 I am delighted to be here. Thank you to the organizers, and please take note of the little footnote at the bottom of the first slide. So I'm going to talk about some of the work that my colleagues and I have been doing for a number of years now, maybe like a decade or so, and they have crystallized recently into two books. One came out earlier this year called Taming the Tide of Capital Flows, and it's published by MIT Press, for those of you who are interested. And the other is coming out in January of next year called Confronting Inequality, and I think you can pre-order it on Amazon already. It's going to be published by Columbia University Press. So I'm going to go on by mutual agreement for slightly more than 15 minutes, but we'll end on time. And the work that I'm going to be talking about is technical in nature. It's been published in peer-reviewed economics journals, but my talk is going to be policy-oriented. So I'm going to give you the main messages of the work. I'm not going to torture you with detail. So I did my PhD 30, 35 years ago at the University of Chicago, and the sort of first line on this slide was really something that was drilled home to me, that basically economists should worry about growth rather than about its distribution. And what lies behind that is the idea that growth will trickle down and also that redistribution is fundamentally antithetical to growth. When Tom Sargent won his Nobel Prize, he gave a talk, and I don't think I do too much of an injustice to say he talked about some basic economic truths, and one of them is pretty close to the idea that you are undercut incentives with redistribution at your peril. Now, there's a lot of uncertainty about what delivers growth, but at sort of 30,000 feet, I think there is some degree of confidence on the part of economists' quay policy advisors about what some important ingredients are for growth, and they include sort of unleashing the supply side of the economy through structural reforms like liberalization and deregulation, making yourself open to global forces, be it in goods markets or factor markets, capital, labor, and so forth, and also having macroeconomic stability, having policies that are not going to let public debt get out of hand that are not going to lead to high or runaway inflation. And the origins of these kinds of views, I think, go back a long way. I've put some quotes up here that are nearly 100 years old, and some of them will be familiar to you, but the last one may be slightly less familiar, and it's something that I did hear Bob Lucas say once in a class, and it's basically, let me read it, of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. So let me just advertise that what I plan to do is politely disagree with that last quote. So just some basic facts. I think policymakers around the world have digested the main message about how you set the stage for strong and healthy growth through deregulation, and a circumscribed role for the state. What I'm going to argue for instead is that economists and policymakers essentially have to walk and chew gum at the same time. They're going to have to focus on two things. So far from it being the case that it's a poisonous thing to do, to look at questions, or take seriously questions of distribution, I think it's going to be essential going forward to consider how we lay the foundations for healthy growth and a healthy distribution of income. And I think one of the things that I think my colleagues will talk about more as we go forward is the fact that we're increasingly recognizing that virtually every economic policy on which we are called upon to provide advice poses some degree of an equity efficiency tradeoff. So we see this in policies that are really designed to spur growth, whose main primary target is to expand the size of the pie, but even for those policies, we need to think more about sort of the distributional consequences of those kinds of policies. If for no other reason than, as I'm going to argue in just one second, questions of distribution have a direct impact on the sustainability and level of growth. So you ignore distributional questions at your peril, because the key to sustained growth, a key to sustained growth is that you not get let inequalities at the national level get out of hand. There's another stream in this work, which relates to globalization, opening yourself up to global forces. And I think we all recognize now that globalization is something that hasn't worked for everybody, for all individuals or households in countries. But most of the discussion has been about trade. And the point of a block of this talk later is really going to argue that financial globalization needs to be part of the discussion about how globalization is inclusive or not. It's not enough just to talk about trade. It's important to talk about the globalization of finance, the growth in cross-border capital flows. I'm not going to talk much about the last bullet on this slide, but suffice to say, one of the themes of some work that I've been engaged in, including an economic journal paper that came out a couple of years ago, is that there is too much obsession about driving public debt levels to very low levels, especially in countries that have what I call adequate fiscal space, i.e. countries where there's very little real prospect of a sovereign default, not even a remote prospect. Even in such countries, we see governments driving public debt to ever lower levels