r period. we know the broad picture against the backdrop of a broad piece between the powers. 2013, billionsd of people moved out of poverty and into the middle class. some people benefited tremendously from this growth. 's race forwardon has raised questions about its impact. it has increased evidence that the gains have not been for all. in the wake of the financial discontent --ated the related discontent has a lot of populist movements to advance in europe and the united states.

in my eye, in this moment even amidst growing tensions between theted states and china, an political crisis of globalization is the greatest challenge we confront. the transatlantic community is the heart of that order. on theurn our back system that has kept us prosperous and safe for the last quarter century and beyond, it will slip away. we have let that happen before and history shows us how it unfolds. cooperation is abandoned as a texan is him rises -- protect ionism rises. we are on the cousin of such a moment although we are not very accurate through positive dialogues like tonight, we can hopefully push back against that front. the lessons we should reflect on our that those who believe in an

open international order should fight for it when it is challenged. mind,s the context in my at least, that we are debating tonight. this is become a leading form for debate and the way that the transatlantic relationship tackles issues like globalization. it is a special on her first tonight to add another chapter host twoes and to notable economic scholars and authors who will address the question of how to make growth more equitable in the current context. i would also like to mention how fortunate we are and how grateful we are to have our league to join us and moderate.

i would also like to thank the people who made this event a success. thank you to france for their collaboration over the years and i would like to recognize the ambassador who was here with us today and the french foreign ministry and the policy planning team. to turn the floor over to my colleague to do a more formal introduction of our speakers. >> thank you very much. welcome. i am delighted to be introducing aghion. french academic who is that most of his career on the side of the atlantic. he obtained his phd in economics in 1987 before becoming a professor in london madehen at harvard, he was

to the robert wagner professor of economics in 2002. analyzes the design of growth policies. much of this work is summarized in the book he published in 1998. he was elected a fellow of the ecological society. lecture,s is the 13th withso want to have a link the great 20th century intellectual. he was a political scientist, a philosopher, a prolific writer and journalist, but also an engaged intellectual who enjoyed -- joined the free french forces in world war ii. remember his major works such as

the opium of the intellectual, a true written assault against the french intelligence a. he was also a professor at a college in france, where phillipe himself was a professor. i would like to say a few words about this extraordinary institution that was founded in 1630 by king francis first. it is located near the latin , and onef paris particular aspect of want under land is that it does not grant degrees. everyone can attend lectures i some of the world's best assessors in science and humanities. professors are lectured by their peers.

i highly recommend you go online and watch some of the hundreds in french, available english and even chinese. the subjects that we at the center of the united states and europe foreign policy run by bruce are highly relevant at this critical moment. let me also say that we are very fortunate to have with us dr. oushey. bus she received her phd in economics from the new school

for social research and became an economist with a center for economic and policy research and the economic policy institute and united states congress economic committee. she has written specifically on unemployment and family economic well-being. , "finding time" was published early this year. professor welcome aghion. thank you. [applause] >> it is a great honor to be here. thank you for inviting me. you were way too generous in your introductory words. you. a great honor to have

i would like to start with the following quote. here i have a picture. in french, it is [speaking french], i try to translate it but is not great. it is something like that men are those who write history but they do not know what history they are writing. this is true, we do not anticipate the recent financial crisis, that we did not anticipate either the effects of globalization and the effects of the recent economic revolution. we were not prepared to deal with some negative secondary

increasing populism tiered -- populism. how can you make growth more inclusive? thingstry to say a few on what can europe learn from the u.s. and vice versa, and what camille learn from each other experience on how to make growth more inclusive. and to stop the rise of populism that we see now. dare to compare myself to this man, but we have points in common, we are both french jews. another thing we have in common google,scovered this on

that we both discussed -- studied marx. there is a quote, marx is too good to be left to the marxist. see -- ie how you can could go on, but i won't do that. what i have done over the past isyears with my colleagues to develop a series based on

social ideas. growth, with a fantastic economist, there is a very elegant model, very helpful, but the purpose of the model was to say that without technical progress you can have no growth, you cannot just rely on capitalization. you run out of steam. it was a growth model to explain to us that we could not have long-term growth if we do not have economic progress. explain where technical progress comes from. there was no such model. there were interesting ideas but there was no monocle or empirical analysis.

what we did was take some ideas and build a model around those ideas and see how we can -- dialogue ton learn something about the growth process. and it revolves around three ideas. the first is that long-term growth is increased by innovation. the second idea is that innovation is the result from entrepreneurial activity motivated by the prospect of innovation rent. it tells you that institutions and policies impact on growth orause they are doing r&d marginalization. country where i am procreated -- i will

not engage in innovation because i know that it will be through the tax. the growth process impacts on the incentive to innovate. you can talk about policies and institutions of growth. institutions that are good for growth. new innovation, particular frontier innovation, they displace old technologies. that is very important. it means that growth is a ual process- conflict between the old and new. the innovators of yesterday 10 to become the incumbents of

today who try to prevent new innovators from coming in. you need to reward innovation but not to an extent that the innovator could use the reward to prevent subsequent innovation. that is the kind of squaring the circle problem. some countries are better than others and dealing with this. is -- there are countries the deal well with this summit they are inclusive. that dealre countries well with this and are inclusive. in the framework, we can talk about enigmas of growth. let's start with some enigmas and then we will go into what can europe and the u.s. learn from each other on making growth

more inclusive. the first enigma is the growth enigma. the middle income trap. i will take a glass of water. you see this, the initials look like m.i.t., which is not fair. ok. they are our friends and competitors. you have to understand, this is of -- compared to the u.s.. -- the gdp compared between argentina and the u.s..

