 Good evening and welcome to today's meeting of the Commonwealth Club of California the place where you are in the know You could find us online at Commonwealth Club Dot org on Facebook and Twitter and at the club's YouTube channel. I'm Mary Cranston I'm a past chair of the Commonwealth Club I'm the retired senior partner and former chair of the Pillsbury Winthrop shop hitman law firm And I am your moderator tonight Today we're gonna focus on an issue that has been very hot in the press raised consistently by presidential candidates and Voters alike and that is income inequality a recent Pew poll found that a substantial majority of Americans 65 percent Say the economic system in this country Unfairly favors powerful interests and if you break it down, that's 82 percent of Liberal Democrats and 50 percent of Republicans say the system favors the powerful 200 2013 Federal Reserve report said that the top 10 percent of families in the US received about half of the total income Distributed in the country and it's argued by many that the American dream is vanishing and that the cause is rising income inequality So our tax hikes and raising the minimum wage solutions to saving the American dream Or do they embody what free market advocates like to call a war on success? and today we're gonna have a very spirited discussion on these topics and We'll be talking about the best approaches to nurturing individual success so we're very fortunate to have our guests on my Right over here. Dr. Yaron Brooke who is the executive director of the Anne Rand Institute and a co-author of the new book Equal is unfair America's misguided fight against income inequality and Dr. Allen our buck professor of economics and law and director of the Birch Center for Tax Policy and Public Finance at the University of California in Berkeley Dr. Brooke was born and raised in Israel He served as a first sergeant in the Israeli military intelligence and then he earned a degree in civil engineering from the Technion Israel Institute of Technology in 1987 he moved to the United States where he received his MBA and PhD in finance from the University of Texas He became an American citizen in 2003 for seven years He was an award-winning finance professor at Santa Clara University and then in 1998 He co-founded BH equity research a private equity and hedge fund of which he is the managing director and chairman Dr. Arbach previously taught at Harvard and the University of Pennsylvania where he also served as the economics department chair He was deputy chief of staff of the US Joint Committee on Taxation in 1992 And has been a consultant to several government agencies and institutions in the United States and abroad. He holds a PhD from Harvard So please join me in welcoming our two distinguished guests. Dr. Brooke and Dr. Arbach So I know we're going to have a very interesting debate because our two authors have slightly divergent views on this And so I'm just gonna start with some opening questions where they can kind of lay out their basic perspective So dr. Brooke, let's start with you You say income inequality doesn't threaten the American dream or the American way of life In fact, you say the real threat to America's government intervention to correct inequality And could you please explain your position? Sure. Let me start by thanking the Commonwealth Club I mean, this is a fantastic organization and thank you for putting on events like this and and Inviting this kind of debate in in San Francisco The problem America faces many problems the American dream indeed is under threat There are problems of poverty and and lack of mobility among the poor the ability to rise up I think is being hampered There's real problems in the middle class economic growth in the United States today is Way too low to really build a healthy Prosperous successful middle class and at the top there is no question that there are problems of pressure groups of cronyism of people who reach Economic success not through innovation and their own Success they're building of real wealth but through their connections to the government through manipulating the system through playing the political Game the political game ultimately of coercion But none of those problems none of those threats have anything to do with the gap Between the rich and the poor or the gap between the middle class and the wealthy None of those issues are issues of inequality So inequality is a diversion It's a diversion from the real issues and as I will argue and I think we'll have an opportunity to get into this in More detail. I strongly believe that the reason all of these problems exist The reason that that the American dream is under threat The reason that we're seeing less mobility and the middle clan any economy that's not growing the reason the cronyism exists is Because we've seen a dramatic growth in government intervention in our lives in our economy we've seen a Unlimited government a shift from what was a limited government to today What is an unlimited government in terms of its involvement in our lives in our economy economic lives? But in really in every aspect of our lives that is holding down the poor that is suppressing their ability to rise It is holding back economy from growing as fast as it could grow and it creates the environment in which cronyism Thrive's when you give people power Over other people's lives people will lobby to try to manipulate that power to try to change that power The solution to cronyism is getting the government out of people's lives Minimizing the power of government giving less and less reason for people to lobby to try to manipulate to try to influence So their problems in America None of them have to do with gaps none of them have to do with a phenomena and I'll make one last point and that is that Americans historically have never resented wealth. They've actually admired it and wanted to be The neighbor across the street with a bigger house or the bigger car we've always aspired to be successful and I think that this whole This whole attack on inequality is meant to destroy that to destroy that and you know that American spirit of ambition of wanting to be successful Instead we're teaching people to be resentful to