Charles L. Ballard Department of Economics Michigan State University East Lansing, MI

1. An Economic Paradigm for a Better Future:Something Old, Something NewPresented to: “Re-Imagining Our Economic System: A Balanced and Sustainable Economy”March 25, 2013 Charles L. Ballard Department of Economics Michigan State University East Lansing, MI ballard@msu.edu

2. I’ll get to environmental sustainability shortly, but I want to start with some remarks about income distribution.

3. In the first half of the 20th century, the distribution of income in the United States became dramatically more equal.

5. This did not happen by accident: 1. Huge increases in educational opportunity. 2. Tighter regulation of financial services. 3. Stronger labor unions. 4. More progressive taxation.

6. The trend toward a more equal distribution of income reversed in the late 1970s.

7. Since the 1970s, income inequality has increased dramatically:

8. This did not happen by accident: 1. The supply of highly skilled workers increased less than the demand. 2. Deregulation of financial services. 3. Weaker labor unions. 4. Less progressive taxation.

10. Rex LaMore: “…an economic model that does not satisfy our needs or meet our short- or long-term interests.” But the current economic system does an astonishingly good job of serving the interests of hedge-fund managers and Wall Street executives.

11. My view: The increase in income inequality is largely the result of a set of values. To hold those values is to be comfortable with great disparities. I call these values “verticalist”.

12. I would characterize Jeremy Rifkin as more “horizontalist”, i.e., less comfortable with great disparities. This includes income disparity, but also the disparity between the extent to which Planet Earth is habitable now, and the extent to which it may be habitable in the future.

13. In my opinion, many (but not all !) economists are very verticalist. Some economists have been among the most ardent advocates of the policies that created the Great Divergence in incomes.

14. In the 19th century, economists figured out the mathematics of maximization. The easiest thing to maximize is the amount of stuff we consume.

15. Economists’ greatest strength is in thinking about “efficiency”, which we usually define as maximizing something. In other words, economists are better than the rest of the population at thinking about efficiency.

16. But we realize that our values are not necessarily any better than anyone else’s values. Perhaps that is why many (but not all !) economists have values that I consider to be lousy.

17. But please don’t write off all economists. We’re not all bad!!! We can think about efficiently creating a sustainable world, just as well as we can think about maximizing the amount of stuff we consume.

18. The economist’s instinctive approach to environmental problems is to create the right incentives. The Clean Air Act of 1970 really did help to improve the environment. The Clean Air Act Amendments of 1990 did even more, using ideas developed by economists.

19. The policy ideas of economists can continue to help create a more sustainable world economy. But much will depend on the development of different values.

20. A song to thee, fair State of mine, Michigan, my Michigan. But greater song than this is thine, Michigan, my Michigan. The whisper of the forest tree, The thunder of the inland sea, Unite in one grand symphony Of Michigan, my Michigan. Michigan, My Michigan