that is a country that started doing well, and then they stopped doing that well. china is upset with the same problem. they are saying now we don't know if we can grow through innovating so much. they are obsessed by the middle income trap. they want to avoid the argentinian scenario. the way to explain it with our framework is to say you have two ways to generate productivity growth. one is to catch up with the leading edge, the technological frontier, and the other is to innovate upon yourself. if i was like china was in the late 1970's, you want to catch up. that is the main source of growth. if you are an advanced country, you need to innovate upon yourself.

it turns out that what makes you catch up are different policies than those that induce innovating at the frontier. if you are in the business of catching up, it is no big deal to have limited competition on the product markets. you are a big firm and they catch up. it is no big deal to not have much labor market flexibility. you cannot have the same people working in the same firms forever. it is no big deal to have graduate schools, because you need primary and secondary. it is no big deal to not have financing. you need to have banks and governments. when you want to do frontier innovation, it is important to have competition. you need a flexible labor market because you need to be able to hire quickly. you need to have good graduate schools. you see what i mean?

so equity financing as also important, venture capital, private equity to finance various innovative undertakings. the policies are not the same for developed nations as they are for frontier nations. if you want to advance growth in advanced countries, you need to invest in education and have flexible product and labor markets. this affects the growth of a higher entry rate. that is the measure of competition on u.k. firms. the blue firms are the firms of the frontier. on them, more competition induces them to innovate and escape from foreign entrants. when you are a red firm, you are lagging in the sector, discouraged by the leaders, and more competition from foreigners will discourage you more. we can see rightway that competition tends to enhance

innovation for those already doing very well, that is to discourage innovation from those who are behind. the more advanced the country is, the more you have blue firms compared to red firms. the more advanced a country is, the more growth enhancing it needs to have to liberalize the product market and have more liberalized competition. it's true for labor markets and higher education. whereas if you are an emerging market economy, what you want is essentially like china did. they sourced their technology transfers and relocated factory production and improved management practices. here is a diagram that shows the management practice course for various countries. the u.s. have very good management scores, then japan, germany, sweden, france a bit

below, latin america below, central europe, then latin and south america, and then africa at the bottom. these are the scores for management practices. the idea is that when you are a country, you can improve through improving your management practices. the important thing there is how can we explain the middle income trap in a simple way? you have countries that started to grow because they were catching up, but the problem is that at some moment they should have switched to policies that favor frontier innovation, but they didn't because you have incumbent interests. for example, in korea, you have the big firms that grew during the catching up of korea, and those tend to say, no, we don't want more competition. in japan, you have these big

conglomerates that grew very big during the catching up of japan, and they somehow prevent the transition or slow down the transition to a pure innovation-based economy. that is something that would explain the middle income. japan is high income, but that -- maylain the difficult explain the difficult transition from innovation-based. that is the first kind of enigma. france is facing the same kind of problem. we were catching up and had institutions for that, but the problems for france is to have institutions that will help within the innovation economy, and we are dragging our feet in making that transition. the second enigma is the debate on secular stagnation. say, i don't is to

know if you can hear me from , you see the labor productivity in the u.s., but the wave was there, and then you have the second wave of the electricity and chemistry, and there you have the wave of the information based communications, and each of these waves look smaller, so big innovations are a bit like fruits on a tree. the nicest fruit to get first, then you climb higher to get the other fruits. the other fruits will not be so good. they will be bitter. innovation is like fruits, the best is the first you get, then they become worse and worse. for gordon, we are done.

1920 with and in english revolution and essentially it is now finished. we have to agree that it will be no more. i disagree with this view for several reasons. the one is the idea that the ict revolution changed the technology to produce goods and services, but it also changed the technology to produce ideas. when i work on a paper, i am on skype every day with my co-authors from australia, the u.s. i am on dropbox. we can collaborate better than before, so the technology to produce ideas has never been as good as it is today. the second thing, the rent to innovation have never been as big as they are now. you have the whole world thanks to globalization. the rents to innovating are

enormous. knownewable energies, we we cannot use it on that scale yet, on health, we would like to see the day where maybe we can do 3-d printing of my liver and then i avoid every illness and can replace my liver with a new one. i don't know if that is the way it will happen. obviously it is not something as stupid as i say but there will be a very big revolution on health. there is a huge demand for such revolution, so how can we believe that this is it for innovation? the thing is that you cannot predict when the new big innovation will happen. but it will happen. you cannot know exactly when it will happen. the second objection, i'm doing some work with an economist, and he is leading empirical growth these days.

what we do is say with the policies that we don't know how to measure growth. because the problem is that we know the value in dollars. we know the goods in dollars. you can compare dollars to dollars, but there is inflation and the real growth, and we don't know how much is inflation and how much is real growth. you see what i mean? when we see a good that is worth that much more than another good yesterday, the goods today are worth more than others yesterday, we don't know how much was due to inflation and how much of it was real quality adjustment. it is the same good, and we know it is purely inflation. if it is a good improved, we know by how much it is improved, but when you have a new product replacing an old product, you don't know.

