oscar Landerretche: Sure. What I see is that the context of this is that Chile has always been a very unequal society In striking contrast with the United States, which has had historical periods of relative equality. If somebody came up with a magic policy formula and actually managed to improve our Gini coefficient by 15 points or so--which is what we would need to become something like a European country--the structure of the economy would be very very different. In every single sense it would be extremely different from what we have today. You would have to have other economic sectors that do not exist right now. You would have to have a different political structure, and you would have to have a different labor structure, a different education system. So it’s very uncertain who’s going to come up winning and losing in that scenario.

Thus it very hard to promise someone that we are going to make dramatic changes in our economy and you’re going to come up a winner. It’s very hard to make that promise. What else are we going to produce apart from commodities, you know food stuffs and copper, what else are we going to produce? Which way to go? Are we going to go, let’s say in Norwegian style strategy like Brad suggested or are we going to go a different Australian style? Ae we going to go with Spanish style?

I don’t know. Depending on what sectors are going to come up first, the structure of the economy and society are going to be very different.

On the other hand the losers are very clear.

And Chile is a very small country. It’s markets are very concentrated. It’s basically controlled by just a handful of very large family conglomerates. They’re going to lose. It’s easier for the losers to coordinate their strategy to defend what they have than the winners, who don’t really know who they are==it’s very theoretical, an abstract notion, and all of these abstract notions usually get defeated in politics.

So: that’s what I think, I think that it’s a very difficult political agenda to actually accomplish.

Harley Shaiken: We have time for one more brief question from each country, and then, if the questions and the answers are brief enough, I’d like to ask both our speakers to make very brief concluding remarks. If you’d like to leave everyone with one final ideaon the themes we’ve been discussing.

So is there a question from Chile?

Chilean Audience Member: Hello. Can you hear me? Can you hear me now? Okay. If we agree with the statement that political structure defines the economic structure. And if we agree with the second statement that our countries--Chile at least--are losing the battle against inequality, do you think that an economic discussion is enough for winning this battle? Or we should start thinking about some political changes in the way politics and economics dialogue? When you said money has too much power, that you can’t defeat money, are you having this discussion in the United States?

Brad DeLong: Not very constructively. The Supreme Court, especially, has been playing an extraordinarily unhelpful role. With moderate Republican Senators who had been advocates of campaign finance reform and campaign funding equalization in the past falling in line behind their party in spite of their expressed policy preferences. Norm Ornstein from the American Enterprise Institute was here last June giving an extremely bitter discussion of the disappearance of the Republican moderates, and the cowardice of those who remain.

I would say first that it’s not clear to me that Chile is losing the battle against inequality.

Suppose there’s a marathon. Suppose somebody has completed all twenty six miles of the Marathon, and somebody else is still at the starting line--because of the past combination of the latafundista history of Chile and the dictatorship. Those forces have done to Chile what they used to do to Houdini--tie him in chains, lock him in a box, throw him in the sea. The fact that Chile has managed to untie itself from the chains of latafundista and escape from the box of the dictatorship and actually swim to the river and reach the starting line--that is, I think, a very impressive historical achievement.

As to changing political structures, and areducing the influence of money and politics. The answer has got to be yes, but the answer has also got to be to move extremely, extremely cautiously, There is some truth to the statement that the true will of the people--if the people knew what they ought to know about the political destinies and programs of the parties they vote for--would not be what’s reflected in the voting polls in any election day in an election in which money has a megaphone. But if the twentieth century proves anything, it is that those who are loudly and stridently saying that they know the will of the people better than the people’s elected representatives are very dangerous indeed.

Harley Shaiken: Is there a question here at Berkeley?

I have a related question that came over the internet that we can conclude with. Then I will ask both of our speakers for very brief concluding comments.

I want to remind everyone that Wednesday afternoon we will have a video of this discussion up on the website for the Center for Latin American Studies:

This question is from someone who is a professor at UC Berkeley but also a Chilean, so it combines both countries for our final question:

Given the growing inequality in the U.S. how do you explain the lack of social outrage in the country? Is it that people are not aware, indifferent or find this level of inequality acceptable and deserving?

I think that’s probably for you Brad.

Brad DeLong: Oh dear,

I want to sharpen that question and give it historical context.

During the Gilded Age of the 1890s and 1900s you had strong political movements saying "something is going remarkably wrong with this, this isn’t the country we thought we were going to live in". The way that the historian, I'm blanking, Ray Ginger?

Harley Shaiken: Yes, Ray Ginger.