be envious and to resent the success of their neighbor instead of Distrived to be as successful as one's neighbor. Well, thank you You've raised some very interesting points that we'll want to get into In more detail But let me turn to dr. Arbock first and say and ask you to kind of lay out your perspective You have said that you do believe that some regulation is excessive But you find the position against intervention to address income inequality Unconvincing so from your perspective why is government intervention necessary and what happens with that without it? Well, first of all, I'd like to just point out that inequality has been growing in the United States by Any number of measures whether one is looking at wealth concentrations distribution of income? In fact, if one looks at life expectancy, there's been an increasing inequality in outcomes in the United States Now I don't think it's due primarily to government. I think government is neither Made it worse nor made it better in the last several decades during which this has happened But it is a consider a concern for us as citizens and it should be a concern of the government because the idea that inequality per se is not bad if Everybody has a shot and the rising tide lifts all boats Works only if people really believe that's true and it helps for it to be true for if we want people to believe it's true and One of the things that's happened as inequality is risen. I agree. It's not so much the problem of inequality But as inequality is risen, there's been very little growth in Incomes for people below the top of the income distribution and This along with various social problems that have accompanied the slow growth of income Have made people very unhappy and if we just think about it in terms of the political outcomes Leaving moral issues aside whether it's fair or appropriate for this kind of inequality to exist Just think about it in terms of political outcomes if we want to adopt policies that are good for the country as a whole We have to have people buy into those Approaches for example economists are fond of favoring free trade over trade protection And we're currently having a debate in this country where there's a lot of sentiment against free trade Well, why is that? Because trade may help the country as a whole but it generates winners and losers and if people look at the Possibility of a free or trade and see themselves as losing from the outcome They're not going to support it So if we want to adopt policies that may be in the national interest But may also make any quality worse. We have to accompany these policies with measures to address inequality Dr. Albert your view is on that Well, I mean Dr. I think I think this kind of boils down to the to the essential way of looking at the world There's a certain implicit assumption certain collectivist view The national interest. I don't know what the national interest is. I know what my interest is I know what individuals interest is There is a there is a sense in which there's there's a national pie out there And and we need to figure out the best way to divvy up this national pie There is no national pie. There's my pie. There's your pie. There's your pie And what what as economists we can do is we can aggregate those pies on a on a spreadsheet But that doesn't make it our pie. It doesn't make it our problem And once we accept the idea of a collective pie then now we've got trade-offs, right? Trade is good for these people trade is bad for these people So we need to figure out and at the end of the day the people with the most political voice the most political power the people Who pound on a table loudest are going to get their way You're seeing this right now with the discussion in California and the discussion has ended really in California about the minimum wage, right? Clearly they are victims as a consequence of raising the minimum wage Even even governor Brown has admitted that it will increase unemployment among teenagers But they are victors as well There are people who are going to earn more money right and there's certainly political victors and now we're trading these things off So I'm against this whole notion of viewing the world as as a group pie That we are now going to trade off interests against one another Versus a much more limited role for government which is to protect our lives and leave us free To choose the trade-offs to choose what's engaging what what job to take what job not to take What business to start what business not to start who to buy from who not to buy from who to trade from who not to trade from even the issue of trade America doesn't trade with China I Trade with China Walmart trades with China. I don't trade with China. I trained with the Chinese person Walmart trade trades with a Chinese company. Who cares, right? If it's America China individuals are trading let individuals choose You don't want to trade with China stop buying at Walmart stop buying things that say made in China so These are individual choices rather than collective choices rather than collectivizing these decisions which make them political I'd like to see these political these decisions Excluded from the realm of politics, you know one of the things that you sure absolutely go ahead You've made my point for me. My point was that if we want to have policies Where government is not interfering markets for example by not having very large protective tariffs We have to have a political environment that lets that happen and the only way we can do that is if we have a consensus You talk about the lack of there's no collective Entity well, there is it's called the voting population and we have to have a majority of the voting population Approve of these policies. I personally favor these policies, but I also understand that if people do not Benefit from it directly. They're not going to favor it There are a lot of people out there on both sides of the political spectrum right now Who are very much against free trade because they see themselves as losers from it? They want more government intervention They favor policies which you're against and the only way that we can avoid having such policies is to have Some sort of a safety net so that people who