what this does most of the time is imputation. you impute the growth by the new goods and you say as if it was done by the existing goods. you call that imputation in the u.s., and in europe they call it extrapolation. it is one or the other. you essentially use the existing to infer what the new will bring to the old. we calculate that you are missing one percentage point of productivity growth. they say it is 1.5 in the u.s., it is truly 2.5. i don't call that stagnation. in france we have a finance minister who considered 0% is good news. but 2.5% is great news, i

believe. i would not call that stagnation. that is my second argument. there is a third argument which is in europe, we have the advantages of a drawback. the drawback is we are far behind the frontier. many countries in europe have not got there act together. look at sweden. sweden is there. sweden was growing at 0.7% per year. that is the ghp of sweden. you see that in the early 1990's, they improved growth by four. measured growth. you see japan, their growth of -- is slowing down. other countries have reformed, the netherlands have had big reforms in the early 1980's. canada -- that is not in europe,

but i mentioned european countries. sweden is occupied by almost 5%. by reforming, what do you mean by reforms, good structural reforms, by doing that you can increase growth. what is interesting was sweden is that they did it well preserving the social model. you have a growth but it is inclusive. in sweden, you have to know that health is totally free and education is totally free, you have active market policies. poverty rates are very low. social mobility has not gone down. that is very interesting that sweden managed to do that while not reducing social mobility and preserving access to public services. that is what i call inclusive growth. that is my second enigma. my third enigma is innovation and social mobility.

it shows the evolution of the share of income earned by the what you see is in the early 1990's, it has gone up. it has been rising sharply. then we all agree. the question is why -- that is why we start disagreeing. one thing no one want to point out is this figure. this figure is showing the share of income, again, the red curve is the share of income. you see an acceleration in the increase of the share of income of the top 1%.

the gray curve is the flow -- it has accelerated in the u.s. that is not proof of profitability. -- proof of causality. --there is a professor in england who knows what this is all about, we worked with them, there is not causality between this. you can show this with aggregate data. when you innovate, you are very likely to move to the top income bracket.

that is no surprise. that is the thing. the richest men in sweden, he is the top guy, he did not exist 20 years ago. the thing is is that is the -- it is different. i have colleagues and friends that believe innovation does not exist in the only source of top income is because of -- you have a hotel, you become rich, but that is not true. why is innovation different from other sources of income inequality? we can show, and that is what we

do in this paper, we show that innovation increases income inequality. we show that innovation and mobility -- i told you that the new replaces the old and innovation increases social mobility. i show that on u.s. cross state panel data. we look year-by-year at how inequality, shares of income, other measures of inequality, measured by the total volume in that state. the first thing we showed is that here i have innovations, they are on different curves, you can see them there and there.

what you have here, you have low you innovation flow and here is high innovation flow. the red corresponds to the top income. what you can show, and that is causal, you show that in fact the more innovative you are, the higher the fiscal income. there is a connection between innovativeness and shares of the top 1% income. the blue shows inequality, it shows how far you are from inequality. there is no expectation of innovation. it is true that innovation increases top income inequality

but it does not increase inequality at last. this is -- they have found the same thing on historical data. that is the thing. social mobility, i have measured by the extent to which the income of the children is not correlated with the income of the parents. measure social mobility by -- we look at social mobility cross commuting zones. i show that the commuting zone with more innovative, and that is innovation by new people, not all people.

that is very interesting because that is what i call -- in mexico, the richest man may have been an innovator in his youth, but he became very rich when they privatized. that is the sort of top income, you become head, you become owner of a lightly regulated but not so regulated private monopoly, that is the way to make money. so we looked at the same data, and we look to the effect of lobbying.

you lobby to prevent entry. that is what you do. it prevents growth. we also show that lobbying increases inequality at large, it reduces social mobility. you have two sources of top income, lobbying or entry barriers on one hand and innovation on the other hand. they don't have the same effect on on social mobility and inequality. that system should not reduce the same way. that is my difference. in their world, steve jobs is not exist for them. when they think of taxation, innovation is not exist. you need to separate your it in sweden, they did a tax system in the early 1990's, they used to

have a tax system like france has now, you do not want that. it remained redistributive, and allow them to finance social services and education and everything, and at the same time, it became more induces of innovation. that is i think a very important thing to show. i write to the conclusion, i can see philip getting a little bit worried. he's doing it in a subtle way. he did not even blush. inclusive growth, what can the u.s. and europe learn from each other? what can europe learn from the u.s.? first, europe, we know the european economy is less resilient than the u.s.. following a crisis, the u.s.

recovered but europe not so much. why is it that europe has not recovered growth? the first type of reason was given by a friend, he said it is true the sequencing of policy following a crisis in the u.s. was not great, what they did in europe -- what they did in the u.s. was to deleverage but at the same time they did it by accommodating monetary policy. it did not lead to a bigger recession. they avoided a bigger recession. they deleveraged. later on, they did with the budget, and now they start thinking of increasing interest rates. whereas in europe, the sequencing was very different.

they did not deal right away with the banking problem. him him him him him him what they did was they very quickly said no, we have to deal with the budget. so they imposed in 2011, very soft budgetary rules. france, for example had already increased tax dollars. you already had the knife and your throw, he had to do it. later, with the bad loan problem with the banks and all that. it was the exact opposite of sequencing. the u.s. has a more flexible economy and more flexible label -- labor market than we have in european countries. and even have a more proactive

macroeconomic policy. europe came later. they came to it later. the u.s. has a much more -- you said the macroeconomy has to accommodate. we don't have flexible markets in europe and we don't have the fiscal and monetary policies you have in the u.s. we know, in fact i am doing work now showing that there is complementary between one hand, the civilized labor market, and on the other hand, a more fiscal -- conservative fiscal policy. if we look at the growth

benefits, you do more interest rates during recession, and you look at the growth of the sector, you can see that the gross effects are much bigger where you have more competition. it is very interesting. france of the last year, we had low interest rates, low yield, and we did not grow. that is because we are a very rigid market. without structural reforms it you do not go far. maybe other people are right to saying we should have a more proactive macro policy in europe. both are complementary. you have both in the u.s., much more than in europe, and i think it is a problem of trust.

