 So thank you for that introduction. Thank you for the invitation to join the very distinguished list of speakers that you've had here over the years and to have an opportunity to talk about global lessons on inclusive growth which is I think a central priority for the United States and for our economic policy right now and was a theme of the OECD ministerial that I just returned from in Paris, an issue that countries around the OECD were grappling with in different ways and in a manner that I'll be talking about. I should say that in my remarks today there's a slightly more extensive prepared version of them that I think you'll be posting on the website and will be on the website of the Council of Economic Advisers. So some of the topics won't have as much time to go in here. You can read more there and that's because I really wanna leave as much time for discussion and as we can possibly have here and I'm happy to discuss the topic but if you want to wander further astray that's probably okay too. Part of why we're so focused on this topic in the United States and across the OECD is that you have seen a very significant economic recovery. In the United States our economy has been growing for nearly five years now. You're seeing in Ireland the unemployment rate coming down and the expectation of a return to growth this next year and you look around the OECD this past year, 29 out of 34 countries did expand economically up from 20 the year before that and with this recovery that we're seeing it increases the focus on some of the structural challenges that predated what I would call the Great Recession in the United States from 2007 to 2009 and I should have shown you that is the picture of the number of OECD economies that were growing so before the crisis all of them were, you got to a place where almost none of them were and now it's getting back a lot closer to all of them. We're certainly in the United States not out of the woods in terms of our recovery although the unemployment rate has been cut a third from its peak in 2010. It's still unacceptably high. It's particularly high in terms of long-term unemployment and that's why the president is pushing for investments in areas like infrastructure and relief for the long-term unemployed. Europe too and Ireland obviously have substantially more to do in terms of economic recovery bringing down unemployment and addressing issues like long-term unemployment and youth unemployment but I'm confident that we will all be able to do that but I'm also confident that when that happens many of the challenges will still be with us. I'm primarily gonna talk about the United States but I'll try to draw some comparisons to Ireland, the Anglo-Saxon countries more broadly and the OECD. I wanna start in the first part by defining what I see as the fundamental challenge. There's a lot of indicators of the economy. One of the ones that we have available for a long period of time and for a wide range of countries is the average income for the bottom 90% of households and you see a pattern that after rising very strongly across OECD countries through a year that depends on the country around 1980 in the case of the United States around 2000 in the case of Ireland incomes started to level off and even potentially decline. In the case of the United States and I suspect other countries as well, this measure, the income for the bottom 90% tracks pretty closely what is my favorite economic indicator but not available as widely and over as long a period which is median household income and you see a pattern in the United States of strong growth of strong growth, slowing of that growth and then from 2001 to 2007 an economic expansion that didn't result in incomes rising and then incomes declining in the Great Recession meaning that there's no net increase in incomes since the late 1990s. The reason for these income trends vary from country to country but two broad factors are generally at play with different degrees of importance in different countries. The first factor is productivity growth. In the United States total factor productivity growth, the total amount of output you get for a given amount of input was at its strongest in the decades after World War II in part as we were able to commercialize a lot of the inventions that were developed for the war fell dramatically in the 1970s and 1980s in part due to the disruption of the oil price shocks but then we've seen a significant rebound in productivity growth starting with the new economy in the 1990s and continuing through the wide range of innovation in IT, biotech and other sectors and this is a picture that I think didn't come across very clearly for the United States but hopefully the version that goes on the web you'll be able to see it more clearly. Ireland has a somewhat similar pattern in that green line resurging a little bit but its pattern is also a lot closer to what you see in continental Europe which is very high productivity growth and this has averaged over 15 years so you don't see lots of the bumps and wiggles you'd otherwise see. After World War II a lot of pent up ability to have productivity growth coming out of the destruction of the war and coming out of the ability to converge with leading economies like the United States but then that productivity growth basically each decade slower than the last as those initial set of advantages and convergence diminished countries moved more towards the frontier of technology and although there was substantial innovation not seeing it at the pace you would need to push those productivity numbers up and for a lot of continental Europe and to some degree for Ireland that slowing of income growth had a lot to do with why slowing productivity growth had a lot to do with that slowing of income growth. If you look at the United States to a greater degree and in other OECD countries to varying degree the bigger source of our failure to see a sustained rise in incomes for middle class households or for the bottom 90% has been the fact that productivity growth has not translated into commensurate gains in incomes for the middle class and the gap between aggregate productivity growth and the measure of middle