Jan. 16, 2014

Former White House economist talks inequality

Alan Krueger
Jesse Winter Photography
Former White House chief economist Alan Krueger ’83 speaks with guests at the Cornell Club of New York Jan. 14.

The American economy will likely continue to strengthen in 2014, according to Alan Krueger ’83, who served as the nation’s chief economist until returning to academia in 2013.

Although it didn’t get off to the strongest start, the recovery from the 2008 financial crisis could be the longest in U.S. history, the Princeton University professor said Jan. 14 at a talk with 95 Cornell Club members in Manhattan.

A stabilizing housing market, less fiscal austerity, increased consumer spending and other indicators point to a modest economic rebound – but not for everyone, said Krueger, an ILR School alumnus.

Four million workers have been unemployed for six months or more, he said, and growing economic inequality is jeopardizing what has been a precept of American culture – opportunity.

Inequality can serve society by providing powerful incentives, but a growing rich-poor imbalance driven in part by technology and globalization has reached the point of harming society, according to Krueger.

In 1979, 10 percent of the nation’s income was received by one percent of Americans, he said. Today, 22 percent of the income goes to the top one percent.

The growth in income for the top one percent exceeds the combined income of 40 percent of the country’s lowest income individuals, Krueger said.

Short-term responses to inequality would include a higher federal minimum wage, which would directly raise the wages of millions of people, and more balanced labor relations in the workplace, he said.

Increased advocacy for contingent workers such as the Freelancers Union – founded by Sara Horowitz ’84 – would also help, he said.

Long-term solutions to rising inequality will require a creative approach that includes better education policies, he said.

Easing inequality has been an important focus in the Obama administration, Krueger said, “but the financial crisis kind of got in the way.”

A labor economist, he is widely published on the economics of education, terrorism, unemployment, labor demand, income distribution, social insurance, labor market regulation and environmental economics.

Krueger worked on 60 different policies – from trade to cyber terrorism to tax and immigration reform – during his four years in the Obama administration.

Immigration reform might be passed into law this year, he said: “If it doesn’t happen in the coming year, I suspect it might not happen for another generation.”

Krueger’s White House work was preceded by two other federal stints. He was chief economist of the U.S. Department of Labor (1994-95) and assistant secretary for economic policy and chief economist at the U.S. Treasury (2009-10).

This time around, one of the lessons he learned was that “a crisis necessitates action. You have to act forcefully.”

Programs minimizing the mortgage crisis and tax cuts for businesses and households after the 2008 financial crisis were unpopular, he said, “but led to a stronger economy.”

Looking ahead, the West Wing’s former go-to person for objective information on emerging from economic disaster said, “I don’t think we’re ever going to see the economy take off given the nature of the crisis, but the recovery looks as if it will continue.”

Mary Catt is assistant director of communications at the ILR School.