the germans don't trust the french because the french have not done any reform. [indiscernible] they say, why should we ever reform our markets? [indiscernible] so that is one thing we can learn from the u.s. what can be u.s. learn from europe? don't go against nafta, don't try to reduce trade, because we know that single market is good for innovation. i have done work for 10 years, we have seen the enormous effect of the single market. if you only knew the important effects the sickle market has had in the u.k. -- important effects of the single market has had in the u.k. increases competition and that forces people to innovate. for this reason, trade is good for growth.

that is the first lesson to learn. don't try to break out of agreements for trade, because trade is good for growth. it is true that trade creates an apology -- inequality, but don't throw the baby out with the bathwater. don't renounce growth and trade just because you have any quality. have systems that can manage the inequality. to be more inclusive, you need education.

who will vote for -- you need to educate people. this is part of the innovation process. health is also very important. you should not only reimburse the big operations, you should also reimburse other things. if you have bronchitis, your productivity goes down a lot. there is a whole range of things that makes you match innovation, and health is important to invest in as important as investing in education. a very important thing is flexibility on the labor market. countries have understood that if you say to someone who becomes unemployed, you'll have a generous unemployment benefits but you have good training and we will help you find a new job, not only does it create a good safety net, and they can manage the process much more efficiently. it is good for both inclusiveness, because everyone is part of the economy, they don't get out of the system, but for fiscal growth because people rebound into a new job.

that is very good, it makes the process more efficient. i want to address two things. for social mobility, they look at it across zones in the u.s.. on the horizontal axis, you have schools, and on the vertical, you have upward mobility, the extent to which the child is likely to make it to the top income quintile. we see better scores, better success. that gives you more mobility. what is interesting is this one, that shows on the vertical axis, i have investment mobility, a difference in outcome of child of rich and a child of poor. and job creation and job destruction. it is a measure of job market dynamism. it is -- it is using the technique by using the cross commuting zone. you can see were you have more job markets, you have more social mobility. there is hope for social mobility. we know that innovation base growth needs education and flexible labor markets. if you do the labor markets the way the danish do, serious training, generous benefits, and helping people find a job. there is help for more inclusive growth if you're able to do that so that everybody can feel part of the process and no one is left out. you can reconcile. people will not be afraid of globalization, they will not be afraid of trade liberalization and they will move into the 21st century because they know they are not left out of the system. the conclusion is that inclusive growth is the best vaccine against populism. the u.s. should emulate northern europe in a making gross more inclusive.

and on the horizontal access i have job creation. seesing the data, you can you also have social mobility. we know that the engines of growth are education and higher education and flexible labor markets.

particularly if you do the labor market flexibility, you have serious retraining and helping people find a job. so there is hope of more inclusive growth. nobody is left out, then you can reconcile and people will not be and they globalization will go into the 21st century because they know they are not left out of the system. europe should in the late the ..s. inclusive,rowth more learn your lesson from exit and the donald trump victory and

come up with ways to say, it is good to push innovation and do it in a way that does not discourage innovation and makes growth more inclusive. just to finish, i want to cite a quote, in 1835 in a book about democrats in america, was written the following "i cannot help feeling that man may reach a point where they look on every new theory as adventure, on any innovation as trouble, and that they may absolutely refuse to move at all for fear of being carried off their feet. my hope is that the lessons the europe and u.s. will dispel this apprehension by showing the way to a more inclusive and sustainable growth path." thank you very much. [applause]

>> thank you for an engaging discussion. i will not even attempt to be as witty or wave my hands around as much as you did. maybe i will, because i have been inspired. thank you. i also fear that i may be a little less optimistic. i've been trying to get out of my dour mood for 6-8 weeks now, and i think a lot of my talk today reflects that. my sense is that what we are seeing in the united states is not a country or a population in thrall to with the creative

destructive process because too many people feel they are being left behind, and their communities are part of what is being destroyed. not to start off on a downer, but i think a lot of that is -- as i was listening, i realized my remarks are moving in quite a different direction. there is one statistic that i have come to time and time again that is sticking with me. i think a lot of us should be thinking about this. hillary clinton one in the communities, i don't remember what the unit of analysis was, but in places where the economy was growing. donald trump one in places where it was not. we think about the economy in what we are supposed to be doing as economist in terms of economic policy, and the most important thing to most people out there in the united states is that the economy provides them with a good job, and that allows them to have a formal

housing, health care, and excess to opportunities for self betterment. this is a part of the american dream and the idea that your children will do better than you do. this all hinges on that good job. for too many people in the united states, even though we have fairly strong growth, even though we have fairly low unemployment, for too many people we are failing to meet those objectives. even for those who are not poor, because i know there has been a lot of talk since the election, that a lot of folks voted for donald trump were poor, but there is a sense that part of what is happening in terms of our economy and why we need inclusive growth is that we are not doing as well as we think we should. i want to lay out a few comments and hopefully dialogue with what we have already heard and hopefully we can have an interesting conversation.

