One of the most pressing economic issues of the moment—one likely to figure prominently in the 2016 presidential campaign if it ever turns from personalities to policies—is this: Are there policies that can reduce the widening gap between winners and losers in the U.S. economy that don’t have the unwelcome side effect of reducing the pace of economic growth? This is a question that the late Arthur Okun, an adviser to John F. Kennedy and Lyndon B. Johnson and a Brookings scholar, asked in a 1974 book, Equality and Efficiency: The Big Tradeoff. He argued that redistributing income from the rich to the poor takes a toll on economic growth. “Tradeoffs are the central study of the economist,” Okun wrote. “‘You can’t have your cake and eat it too’ is a good candidate for the fundamental theorem of economic analysis. We can’t have our cake of market efficiency and share it equally.”
Given the striking relevance today of the issues Okun raised 40 years ago, the Brookings Institution Press is reissuing Okun’s classic with a new foreword by Larry Summers, the Harvard University economist and former Treasury secretary who says he was inspired by Okun. Watch the video below for more on the impact of Okun’s book and how tradeoffs are at work in today’s political and economic environment:
To contemplate on the relevance of Okun’s tradeoff in today’s economy, we recently convened a conversation with four prominent economists—Heather Boushey of the Center for American Progress and Washington Center for Equitable Growth, Melissa Kearney of Brookings and the University of Maryland, Greg Mankiw of Harvard and Justin Wolfers of the Peterson Institute for International Economics and the University of Michigan. You can watch the whole conversation here.
[On the ongoing trade negotiations] If we’re serious about resolving the core issues that the U.S. has with China, then this is going to be a way station that’s going to require a lot more continued focus by the administration for a number of months if not years.