by running overall budgetary surpluses. And if you do a cost-benefit analysis of those kinds of policies, the welfare effects would be enhanced, rather, if countries learn to live with their level of public debt, even if it is high and let debt ratios decline organically through economic growth rather than trying to engineer declines by running overall budgetary surpluses. So recognizing that I'm not going to get through everything, let me tell you the main results of these different work streams. One is that fragile economic growth and inequality are two sides of the same coin. So if you have in mind to get growth going and hope that distributional problems will kind of look after themselves, that is a dangerous gamble. So think of really what policymakers are trying to engineer in the aftermath of the global financial crisis. They're trying to bring back a situation where the market can function well, where the financial sector can do its job, and so forth. And they recognize that before the financial crisis, globalization and market forces had not delivered inclusive growth, so they have a footnote to this strategy, which is that we will do better in trying to deliver a broadly shared prosperity going forward. And what my point is that you actually have to engender policies that are going to bring about the distributional goals that you have. It's not enough to say, let's just get market forces functioning well again in the way they were in the Great Moderation and think that merely in so doing, we will solve the distributional problems that were a factor in the run up to the crisis. A second thing, as I said, is that many policies engender growth equity trade-offs, and I won't repeat myself. I've said most of what is already in this slide. Now, when we began working on questions about inequality and what the causes of rising national inequalities were, frankly, what we expected to find, which is something that we had been told over and over again, is that the main culprits related to technology and to trade. And one of the things that we learned in the process of doing this work is that this is a much hairier and multifaceted problem that has many more causes than just technology and trade. And some of them are listed here, and some of them I'm going to talk about, including finance, including economic reforms. But just to say that many things are in play in the rise of national inequalities, not only trade and technology. And if you were of the view that rising national inequalities is an issue that is confined to specific measures of inequality or only a handful of countries across the globe, what our work shows is actually it's a phenomenon that can be seen across a range of measures of national inequalities and across a range of countries developing, developed, emerging. And why, you know, if you are a policymaker who believes that the kind of economic model that we had before the global financial crisis is exactly the kind of economic model that we want to engender ongoing prosperity going forward, I think there is something that you need to worry about if you are such a policymaker, which is that the fact that that economic model did not engender shared prosperity might give rise to the kinds of political and policy pressures that we are seeing in a number of countries recently, the rise of protectionism, the rise of inward looking policies, the rise of nativism. So if you believe that those kind of tendencies threaten the economic model that was in place before the global financial crisis, then even if you don't care about distributional questions per se, you should care about the, you're forced to care about the issues of rising inequality because it will come to threaten the model that you hold dear. Okay. Now, there's some obvious connections to ongoing debates. Many people, not everyone, but many people worry about the moral and social costs of rising inequality. And one of the things that our work shows is that there is a direct economic cost to rising inequality in the form of slower and less sustainable economic growth. As I mentioned, there's plenty of talk about retreats from globalization. It focuses mainly on trade and to some extent migration. Let us bring finance into the discussion. It is important. And in fact, there is a there is another aspect to this, which is that the mobility of capital across borders may make it harder for governments to remedy some of the distributional consequences, the adverse distributional consequences from globalization. So if a policymaker says with a straight face, let us embrace globalization, but we will do better on inclusion going forward. We have to ask, well, how exactly is that going to be occurring? Because the globalization of finance and the fact that it may lead to a race to the bottom on taxation and to a smaller role for the state in the economy, that may make it harder for governments to actually remedy the distributional consequences of rising integration. Okay, I'm going to zoom through. You have a map now of what I plan to say. This is this is this next block is draws on the lead article in the current issue of the Journal of Economic Growth. So if you're interested, you can you can turn to it there. It goes through sort of many different exercises that we're trying to look at empirical connections amongst the level of inequality, the level or sustainability of growth episodes, and the extent of redistributive fiscal policies that governments choose. And