i have two findings i want to start my remarks with. the first comes from ross chatty, they've been looking at absolute income mobility. the probability that your child does that a venue or you do better than your parents. what they have found, looking back to children born in 1940, there is a sharp decline in economic mobility. there has been a downward slope since the postwar era. of children born in 1940's, 92% earned less than their parents adjusted for inflation. -- 92% earned more than their parents adjusted for inflation. in 1980, only 50% did. the people for whom this is been the most not true for our the middle class. men are the ones who have experienced the largest

declines. that seems like an important thing we need to be thinking about as we are thinking about how we will have an inclusive economy. what is behind this mobility? in the analysis, they find that what is behind the lower mobility is higher inequality and the unequal distribution of economic growth. they find that higher growth alone is not going to solve the problem. in fact, the bigger issue is actually high inequality. even if some of those high wages the people are earning is because they are extremely talented and innovative, there is something pernicious going on in terms of the level of

inequality in the united states, lisa in terms of affecting overall mobility. -- at least in terms of affecting overall mobility. economic growth i think is at the core and heart of economics or should be. it has been reverberating through politics. for a long time, economists and policymakers that we advise believed that the economy -- as the economy grows, gates will be distributed across society and we know now that has not happened. it was postulated that as the economy grew, there would be a period as you had higher inequality but it would dissipate. after reaching a certain level of development, that things would become more equal and we did not want to worry about equality. perhaps inequality is because of a good cause, and so we also don't need to worry about it. yet, we know, and i think the data changes is to bring into question, we need to rethink the dynamic between inequality and growth. this leads me to the second finding, also from new research from a week ago by thomas

and his colleagues. they have told a new theory on the distribution of national income. picture gdp growth data that comes out every quarter. but based on -- they have matched that information about information happening across families so you can account for all of the income. their data shows that the bottom half of the income distribution in the united states has been completely shut out from economic growth. it is striking. from 1980 until 2014, the average income per adult grew by

61%, yet the average pretax income of the bottom 50% after adjusted for inflation, grew by 1%. in contrast, income skyrocketed at the top, benefiting the top 10% and top 1%. incomes rising very much at the top. other groups are doing similar analysis, and this new way of looking at growth is one thing i hope policymakers will start considering in future years. adding this to our national statistics. i'm concerned we will be moving in the opposite direction. you talked about the bls data in your remarks, and one thing president elect trump has talked about on twitter is his disdain for the bls and the work it does. i have a lot of concern about the measurement we will be

having about these issues. adding information on income distribution to our national income data would be a good place for us to start. these two new findings i think require we focused new attention on what we know about the optimal growth path. and thinking about, looking at the role of inequality as -- in our society. a key question we have to answer is do we need inequality for an economy to grow? whether there might be some good things about making sure that folks in the top, that it is about innovation. there are a lot of mechanisms we can pinpoint. this is curtailing the ability of families to have strong economic growth. thinking about the mechanisms to which inequality could affect

the economy and society, there are some big buckets. debt and consumption, human capital, entrepreneurship and its effect on our institution. let me walk you briefly through the first three, starting with the macro view. you have to pardon me, i'm getting over a cold. let's start with the macro view. many economists believe the united states is experiencing stagnation. they find the income inequality places -- plays a role. in the short run, inequality lowest consumption and economic output, in the long run it can leave -- leading to stagnation. there is another story in terms of the distribution of debt. one of the books that are important from the past few years is one that showed the

rapid increase in debt and the rise of the financial crisis, that the distribution of household debt across families amplified the collapse of consumption after the housing bubble, and that both exacerbated in extended the recession and slowed the recovery. inequality and wealth, inequality and access to the kinds of credit families had access to, had direct effect on economic stability. shifting to some microeconomic factors along the lines of how increasing income and wealth inequality contribute to economic growth, i point to the work of a sociologist that show that the gap between children of the rich and showed an of the poor has exploded. economic and educational differences matter. that says something about the effect of inequality on our society. it affects the potential for

people to grow up and become entrepreneurs. one of the things we know about the united states is that traditionally one -- traditionally our entrepreneurs come from the middle class. if not been very poor nor very rich. you had economic stability, may be good start a business in the garage, you had economic stability to do something that you had a little bit desire to make something of yourself. one of the things you know is that alongside rising inequality, the potential for young people to grow up and be entrepreneurs has been declining. there was some really interesting research showing, they looked at schoolchildren, looked at their test scores and

the probability of getting patents later in life. the children with high test scores from lower income families, i may say this slightly wrong, it was not so much the test scores that predicted whether or not they got patents, it was also the income of their parents. smart kids from poor families, not growing up to be this kind of innovators because they don't have the same opportunity. that is an a norma's loss of wealth and talent in our society. -- that is an enormous loss of wealth and talent in our society. finally, and most important for a conversation today and what we need to be thinking about in terms of inclusive growth going forward is the effect of inequality on our institutions. i think as economist too often we tend to forget about the important institution and norms and thick about the messy reality of them. we've been looking a lot at the political science literature and

scientists were looking at the applications of inequality a political decision-making and democratic accountability. for example, work that found that in the united states, the likelihood that legislation becomes law is highly correlated with the wealthy support of that legislation. so is a policy preference aligns with the rest of society, there is a mutual benefit, that if it does not, in their findings, it does not happen. that is a problem. it means that -- it poses enormous challenges for our democracy and the ideas are going to the top. the effects of inequality on our institutions go far beyond this kind of retail politics. we need to think about how, one of the things we've seen over the past few months, we are for decades that americans have had a decreasing trusting government.

we've seen how this played out over the election cycle and i have a lot of questions about what trusting government is going to look like moving forward with the next administration. scholars are concerned about the high levels of inequality and how they wrote social bonds and norms. these challenges to which inequality affects economic growth and stability means not only is the growth we are seeing now not fairly distributed, but it could impact working-class lives even further. what can you do and what is possible in the current political climate? i think that on the whole, we have tended to think about post-market gap, addressing, using the tax and transfer system for redistribution rather than thinking about what we do before we get to those market outcomes.