class income is what we would describe as inequality and oh, fast forwarded a little bit here. Well we'll see, oh, let's get right over. You saw there, I'm not even gonna try to go back but you saw productivity rising like that wages in the United States going like this. You see that in some other countries like the UK and France you see it to a lesser degree in a range of other countries like Canada, Ireland and Australia. I want to now for the next part of my discussion talk about some of the sources of the increase in US inequality. Traditionally discussions of inequality focused on labor income. Why a manager would be paid more than a line worker and what would affect the divergence between those two. In part that's because traditionally it was the largest driver of inequality and in part just because it's what economists have the best theories, the supply and demand for skills and the best data on. One of the useful contributions of a book that is the number one bestseller on Amazon in the United States right now Capital of the 21st Century by French economist Thomas Piketty is to highlight that there are other important sources of inequality that derive from capital rather than just labor. And in talking about the causes of inequality I want to draw on but then really extend Piketty's work. Following him we can decompose inequality into three components. The first is inequality within labor income so a manager being paid more than a line worker. The second is inequality within capital income so somebody who collects a lot more in dividends and interest than somebody else. And then the final one is the division of income between the income that goes to labor and the income that goes to capital. All three of these have different dynamics and policy implications. Piketty in his book doesn't quantify though the relative contribution of the three of those and what I've done is taken a range of data combined it together to come up with a few conclusions about where this inequality is coming from and a lot of it you can see in this picture which is the black line shows you how much the share of income going to the top 1% has risen. The pink line rose more quickly that's the share of labor income. The blue line is capital income it didn't rise very much until about 1990 but it's been rising steadily since then. And if you break it down the share of income going to the top 1% has risen by 9 percentage points between 1970 and 2010 and 68% of that increase is that what's going on with labor income. 32% of that is what's going on with capital income and none of it is the shift in income from labor to capital. The story though gets a little bit more nuanced than that when you drill down and there's a lot of numbers here but I'll just point to the ones I would focus on. The first thing I focus on is this is the percentage of inequality within labor income I'll bet this even has a pointer on it. Oh it does. That's the 68% I just mentioned. If you look at the top 1 tenth of 1% only half of the increase in inequality is due to labor income. So capital is a much more important part of the story and the top 1 100th of 1% only 39% is labor income. So capital is an especially important part of the story at the top of the income distribution. Also labor inequality has gotten less important over time was responsible for 68% over the last 40 years. If you only look at the last 30 years it's 54% and over the last 20 years it is about half. So the higher up on the income scale you go the more recent you go the more important is inequality within capital income. So let me now briefly talk about each of these elements. If you look at inequality within labor income the main thing you see is incomes of managers rising relative to workers. There's a lot of reasons for that including the increased returns to skills especially in a world where the size of markets is expanded nationally and internationally. There's been a slow down in the increase in educational attainment with more people going to college every year but not at as fast a rate of increase as we saw in the past. Changes in norms and corporate governance has mattered as well. If you look at incomes in the middle and the bottom other institutional factors are also clearly at play. One of them is the decline in unionization which you see in this next chart mirrors almost exactly the opposite of what's gone on with the top 10% income share and the other is that we've seen a large decline in the inflation adjusted value of the minimum wage in the United States which is worth about a third of what it was worth in the late 1960s. The second source of increased inequality is within the distribution of capital income and this has been much less studied than labor income. It's less well understood but a lot of it is a function of the increase in the inequality within labor income. So if you make a lot more you can save more, you can get more of a return and the inequality would perpetuate itself in that way. One point which I won't really discuss except to briefly note, if you look at overall wealth in the United States relative to the size of our economy it's been relatively constant for over a century. In contrast Europe had much higher wealth relative to the size of its economy. A lot of that was destroyed in the two wars but it's since been being rebuilt. Finally the last source of inequality is the division of income between capital and labor. Basically wealth is more unequally distributed than labor and as a result when the labor share of income falls all else being equal that leads to greater inequality. In Europe you saw the labor share of income falling starting around 1970. In the United States that decline started around the year 2000 and may be responsible for about a fifth of the increase in inequality. Part of what made Piketty's book so striking is that he projected that all of these trends will continue and he was bold enough to project out for the next century or two. This is a little bit further than I can see and I'm considerably less certain that he would be right in terms of that outlook for inequality because I think it depends a lot on what technological change looks like. Depends a lot on