basically what it finds is that high or rising inequality leads to both lower and less sustainable growth, that the direct effect of redistributive policies unless they are extreme are benign. So the leak in Arthur Oaken's bucket in his famous book many decades ago called Equality and Efficiency, that leak, what gets lost when you transfer resources from the rich to the poor is actually pretty small in practice unless you're doing a lot of redistribution to begin with. And that the indirect effect of redistributive policies through the greater equality that those policies engender are highly protective of growth, both the level of growth and the sustainability of growth. So I'm not that's that's the it in a nutshell. Second block relates to structural forms. And I merely want to plant the idea in your head that virtually any policy, whether it is a product market reform, a labor market reform, a trade reform, a financial sector reform, a cross border capital reform, all of these policies are not only going to affect the size of the pie, but are going to affect the way that what each person gets in that aggregate pie. And if I'm right, that how the pie gets divided has a bearing on the sustainability and level of economic growth, then it behooves policymakers to design even policies that are that are geared to the aggregate size of the pie that have nothing prima facie to do with distribution, it behooves them to design those policies with distributional consequences in mind, perhaps designing reform packages, where the winners and losers across different reforms are not the same individuals or households. And when you look at this question empirically, you do find strong evidence of the existence of these equity efficiency tradeoffs across a range of reforms. Okay, let me say a few words about gender. Some of you will have heard a recent speech by Narayana Coach Lakota, in which he talked about the need for macroeconomics to pay more attention to gender issues. And we on this panel are very sympathetic to that idea. It struck us, you know, when we were thinking through how does bringing more women into the labor force enhance the growth potential of economies, we were struck that many of the exercises that were trying to figure out a quantified answer to that question really treated women as if they are perfectly homogeneous with men. So really it was almost a headcount story. And what we wondered was whether, you know, if as my boss, Christine Lagarde says that women bring different skills and talents and traits to the table when they enter the labor force, be it on corporate boards or anywhere else, then the notion that women and men are perfect substitutes, as sort of a standard aggregate production function assumes you sum the headcounts of women and men and you put labor in there and see, you know, when you add more women, labor goes up, good for growth. But if they are imperfect substitutes, then, you know, an initially scarce factor like women would have a greater positive effect on economic growth than adding an additional man, the plentiful factor. And so we wanted to ask, well, what do the data say about the degree of substitutability between women and men? And what we find using macro economic data, sectoral data and firm level data, is that the data speak fairly loudly on this issue, and women and men are not perfect substitutes in production. And so the gains from adding women to the labor force from removing barriers to female labor force participation are actually larger than you would think if you were doing these simple headcount type of exercises as many previous papers have done. And to boot, if you think of a multi-sector model where there is home production, which you need to assess welfare benefits, and different sectors of the economy, say services and non-services that differ in the intensity with which they use female in the production process, then what you're going to find is that the welfare costs of barriers to female labor force participation are larger than you would have thought using a simple headcount type of exercise. And so this is basically what this new line of work is showing. It will be released at our annual meetings in Bali the month after next. But basically we show theoretically how the degree of substitutability affects the welfare and GDP types of gains that you get from raising female labor force participation rates. We believe that the empirical evidence that we deduce is consistent with a lot of microeconomic literature on the substitutability between women and men. We present empirical evidence using these three different data sets showing that the elasticity of substitution is rather low. And we quantify the gains GDP and welfare from reducing barriers to female labor force participation rates. Let me also add that the interpretation of history based on our estimates is rather different. Think of the solo residual and think of comparing a model where you're summing men and women as if they were perfect substitutes. You're going to attribute the gains apart from those due to the augmentation of factors of production to technology. But if women and men are in fact imperfect substitutes, what you attribute to technology is actually going to be partly due to reductions in barriers to female labor force participation that have occurred through history. So that's a sort of interesting interpretation of the historical evidence. You know, the estimated barriers to female labor