but it want to give you ideas that focus on what we could call pre-distribution, focusing on pre-market outcomes. i want to focus on three areas. thinking about how we look at inequality and growth, not just at the bottom or top, but looking at all three. what are things begin do at the bottom, middle and top. in each of them, i'll will make a few comments about what i think about the politics. first, i think it is important that we start by talking about raising the bargaining power of labor to increase access to collective bargaining. that is something we lost in this country and it is something that has been talked about in written about. increasing worker representation would help to ensure people have a voice at the table. i am under no delusion that this congress and administration are huge fans of labor rights, but i think putting that at the forefront of our thinking,

especially in picking about the implications of this for labor enforcement and what it means for people to earn a decent wage is an important thing to keep on our mind. for families at the bottom, we need to be very focused on anything we can do to boost wages. the federal minimum wage has not been increased in a number of years and purchasing power has declined. but even in the 2016 election we sell four states, arizona, colorado, maine and washington, has ballot measures to raise the minimum wage. this is not the first election in recent years we saw at the federal ticket level, the election going to republicans but by ballot initiatives, the people of the state voting to raise the minimum wage. there is an important message there for how people in those communities are thinking about how -- what is good for their economy. we also need to think about how we can make sure that their policies that help people get to work and stay at work. we need policies that help

caregivers manage the responsibilities. hate family leave, paid sick days. during the presidential campaign, donald trump's daughter encouraged her father to focus on paid maternity leave, which was quite exciting for those who entered the about this for some time. i heard through the grapevine she wants to make this one of the president-elect's priorities. i don't know if it will happen, i don't how much power shall have or if we will see that, but given what we know about family economic stability, ensuring that fathers as well as those caring for aged loved ones is important. living to the top -- moving to the top, we need to talk about a tax policy in the united states that encourages investment and discourages rent seeking. conventional logic is that higher taxes on the wealthy will

discourage them from investing, however researchers have been fighting something very different. here i point to findings that a large share of the high pay of those in the top is not productivity enhancing, meaning low taxes for the very rich is discouraging growth and encouraging people to engage in tax avoidance or paying a lot of lawyers, which is not a creative, growth enhancing thing. they pay large -- lawyers to help you heidrick -- avoid your taxes. or they pay themselves more. i am under no delusion that this current congress and administration are moving in that direction. there said that one of the number one priorities is to not only not raise taxes but to further lower taxes anonymously

for those at the top of the income spectrum and do things like eliminate the state and gift tax. but if they actually care about the economy, i strongly encourage people on both sides of the aisle to take a look at this research and try to understand what it is that low taxes at the very top are actually doing to our economy, investments and society. i want to close with a couple of more remarks and then i will stop. as economists, i think we are heavily invested in models of how the economy works. the messiness of the real world and how economic outcomes shaped in the shape the institutions that set the rules for how our market works, that is how government works, how institutions within the community work, that is not really what we, that is not what our discipline does and does not necessarily top of mind. it is exciting to see people start to think about that.

i think in many of the economic trends i've highlighted, and in this recent election, should push us to better understand the role of institutions and trust in institutions and how this affects, how inequality affects them and how that in turn affects economic growth and stability. one thing is that while our model predicts, we can compensate losers in the economy. we can say that if we have a trade deal that is good overall for the economy and promotes growth and will be good for the united states, but some communities are devastated by a, we think as economists, you can compensate those folks, you can

give them money or be training. the hard part is that that hasn't happened in the real world. those families are not compensated to the extent of what they have lost. i was at an event in north carolina a number of years ago where a nice man stood up and talked about how his job had been lost in his community to some sort of trade something or other, and he got some retraining and he was excited about that, but whatever he'd been retrained for, that was also leaving his community. what he was worried about was not just himself, because he could move, but the community here lived in and all of the other people there. i think we haven't spent nearly enough time understanding the massive dislocation that millions of people in america feel from the kind of economic growth we've seen. it is one thing to say we can give people a couple thousand dollars in trade adjustments, give them some unemployment insurance, but that does not rebuild their community and does not create economic vitality. the only alternative i think for us is to say, just move, and

that is what a lot of the best and brightest and youngest do and that leaves the community without that talent and vitality. i think we have to take more seriously what does inclusive growth mean. what does inequality mean, and how are we actually come in the real world, not in the model, how are we actually going to deal with the consequences of some communities benefiting from it -- from economic growth and others not? [applause] >> i think we learned a number of things. first of all, it is apparently possible to get an aerobic exercise while doing an economic lecture. there is a lot of talk about how academics are getting obese because they don't get enough

exercise, so i want to commend you, you have been a role model for all of us. the second thing i am reminded that you can always boil be things down to simple observations come and one of them is that we in america want all of the good parts of the european economy in energy bad parts and europeans similarly won the good parts of the american economy and not the bad parts. the third thing is, you have to be in all of the work raj chetti has done. we're going to have a short discussion and i will leave time for a few questions at the end. something heather said, she argued that the amount of inequality we have in the united states is now an impediment to the kind of innovation and growth you would like to see. do you agree? >> absolutely. i think the problem -- i think

france, for example, and the u.s. do not have the same starting point. you should probably raise minimum wage, probably you should raise bargaining power and negotiations, and probably you should raise the tax rates. in france, we have a different situation because capital is overtaxed in france. some people have 144 rates on their income. and also a can be extremely high. that has prevented growth did not give us more social mobility. you have less social mobility in france than neighboring countries. minimum wage is another thing you mentioned. i'm sure you need to raise it here. in france, the problem is the minimum wage has gone up faster than productivity.

the problem is that, if you were to draw a curve or you have on the horizontal axis minimum wage and on the vertical axis social mobility, beyond a certain level of minimum wage, you discourage hirings. that reduces social mobility. you need other things. in france, we have the minimum income, you have other instruments to complete the minimum wage when it reaches a certain level. we could discuss those things, but you see -- i agree. you mention education, of course compared to sweden and canadians, there is very interesting work showing that the gap has gone up. unaffordable institutions has exacerbated the increasing wage inequality in the u.s.