are adversely affected by these policies Understand that they will nevertheless Have an opportunity to succeed in society You know dr. Brook one thing that your book has made point you've made over and over is that Success is in in your view based on effort much more than luck and that's that's the appropriate perspective to have in a in a political system and in a government system But what would you say about? Systemic biases that are just intrinsic in human beings and a lot of them have been documented now There's gender bias. There's racial bias Things that that make the playing field so inherently unequal if you're just relying on individual effort And is there a role for government in those kinds of inequalities? No, and I think that the the role is of education just like I think the same issue is with regard to let's say trade The solution is not to choose different winners and losers and to reshuffle the deck The solution is to educate people about the benefits of trade the benefits of freedom Which is really what we're about about individual freedom and the benefits of having the government not intervene because People are going to be losers when they do and this and this relates to the bias question to yes people are biased It's a reality there. There are racists out there the people who bias people against gender and so on the solution to that is not reverse bias which just institutionalizes the bias and it makes the bias Legally acceptable and therefore makes racism or whatever the bias happens to be legally acceptable the solution is To educate to make it unacceptable to boycott to provide social pressure and to teach You know, so this is the the wall of the intellectual the wall of the educator in my world is a is a is a key Function now people asked me, you know, what about these cognitive biases? We're you know, we're not rational actors in the economics Yeah, it's it's good to learn about these cognitive biases so we can fix them so we can become more rational so we can make better decisions That's the wall of unveiling these biases so that we can become better at not being biased Dr. Aback, what would be your perspective on on the Issues in the fairness of the system I think that I would concur that one shouldn't always look to government for solutions and that markets I mean this goes back to Milton Friedman's Classic book capitalism and democracy arguing that markets can help overcome these kinds of problems and my big writings of Gary Becker and others talking about discrimination Sometimes markets help, you know, if somebody who's being discriminated discriminated against Is eager for customers and willing to sell for a lower price and a lot of people will Overcome their biases and buy from that vendor and that's sort of the way the argument goes and sometimes that helps and sometimes that's not enough and again getting back to the issues of both Fairness and what's moral as well as simple need for political consensus Sometimes government needs to get involved. I concur that government involvement is is a Dangerous medicine and sometimes there can be excessive government involvement It can lead to lobbying and special interest groups getting payoffs all true That means that we should be careful how we use the instrument not that we shouldn't use it at all But but it's very dangerous when we have government starting to decide or majorities in a sense starting to decide What's fair not what and then legislating it and and this is this is what I mean by unlimited government when government can now interfere in more and more of our lives Based on yeah a democratic process, but based on what the majority inflicts on minority. I mean I Thankfully we have a bill of rights because I wonder right now what would happen a free speech in America if people actually voted on free speech I have a feeling it would disappear and we couldn't even have the debate So I like to see government shrink and eliminate and and us to educate people about their own Rational self-interest in their own freedom and liberty Rather than have votes on what's fair and what's equitable and what's biased and what's not biased and what's a Religious freedom or what's a secular freedom and all these issues which you know at the end of the day are Destructive to the American dream and the American spirit and what this country's really about but sometimes government's needed to foster the American dream I mean think of antitrust Laws and regulations we have those to make markets work better not to interfere with markets now They don't always work. It's very hard. It's a very hard instrument to apply But I don't think going back to the period before 1900 with the trusts and having Individual industries can controlled by single companies is going to improve market outcomes. I did it'll stifle opportunity and and I think it's generally been very helpful to have this sort of thing Which is not to say that we should have excessive regulation and we've had periods of deregulation Which were good, but having government not involved at all in some of these cases is Not necessarily going to foster that to promote the cause of freedom and to follow up on that there's a question here about to dr. Brooke about how You started out by saying we do have problems in America and there are Entrenched cronyism and government regulation that are causing a lot of problems. How do you get to your pure position? and Can you get there without the political compromises that seem inherent in our system and government intervention to take care of some Of the more obvious cronyism problems Delicately, I'm not a politician. So I don't have to compromise and I'm not going to Look you can't this is gonna take time I don't have I'm not under the illusion that tomorrow or in the next decade or two decades Everybody's gonna embrace my ideas the way to change politics is ultimately have to change the people people have to change Their minds. I agree that this is this is the political process, but they have to have They have to have something they believe in something as an alternative to will use government and Maybe we overreach sometimes maybe we're under reach sometimes I just would like to see government out of the economy