force participation have costs that differ across regions and countries, and we were able to estimate those. This is the sort of takeaways from this, but I've already talked about it. Let me spend a minute on financial globalization since I did a lot of advertising for it at the beginning. Let me just say that again, here we are trying to get at a causal interpretation of how financial globalization affects the size of the pie and its distribution. Causal interpretation, we're going to be doing that with macroeconomic data where imparting a causal interpretation is quite challenging. But we're also going to be looking at sectoral data to buttress the causal interpretation. And we're going to have several identification strategies. One is going to relate, I think the most important one is going to relate to the changing bargaining power of labor when you open up to foreign capital. And I mentioned this at the beginning of my talk. When firms can threaten to relocate abroad, the bargaining power of labor is much reduced. And we can try and assess this channel by looking at how firms in different sectors of the economy respond to idiosyncratic shocks, respond in the form of laying off workers. And so firms that tend to lay off a lot of workers when there's an adverse idiosyncratic shock that hits them, workers that work in such firms and sectors have very little bargaining power. And when you open up to capital, you can see how these natural layoff rates evolve. And you can get some idea of how financial globalization is actually playing out through this bargaining channel in the data. There are other ways to identify. There's technology. Obviously, the elasticity of substitution between labor and capital has an important bearing if it is greater than one on interpreting these declining labor shares that we have seen. So the larger is the elasticity of substitution, the larger is the expected decline in the labor share when you open up to foreign capital and the price of capital drops as a result. There is even a third identification strategy which relates to the external financial dependence of firms operating in different sectors of the economy. The greater the external financial dependence, the larger are going to be both the aggregate and distributional consequences of financial globalization. And in a nutshell what we find and we torture the data 50,000 ways is the aggregate effects consistent with much of the empirical literature. There's a whole chapter in the Taming the Tide Book on this very question. The aggregate effects seem to be a drop in the bucket when you ask the data is financial globalization a supply enhancing policy? It's very difficult at that level of generality for the data to speak loudly. But the distributional consequences are indeed palpable, likely reflecting one or more of the three channels that I mentioned before. And this is related, this is a paper in the AER papers and proceedings from a couple years ago where we argued that financial crises that occur in the aftermath of financial opening ups, financial opening episodes are quite costly in terms of economic growth and it stands to reason that economic crises are rarely particularly good for the poor. I mentioned the fact that financially open countries may find it much more challenging to engage in the kinds of redistributive policies that are essential in a globalized world. Not going to spend more than one second on this part but merely to say when you have a lot of fiscal space, when you're what Moody's the rating agency calls when you are in a green zone, they have used the methodology that is in our EJ paper to classify countries whether they are green zone, yellow zone or red zone in terms of their prospect of facing a default or fiscal crisis going forward. When you are in a green zone the cost benefit calculus of paying down the public debt and this is in a model that Joe Stiglitz when he discussed this paper said was actually stacked to yield the opposite result. In such a model the cost benefit analysis actually suggests that you're better off from a welfare standpoint to live with high levels of public debt than to engineer fiscal surpluses to pay it down. The welfare costs of the transition to getting to lower public debt are actually higher than the welfare gains in perpetuity from that lower level of public debt that you have once you get there until eternity. Okay last slide. High inequality and low and fragile growth are two sides of the same coin. It's a dangerous gamble therefore to go for growth and assume equity will take care of itself. Fear of using fiscal redistribution is overblown. In fact on average in the data redistribution is a pro-growth policy through the greater equality it engenders. The leak in Arthur Oaken's bucket has not been that large in practice. The evidence on financial globalization, the costs in terms of increased volatility are high, the output benefits seem elusive and are shared unevenly and the other effects might include a race to the bottom on taxes and the reduced ability of the state to carry out essential functions. Be cognizant of growth equity trade-offs across a range of reforms and on macro policies the case for paying down public debt when fiscal space is ample is weak. Better simply to increase the rate of loss and to increase the rate of loss and increase the rate of loss of the state to the bottom on tax and tax ratios to decline organically through economic growth. Thank you very much.