>> your argument is we have too much inequality and healing grief -- you agree it is an impediment to growth? >> i agree. it comes to a point where mobility is impaired. >> there was a pretty compelling case that if we focus too much on reducing inequality, we may have a more equal society but we will lose some of the growth that will have more goods and services to share. you emphasize very much all the things you thought we should do to reduce inequality. are you at all concerned -- when we be better off with more inclusion and growth? >> yes, i think would be great

to have both. it is a matter of degrees. you need a little bit of inequality, but too much is a bad thing. i think you're in the united states, we have tipped over the edge where you have less economic mobility and you have very high inequality. a lot of very high incomes are more about rent seeking. >> wouldn't we be better off with a faster growth rate even if we didn't -- didn't have less inequality? >> i take seriously the new data just released. i do not think it is acceptable to have the united states going at -- growing at this rate. why do we have growth? what is the point? isn't the point of having an

economy so that people can -- >> when they talk about any quality i think we need to be clear. there are measures of inequality. there are several measures of inequality. [indiscernible] there is another statistical measure of inequality, a surety top -- a share of the top 1%. then you have social mobility. they have a relationship between them. for example, we know that where you have more social mobility, you tend to have less inequality. you can find it. it -- was very surprising is that in areas of u.s. were you have more sociable ability and

less inequality, you have a higher share of the top 1%. you compare a place in california to some place in alabama, you have more social mobility. but also the share of the top income is higher. you talk about inequality, i think we need to be clear, which one am i concerned about. the very rich is not a problem for me. what is important is that reform boosts growth. i think even if it might increase top income inequality. the guy who has top income may use it to prevent future innovation, and then we go into the -- but then you deal with

taxation and competition policy. they decided that companies could finance with no limit, that was very bad. >> you made a very appealing point in your presentation that we should come up with some tax system that did not penalize new jobs or other innovators but did penalize the artistic make it less likely. how are you going to do that? >> there are various ways. you can have special -- special tax for real estate, for example. that is a way. i don't -- donald trump would not like it. i don't present here --

i would not pretend to redo the review in one second. certainly ways, you have r&d tax credits, or you may have ways that you can distinguish. we do a lot of work on tax innovation, there was a paper, came out recently. they showed that the maximum marginal tax rate has an impact on the mobility of inventors. when in sweden, they reduced the maximum amount of tax, they

lowered it to 57, and they put income tax f flat 30% -- at a flat 30%, it was a boost. maybe if you can increase the marginal tax rate, you would get some innovation, but if you go directly to where you are to where sweden was before 1990, and that you will have bigger tax there. >> you want to respond to any of the 50 things he just said? please don't respond to all 50. >> i think that -- yes, i've seen that study. where we are in the united states is much lower marginal tax rates at the top. i think we always have to ground this in the reality of where we

are now, which is -- would you say that taxes and france were at 140% over capital, that is ridiculous. we do not want to go from where we are to their so quickly. that does not change the fact that you could increase taxes at the top and you could also be thinking about how you could conceive of attacks that rewarded innovation. -- a tax that rewarded innovation. you could start by thinking about property and estate and gift taxes, they are all about social mobility. united states was first in the developed world put together those kind of taxes in the early part of the 20th century and that is something that has completely reversed. that is not a recipe for innovation, that is a recipe for allowing a small number of american families to not only have the wealth that to keep it in perpetuity.

>> it seems to me, asking economist to talk about policy is somewhere between dangerous and foolish, but you had a wonderful line, felipe -- phillipe. another way to look at it is is a recipe for more distribution and more innovation and more competition, all of that seems to be very unsettling to people. created distraction is -- creative destruction is not welcome if you are being destroyed. it does not seem to be politically popular in a democracy to have the kind of reforms either of your talking about. no one could be against more innovation and a greater distribution of the prosperity that innovation brings, but how

do you respond to the rise of marine le pen, the rise of donald trump, brexit, the republicans have complete control the congress. what both of you are enunciating do not seem to be sellable to democracies in advanced economies. so now what? >> even though they remain popular, if you look at polls, policies like raising taxes on the very wealthiest or making it harder for companies to ship their jobs overseas through the tax code, these are things that americans want. there was one candidate who had an inclusive growth policy agenda and then there was donald trump, and most people voted for her but donald trump one. so i think your question is out. -- is apt.

i don't have a good answer yet. >> i think -- i think there are various things. certainly say everybody goes to a very good school. in finland, on -- they have done very good work on the quality of teachers. teacher quality is very important. in finland, to be a teacher, you need to go to high school and then five years in university in 18 months of training and you are regularly retrained. they invest in or missiles and very well in -- enormous amounts and very well in education. you have very high quality education. then you have a retraining system in the labor market that works. you have a security system. you have this a sick education where you learn how to learn.

on top of that, you put a very good system where when you lose your job, you get id percent of your salary. you get -- 90% of your salary. you are always in contract with someone. you leave the thing very differently. >> you've had a conservative government and a socialist government -- >> in france, don't listen to anything they have said. they screwed up. [laughter] >> they did not do it. where they did it, in denmark and other -- my hope is that we can sell those.

