Why I’m Joining Roosevelt: Challenging the Conventional Economic Wisdom


By Marshall Steinbaum |

I couldn’t be happier to join the Roosevelt Institute as a Visiting Fellow, because it is an organization that so clearly “gets” the issue of rising inequality: why it’s happening, why it matters, and what can and should be done about it. The scholars and the work Roosevelt has gestated over the years have influenced my thinking about those issues tremendously: Mike Konczal’s extraordinary work on the financial system and the policy failures that caused the 2008 financial crisis and the Great Recession, J.W. Mason’s on the shareholder revolution as it’s played out in changing corporate sources and uses of funds, and the recent blockbuster reports on corporate power and inequality in “predistribution” and on race. All are seminal contributions to the contemporary debate.

So what am I doing here, apart from cheerleading? I’m an economist with expertise in the “macro” labor market, meaning how it works in aggregate, why unemployment and underemployment exist and persist, and what has caused the labor market’s acute underperformance in recent decades. I came to that agenda in graduate school for the same reason I got into economics in the first place: The economy exists in order to serve people, and if it’s not doing that, both policymakers and professional economists have a big problem—and victim-blaming is not the solution.

In the past two years, I’ve expanded my scope of work beyond the labor market and its functioning to broader questions of why the economy isn’t working for the people who inhabit and depend on it. And I’ve come to the conclusion that received economic wisdom is unable to explain these phenomena. Therefore, my work is aimed at providing a more factual narrative and explanation for the set of empirical phenomena associated with rising inequality and economic dysfunction.

Mike Konczal and I have a forthcoming paper interpreting the decline of labor market mobility, entrepreneurship, and “business dynamism.” We find that the most common explanation—that the labor and housing markets are increasingly overregulated—does not fit the empirical facts. Instead, we argue that these phenomena are driven by a trend decline in labor demand, in line with other findings about employment and labor force participation rates and wage and earnings trends.

Kavya Vaghul and I started the Mapping Student Debt project in partnership with Higher Ed, Not Debt and Generation Progress. It documents the geography of the student debt crisis, which tells us a lot about who is affected, how much, and why. Most importantly, it reveals the failure of the leading interpretation of rising inequality to date, within the economics profession and in policy: the idea of the “skills gap,” which can be remedied through more education financed with more student debt.

In ongoing work with the Roosevelt Institute, I intend to document the changing conditional and unconditional distribution of student debt and debt burdens over time, in successive cohorts, and relate those changes to racial wealth gaps, the evolution of household wealth over the life cycle and over time, and the “credentialization” of the labor market (i.e., educated workers increasingly taking jobs once held by those with less education, driving the latter out of work entirely). I am also involved in a project that will model the impact of a student debt jubilee. In the current slack labor market, higher education is acting as a tollbooth to decent jobs and the middle class, and we need to not only make that tollbooth less expensive and exclusionary but also ensure the road leads somewhere.

I have ongoing work on the phenomenon of “interfirm inequality,” whereby differential economic outcomes are increasingly associated with stratification of the labor market across firms. I will be investigating and interpreting this phenomenon more fully in my work at Roosevelt, which will include tying it to issues of rising profitability and declining market competition, as well as shifting power dynamics within firms that privilege payouts to shareholders and executives, in part by pushing workers into lower-paid or sub-contracted employment. Among other things, an important and underappreciated implication of the interfirm inequality literature is that, like the student debt crisis, it undermines received wisdom in economics that inequality between individuals is driven by observable worker-side characteristics such as educational attainment.

Related to the issue of interfirm inequality is market power and antitrust regulation. I wrote an article on an interesting antitrust case going forward against Uber in New York City, and I anticipate that antitrust regulation, specifically regulation of the tech sector and of internet-based “platforms,” will continue to rise as a policy issue. There is growing evidence that the tech sector, far from producing dynamic innovation, increasingly consists of corporate behemoths snapping up a larger and larger slice of the economic pie at the expense of both upstream suppliers and downstream customers. Moreover, they are doing this by sidestepping the regulatory principles that have governed the economy since the New Deal and Progressive eras.

In the first Gilded Age, economic networks vital to market access were dominated by cartels and single firms, forcing anyone who wanted to make a living to pay a toll for the privilege. It’s increasingly clear the same is true in the second Gilded Age.

I’ve also written about capital mobility and its effect on global and national inequality, as shown in recent, excellent books by Gabriel Zucman, Erik Loomis, and Branko Milanovic. Increasing the mobility of capital has been the unified aim of national and international economic policy in the last four decades, and it is apparent that the policy is not only ineffective at promoting overall welfare but actively prevents it. Here, again, the issue is that classical economics ignores the issue of power, and increasing the mobility of capital increases the power of those who own it—power they wield against the vast majority who depend on their labor for their living.

Perhaps the key to interpreting how the economy got to be where it is today is declining effective marginal tax rates on the rich, which increases their incentive to win a multilateral bargaining game played against other economic stakeholders. This idea, that effective marginal tax rates affect the predistribution through their effect on power, was once conventional wisdom in the economics profession, as declaimed most influentially by Edwin Seligman is his seminal 1910 book The Income Tax. That idea was buried under the subfield of economics that came to be called “optimal taxation,” which has no role for power and generally postulates that the only way taxation affects the predistribution is through disincentives to supply labor or to invest. The 2014 paper by Piketty, Saez, and Stantcheva, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities,” resurrects the role of power within the optimal taxation framework, but there is much, much more work to be done linking taxation of the rich to power shifts in the many economic spheres described thus far.

The story of the rise and fall of Seligman’s ideas and influence relates to my interest in the intellectual history of progressive economics and of economic ideas in general. Most economists do not know that their professional organization, the American Economic Association, was founded as a left-wing challenge to laissez faire orthodoxy at a time of acute concern about rising inequality and downward social mobility. This is the subject of an article I wrote with my esteemed colleague, friend, and mentor Bernard A. Weisberger. How and why the mainstream of the profession came to reject that radical founding moment, and later revert to the very same orthodoxy, tells us quite a bit about where we find ourselves today. Bernie and I will return to that theme in a review essay we’re writing for the Journal of Economic Literature about the intellectual legacy of progressive economics.

So much to do, and so little time! But no better place to be doing it than the Roosevelt Institute.

Marshall Steinbaum is Senior Economist and Fellow at the Roosevelt Institute. Follow him on Twitter at @econ_marshall.