for good and and I disagree about anti-trust I actually don't view looking back at the 19th century The trusts was damaging as as the as the writers at the time made them out to be there was a clearly a political agenda around that When wonders what the world would be like if J if if Rockefeller hadn't had the economies of scale to make Kerosene and then gasoline as cheap as it did the world might be a completely different place if that particular so-called monopoly had not existed So so a question I would I would even question the existence of anti-trust. I think I think it's a bad law I think it inhibits it inhibits innovation I think it's been shown in the case of IBM and Microsoft to destroy good companies and to move them in a very negative direction So Politically and what I'm suggesting feasible of course not there's not a political candidate on the map that comes anywhere close to this But unless we define a goal unless we define an ideal The right right always drifts leftwards because the left has no problem defining an ideal And never has had you know look at Bernie Sanders Bernie Sanders is is is maybe the most leftist candidate ever in America and he's doing very very well because for years They've been leftist candidates who've been willing to push the envelope on the left So they've said okay, we'll compromise on obama cable what we really want what we really want Is is a hundred percent socialized medicine nobody on the right nobody not a single candidate on the right said What we really want Is a hundred percent private medicine and that by the way includes No medicare because medicare is is is huge right if you really consistent on on private health care Nobody on the right said that So of course you drift leftwards because that's where the goalpost is there's no goalpost on the right The right is is it starts out the conversation by saying we'll compromise We just want to compromise a little to the right and not to the left I want to set the goalpost Complete a hundred percent private health care for america now. Let's negotiate if I was a politician, right? Nobody nobody on the right Said they wanted that kind of health care because they know that the health care markets don't work very well And they know And they know that that kind of having You know having that kind of situation leads to the situation the condition that we had Which was a very large number of people with pre-existing conditions who had no access to health care very inefficient outcomes and Republicans and democrats at least at one point understood this including mit romney Before he decided he was against his own proposal the you know the Health health care is a perfect example of a market that there are certain benefits that Major benefits that we get by having markets private markets and health care, but they're also serious problems Of market failure very really first order problems of market failure that exist in the health care situation Which is why no country included in the united states Even before obama care had a purely private health care system. It wasn't because of a lack of will on the right it was because it was because of an Common understanding that this is a market that doesn't work very well left entirely to market forces You know, so we're going to disagree on this because I have no question no no no question in my mind that free markets would work in health care And many economists have held this on the right granted but What we take and this happens over and over again when we talk about Free markets is we take the status quo is this is free markets And it's not working and therefore we need to fix it There were no free markets in health care before obama. You're right They haven't been free markets in health care since world war two And as a consequence of all that government intervention primarily in the insurance market, which has distorted the health care market As a consequence of that these markets have failed the failure was the regulation the failure was the regulation of the insurance markets If that had not existed, there's no theoretical or practical reason health care markets cannot work efficiently But can we go back actually to the basic question of fairness because I think uh, dr. Brooke Takes the view in his book that There is no unfairness to income inequality. It's the natural consequence of different levels of effort Um What is your perspective on income inequality and as it relates to the fairness question and in your view? What causes the income inequality that we see today? I think the causes of income equality relate to whether one should think of it as fair unfair I I agree that inequality per se is not something that we should necessarily View as pernicious or something to be attacked Uh, it certainly is more disturbing if it comes about because of activities that are amount to basically theft or or Things like that. I think you would call that cronyism, but it could happen without government involvement and uh, there certainly is a perception I think it's largely wrong, but there is a perception today by many people that the gains Mostly occurring at the top over the last few decades have been in some ways illegitimate. I I say I don't believe that but that Means I don't think it's necessarily Unfair, but it is it is a serious problem. Nonetheless, it would perhaps be an even bigger problem If or I would think it was a bigger problem if it had come about through You know sort of illicit means But but it's so whether one thinks about it is unfair or just Unfortunate it is something that we have to deal with we just have to deal with it as a society The the you know, otherwise we're going to have Politics like we have right now, which is very very extreme candidates proposing unrealistic Measures that would make things worse Because people are grasping for solutions to a to a situation that they find unacceptable You know, dr. Brick one question I would have for you is You do have a clear and I would say a pure view of how life would be better But you know, you sort of wonder how you can you can get there You talked about it a little bit earlier, but we do have this very polarized country We have a lot of different perspectives How would