>> neither of you mentioned the word immigration once. his immigration a good way to get innovation to end monopolies? is it a good way to spread the productivity? is it a good way to reduce inequality? or is it not. >> at all depends on how you do it. it can be both. we have a lot of people who are here because of the right to work. it makes it impossible for them to have good job and they are not secure in their rights as workers. labor laws are not enforced in those cases. we know that when communities have influxes of immigrants, it is growth enhancing. they bring a lot of good ideas, and that can be a good thing.

it is how you deal with the dislocation and the rules of whether or not someone can actually work. if are not going to let them work, it is back. >> you condemn yourself. population,aging and it makes it hard to change the structure. immigration brings you new blood and new ideas. in france, the big celebrities of france, many of them came from other countries. my mother created a film in france.

it is a tax on publicly traded value and land. have increaseds with the rate on publicly created land value and without losing revenue a great wonderful incentives for job creation and affordable housing. i am wondering if either of you have thought about this? independent consultant.

inclusive growth, meaning, how would you evaluate the basic minimum income? versus the dollar for training, which is much harder to calibrate specifically. >> should we take one more from the back? the guy right there. >> i am with the federal reserve. this question was for phillippe. i like how heather mentioned the book where they talk about the process, where they focus on the time in which during a financial crisis defaulters take on the entirety of the risk in a debt contract. i wanted to find your thoughts igent debtex contagion contract, whether that would provide for a better inequality in that process. with then't we start

trade-off between universal basic income and spending money on social incomes by trading in education. i think it is an interesting conversation. i have two initial reactions. one is that firms better know than we do what they want us to know how to do. i find it is a sad statistic that firms do less training decreasingover the amount over time. some money individuals have a hard time. if we were going to do something, i would like to encourage firms to do more training. and then around the basic income, i do think the most important thing is that we provide for people who do not have jobs now, but also keep our eyes on the prize.

most people want to work. ood we do not get t enamored with this. i want to make sure we are focusing on making sure every job is a good job. so we are thinking about the earned income tax credit alongside that. >> income contingent or? philippe: i agree. i think it is a very good proposal. i fully agree with what they propose, so i have nothing to comment because i think i cannot do better, so i am publicly in the same direction. someone asked me about renewable energy. we are doing work on that. this is all, you know, -- we work with each other. [crosstalk] [laughter]

>> i compete. we did an interesting study -- wewe showed data we on clean and dirty data in the auto industry. those who have done innovation in the past and keep doing what they used to do, you tend to keep doing -- that is what we call dependence. you need the law of the state to redirect the progress. we did not talk about so far, the rule of the state, by the way. that is a very important question and i will come back to that. you need the state to redirect it. you can do it partly with government. because you have two externalities, one is a knowledge externality. it is always good when you have two externalities so you have more than one instrument to deal with them.

we saw that it is the combination of a carbon tax and direct subsidies to bring in innovation. it is a very important thing because the thing is, when you factor in innovation, even when you debate, i don't want to bother people on this, that the bottom line is when you factor in innovation, even with a discount rate, you want to do what makes sense. now, not onlyct do you pollute, but you make the technologies go even more ahead of the clean technologies and it will redirect progress. it is like if you wait to go to the dentist, you get a cavity which becomes bigger. you want to deal with it.

when you factor in innovation, you need to act now even with a discount rate because not only you create bad production externalities, but you induce more dirty innovation in the future. there is a role of research there, but also innovation. when you know believe in innovation, you are in a bad world. the only way to reduce innovation is to stop growing. when you have innovation in your world, you need to direct innovation towards clean innovation. in france, we have a debate. attached those who are to the old way of state. there are those who believe you should have only this day in charge of lawn order and we drop from everything. but just to give you an example that you need the state whenever you have external these to deal with the climate and go beyond it. mr. le corre: with that, please thanking bothn

philippe and heather. brookings was very appreciative of the french government helping to make this possible and when you leave, there are coffee cups and papers at your feet, you would make our maintenance staff happy and reduce inequality of happiness at brookings. [laughter] [indistinct conversation] >> coming up tonight on c-span, jerry greenfield talks about responsible business practices. and women entrepreneurs discuss technology and innovation. after that, a look at government civilians and privacy. later, british prime minister theresa may takes questions on the u.k.'s exit from the european union. coming up on the next

"washington journal," we talked to kevin from the american theration for children on education secretary. and then carol anderson on her book "white rage." she argues that throughout history black progress has been callsed with what she "white rage." next, jerry greenfield was the keynote speaker at a university of michigan conference in september. he talked about the origins of his vermont taste ice cream company and its socially was possible mission. vermont-based ice cream company and its socially responsible mission.

>> it is now an absolute pleasure of mine to introduce our guest this morning. he is known for a couple of different things for the brand of ice cream that has helped us get through long nights of depression, ben and jerry and help you through that rough spot and help for becoming one of the faces of social interviewership and positive business. and so all the way from vermont, please help me welcome jerry greenfield. [cheers and applause] >> >> we have t-shirts. so welcome. mr. greenfield: wonderful to be here. >> thrilled to be here. and last night you were scooping ice cream? mr. greenfield: i was not.

ben and jerry's has a local franchise scoop job. i was doing a scoop shot visit, a jerry appearance. i was jerry for an hour last night. it was very exciting. >> and there is so much in your story, but i think for many who haven't heard the origins, i would love it if you share it. mr. greenfield: should i talk with you or the audience? what works? >> yes, some combination of just briefly, ben and i are friends from junior high school. we met in seventh grade gym class running around the track where we were the two slowest, fattest kids in the class. i went to college and was rejected from all the medical schools i applied to. then, went to three or four colleges.