institutional arrangements and then it depends on a number of technical, economic issues that I'm happy to talk about more in the question and answer period. What I want to talk about though in the next part of my discussion is the relationship between inequality and economic growth. And as I said, if you look in Europe broadly speaking the biggest challenge has been growth. In the United States the biggest challenge has been inequality. Either one of these by themselves or in combination is what generates the challenges in terms of incomes. There's been a lot of research on the way in which inequality might affect growth. And traditionally economists would think that there was a trade-off between equity and efficiency. So they'd say for example, taxes that improved equality would lead to economic distortions and hurt growth or welfare programs might help distribution but would hurt economic growth. Let's say the economics literature has advanced considerably since then and now there's a range of studies finding a positive impact of particular programs and in part that as programs have evolved and changed. There's now also a substantial body of macroeconomic research at the aggregate level and a lot of it is premised on the observation that what matters most for economic growth is not how much you invest, but how you invest it. And how you invest it is what your technology is, what skills you're bringing to bear, what your entrepreneurship is like and that a lot of that doesn't benefit from inequality and can even be hurt by it if inequality leads to less access to education and skills for the full population. If it discourages entrepreneurship and risk taking because you're worried about the consequences of failure, if it undermines the trust necessary for a decentralized market economy or increases political instability. The most recent comprehensive study of the effect of inequality on growth was done by three researchers at the International Monetary Fund which is not an organization that's traditionally known to focus on this topic. And what they found was that inequality is bad for both the magnitude and sustainability of growth that progressive policies by themselves are neutral in terms of growth and that if progressive policies reduce inequality then they would benefit growth. And just to give some sense of the magnitude I applied their model to the tax changes we've seen in the United States since 2009. We've expanded tax credits for working families. We now give a subsidy of up to 45 cents for each dollar earned by low income working parents as a way to encourage more participation in the workforce. We give greater tax incentives for going to college and then at the upper end of the income distribution we raise tax rates for high income households restoring them to what they were in the 1990s. You look at all of those changes together you put them into the IMF's model and they would tell you that that would raise our growth rate by nearly one tenth of one percentage point which if you accumulate it over the course of a decade would mean an extra $500 for a typical family of four over and above the direct benefits they would get from those tax cuts. I wouldn't rest my case on the link between inequality and growth on one study, any one study, this study is consistent with some others that came before it and at the very least I think it's becoming even harder than ever before to argue that reducing inequality is bad for growth. It's increasingly likely that it's good for growth. The opposite direction of causality has been studied less what does growth do to inequality? So I think we're much less certain about the answer to that. The one thing I would point out is Tomas Piketty in his book says that inequality depends on the difference between the rate of return to capital and the growth rate of the economy. A lot of his suggestions are wealth taxes ways to raise lower the rate of return to capital but in his formula something else would work equally well to reduce inequality and that's expanding economic growth and expanding economic growth has the potential to not just increase the size of the pie but also increase the returns to labor and thus the fraction of the pie going to labor. Finally, in my final part of the talk I want to just very briefly outline some of the policy implications from the discussion relate them to the president's agenda, President Obama's agenda in the United States and more broadly to what a number of other countries around the OECD are talking about. The first set of policies that I want to talk about are ones that expand both growth and opportunity and number one on this list is probably expanding access to preschool. This next chart shows the enrollment age for an early childhood and primary education and by the way I should tell you I picked all four of these charts without looking at the relative position of Ireland and the United States but you're going to tell you in advance you're gonna see a certain pattern in all of the charts I'm gonna show you in that regard but the first is preschool and we're very interested in expanding access to preschool as one of the highest rates of return you can have. The second set of policies are ones that are designed really primarily for growth but by expanding the pie they can disproportionately help labor and economists break down growth in terms of extra labor, extra capital and extra technology. In terms of labor, you see a range of approaches France is focused on expanding birth rates Japan, the United States and other countries are focused on expanding labor force participation especially for women something that you've seen very strikingly in Ireland over the last couple of decades and in the United States we're very focused on common sense immigration reform which would expand the labor force and expand the talent of the labor force. The second area for growth is investment. Private investment is important and I think we need to focus not just on the quantity of investment but the quality of that investment. Business tax reform plays a very important role in that regard, ultimately its goal is a tax system that's more neutral so that businesses make a decision.