we ever get everybody on board to take out all the regulation? We have so many winners and losers in the existing system It cannot be done unless there are fundamental changes in the way Americans think about the world I mean, I I'm under no illusion that we could cut some kind of deal and and and start moving the country in my direction And again, I believe the right has lost Every significant battle about government intervention since Probably 1913 since the Woodrow Wilson administration I can't remember a victory that the right has had other than deregulation during the Carter administration and then under Reagan There's almost been no victories on the right because I think the right has not staked out a position So they were against uh, they were against the New Deal and they folded They were against the great society and they folded They were against everything that the democrats put in that the left put in and they folded on it and and And loaded up on it like pot d of medicaid under george bush. They doubled up on it They they grew it or saw veins oxley under bush, you know, bigger regulatory state with no real with no huge cost So I think the way to move the country in that direction is to question fundamental beliefs and again I think part of that is this notion That today we see both on a trump campaign and on the sanders campaign and on the clinton campaign Is is a general view of collectivism both right and left I was horrified for example when uh, mccain came out of the republican national convention Eight years ago with the slogan country first now to me country first is a fascist slogan America's not fascist america's not about country first america's about in its original intent about the individual first Individual rights the government is there to serve us. It's our servant. It's there to protect us. It's there to eliminate Uh Wealth that is created by fraud suddenly the inequality if you want to call it that created by bony madeoff Shouldn't have been allowed to occur right he should he went to jail as a consequence And probably should have been caught a lot lot earlier than he was So that's the job of the government. That's what the government is there to do It's to protect us and Until americans are willing to accept that much more limited role of government and and this goes back I mean this goes to a much more fundamental issue Which is a moral issue right that the that the center of morality that the focal point of morality is not the collective good It's not the good of others. It's not Society's well-being the common good the public interest all these terms which in my view mean very little other than the pressure group politics That are behind them And at the end of the day this country was founded on a new vision of the good for the individual and that the good for the Individual fundamentally is to be left alone is to be free free to pursue his happiness In the way he chooses to pursue it and sometimes that leads to great wealth and sometimes it doesn't But it's not the governments of society's job to then come in and and rejigger that Dr. Arbeck, what would be your perspective on how a change in attitude along these lines would actually Would it be possible and would it have the effect that? Dr. Brook is saying it would Ah now you're asking for this. You're asking for a suspension of disbelief Look, I spend most of my time Since I live in Berkeley Defending the us market system and So I have a lot of sympathy for his his position Because I think markets generally do work better than most people understand and I think in many cases government attempts to Intervene in markets make things worse But I also think and I spend a lot of my time teaching About the circumstances in which markets don't work well and which government government intervention Appropriately designed can make things better for the market participants and I also think that You need a you're not going to educate people to Be against their own self-interest And if they understand that markets functioning well Perhaps with assistance from the government when they don't are going to leave them with very little no matter how hard they work They're not going to support it and you can educate them day and night and write more books And they're going to feel the same way as they do right now, which is very unhappy So just quickly first life is not just about money and that's part of what we need to educate people It's not just about money freedom. It's far more valuable than money But let me Going back to the the improbability of this the the science fiction of it if you were sitting in 1650 In any place in europe and somebody had said You know one day in less than 150 years There's going to be a found a country founded on these new ideas that are coming out of the netherlands about individual rights and The didrofen all these other philosophers are talking about that john lock would Formulate and they'd be a country based on that system They would have thought you were nuts and that by the way and there would be a separation of church and state This is in the middle of the catholic slaughtering the protestants advice versa People would have thought you were crazy. So I yes, there's never been a country exactly like the way I would like it to be There was never an america before there was an america But what shapes history what shapes the world ultimately are ideas of philosophies And while I don't expect to see Big movement in the direction that I would like it to go in my lifetime I do believe that good ideas went out in the long term the long term is the long term It takes a long time. I'm very realistic about my prospects for short term success. Well, let me ask you this one Can you think of an example today of a market failure that you would concede requires government intervention No, I mean I because I don't I don't concede the term market failure Almost every time you point me in the direction of a market failure I see Government controls and government regulations behind them or corruption in some way or fraud and fraud we know is wrong Fraud there's two. There's a thousand years of common law. We understand that Certainly they are they are violations of property rights that