Conard recognizes that there are many factors behind slow innovation, but for my taste he plays up tax cuts too much, believing that the wealthy are sufficiently willing to bear risk and dynamically invest. Consistent with this view, Conard argues that the American middle class has in recent times experienced bigger real income gains than the numbers indicate, once job benefits are counted properly.
I have argued extensively that real U.S. wage stagnation is a significant problem, and thus investment is in some ways subpar. In addition to the institutional obstacles, might too many of our elites be risk-averse, much like Conard’s East Asian savers who seek safe assets? Or could it be that innovation takes decades, and therefore the middle-class payoff from income inequality still lies in the future?
While we shouldn’t rely on tax cuts, they may still play a role in this debate. Cuts in marginal tax rates became overrated after the Reagan recovery years of the 1980s, but maybe after the failed Bush experience they are now somewhat underrated.
Perhaps no economic policy is going to work especially well in a time when median incomes are falling. If we can clear away other impediments to supply, tax cuts may prove potent once again. Don’t forget that there are decades of research in economics showing that tax incentives matter.
"The Upside of Inequality" won’t convince everyone, but it’s one of this year’s economics books that is actually asking questions about the right side of the market.
Tyler Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include “Average Is Over: Powering America Beyond the Age of the Great Stagnation.”
This column was provided by Bloomberg News.