Brad DeLong: Ray Ginger put it in two absolutely brilliant books-- Altgeld’s America and The Age of Excess--even the Republicans thought that they wanted to live in Abe Lincoln’s America, where when you are young you split wood into fence rails and go to law school at night and when you are middle-aged you become a lawyer and get rich and when you are old you enter politics and save the union and free the slaves. They wanted to live in that kind of world, of upward mobility, in which opportunity is wide open even to the son of a penniless and not very successful rural farmer. By 1890 they discovered that they weren’t living in Abe Lincoln's America at all.

As a result in the First Gilded Age you had two political movements. The Democratic, left, farmer, labor, semi-socialist, Populist Movement on the one hand. The mixed bipartisan Democratic and Republican, urban, Progressive Movement on the other. Both of them were desperately eager to change America, to repair the flaws of the Gilded Age, to reduce inequality, to make the economy work for everybody--or at least for every white guy--and even to grant women the vote.

They wanted this so much so that someone like Republican President Theodore Roosevelt--as aggressively a partisan an animal as you would ever see--would place his loyalty to the Republican cause second to his loyalty to his progressive principles for American reform. He was happy denouncing Democrats as communist anarchists, but equally happy denouncing rich republicans as "malefactors of great wealth" who desperately needed to be controlled.

Theodore Roosevelt wove his political career out of being head of the Republican party and head of the Progressive Movement. And at the end non-Progressive Republican President Taft simply offended him one time too many, and Roosevelt decided to blow up the Republican Party and hand the presidency to Woodrow Wilson from 1912-1920.

That was the history of America from 1880-1920 or so. After 1920 you do get a Republican Gilded Age resurgence under Harding, Coolidge, Hoover--very corrupt, especially under Harding. But by the late 1920s Progressivism is rising again--even Hoover is running as a Progressive. Then when the Great Depression comes Franklin Roosevelt comes in and he takes the entire progressive agenda off the shelf and promptly begins to implement it.

We haven’t had anything like that over the past thirty years.

And here I’m simply going to throw up my hands and say that I don't know why.

It’s in a great mystery to me. As an economic historian I like to look at political economic patterns from the past and to say we should learn from these and generalize them and take them as providing some insight into the present and the future. In general, we economic historians are extraordinarily successful. There are lots of lessons to be drawn from the first age of globalization for the second. There are lots of lessons to be drawn from the high school-ization of America for the college-ization of America and for education elsewhere in the world. There are lots and lots of lessons to be drawn from the Great Depression for today.

But the political economy of Gilded Ages? Why the first Gilded age produces a Populist and a Progressive reaction and the second, so far, does not? There I throw up my hands and say that my economic historian training betrays me. I have no clue as to what is going on here.

Harley Shaiken: With that, I just want to say that we will be continuing this conversation across the hemisphere next Monday, with Paul Pierson, who is a professor of political science and the co-author of *Winner Take All Society *here at Berkeley, and Daniel Hojman, at the University of Chile, the school of Business and Economics. Now let me turn it over to Oscar, and then very briefly to Brad,

Brad DeLong: And Paul is going to be talking about the .01 percent.

Harley Shaiken: Oscar, very briefly, if you could leave us with a thought.

Oscar Landerretche: Yes. Just to finish very briefly with a whack at the same question. I think that what you observe here is the importance of the population understanding what you’re doing, in a sense. Perhaps in the previous Gilded Age some people came up with plausible ways of facing the problem that became credible,. The problem I see with the current trends in indignation are that people are angry--they occupy things--but we haven’t really seen leadership come out with plausible directions to go. So after a while your indignation gets diluted in the general stream of life. We’re missing some sort of political leadership that enables people to construct solutions to this problem.

I think that one should look at the world of post-war Britain. The country wanted to be more egalitarian but they didn’t want to become the Soviet Union. The Labour Party came up with a leader called Clement Attlee who came up with a solution for that--and it wasn’t obvious. So I think that we’re trapped, waiting for the next Clement Attlee.

Harley Shaiken: Brad?

Brad DeLong: I think I’ve talked more than my share. Let me just say, that we all hope that that Chile’s experiment in ramping up its educational system rapidly over a short time does have a very good outcome. It is a possible road to growth with substantial equality, which is very difficult to achieve in a country that not only starts with a burden of latifundia, dictatorship, and if not Dutch disease Chilean flu as well.

So let me thank you very much for inviting me, and turn it back over to Oscar.

Harley Shaiken: Unfortunately, we are out of time. I’d like to thank everyone in Chile, everyone here at Berkeley, and this not the end of the conversation but the beginning. To be continued. Thank you.