are new they come about the govern has to intervene pollution being one of them Intellectual property rights. We didn't know really intellectual property rights existed. You know, it's a relatively modern phenomena How we apply it. So I'm not an anarchist. I believe government is necessary Government is necessary to define and then protect Property rights and the application onto property rights can be you know Is is something that that evolves and changes because the world evolves and changes we discover new things But but no, I mean every time people point me to I don't know financial crisis. So they or or Rockefeller in the 1860s 70s I see Either good things like in Rockefeller or yeah Everything about this financial crisis I see government all over it now Was they greed on wall street? Yes, but there's greed on wall street every single day of the year It's their job. Their job is to make money And you create the right incentives. They do their job. Well, you create the wrong incentives They do a horrible job and and that's what happened in 2008 among other things I've got a bunch of questions on Upward mobility and the impact of income inequality on mobility in our culture Dr. Abar one we start with you. What would you say are the facts about Upward mobility in the last 10 years in America and what has been the The contribution of income inequality and what would be the fix The evidence on income income mobility in the united states Is it has not really changed that much you have to look over long periods because Over short periods. We have recessions. We have other things that that distort what the picture we get But if you look over decades as inequality has increased there really hasn't been much of a change in mobility number one number two The us is often held out as a very mobile society And that is certainly true if you look at certain groups such as recent immigrants But overall if you look at the us compared to other western countries The us does not stand out as being a more mobile society And Dr. Burke, I mean I think empirically that's right. I don't disagree with that although I think America was more mobile Uh in the late 19th century early 20th century And I think that that we've lost a lot of that and it's unfortunate both on the way down and on the way up um, but I think that what's important here are that there are policies in my view that that clearly hold people back That we Institute in order to correct inequality and I think the minimum wage is is a classic example of that In the name of helping the bottom rise up We're creating a whole subgroup and everybody admits this it's one of the trade-offs a subgroup of teenagers Particularly inner city teenagers who will never have a job And if you never have that first job because you just don't produce 15 bucks an hour You're just not producing or 10 bucks or whatever the rate is If you never have the first job, it's hard to get a second job and you're never going to get a third job And you you can't rise up. So in a sense Many of these policies are instituting a certain group into their poverty or take licensing laws The the the the ridiculous licensing laws in california where you need license to shampoo hair Now that doesn't it's not going to hood my kids Right, but there are poor kids out there who would like to get a job Shampooing hair and and use that again as a stepping stone They they need a license which costs. I don't know a thousand bucks to take a course and to do this thing Or to open a nail salon. You need a whole slew of government licenses, which costs again 10 20 thousand dollars This is a young typically immigrant entrepreneur who's trying to start a business and improve their life and rise up And in the name of protecting a monopoly, right the people already have the jobs We're excluding them and we use the excuse protecting the customer We've got so many of these laws and regulations and ultimately I would even argue the welfare state itself discourages mobility It encourages people to stay put to become entitled to to to have an entitled mentality Rather than to have rather to exercise real ambition and and to and to Raise themselves up don't care about if you could uh If you could address that topic also and talk a little bit if you would about Ideas you might have for increasing the mobility from the bottom part of our culture Well, first of all, let me agree that there are government policies such as excessive licensing Which are aimed to protect incumbents and industries, which I don't as an economist don't don't favor either Um, the the fact that there are bad government policies doesn't mean government policy is bad There are I agree with you that it's hard to get things to work You know, you're you're taking you're taking a risk When you turn a responsibility over to government because they're going to be interests that lead to the kinds of situations that we have But and I would also agree that a $15 minimum wage in california that applies even in very low Wage areas with high rates of unemployment is is probably not a good idea And I think frankly that's the consensus of the economics profession The economics profession is more split about some minimum wages in some places But having a very high minimum wage in a very low wage area is is something that actually would get very little support among economists In part because they see better policies not no policy as an alternative And there are other policies and some of these policies such as the earned income tax credit Which is a very important policy for addressing Both disincentives people have to work as well as a poverty. I think are very successful So I think I think policies like that policies promoting education among people who Don't have access to capital markets or Opportunities to borrow adequately to to become educated are are important ways of addressing Mobility and addressing poverty and simply saying citing Certain government policies that are counterproductive As proof that government policies don't and can't work. I think it is incorrect Dr. Burke one of your points in your book is that The notion of equal opportunity is False is a false premise from your perspective And I think some of the policies you're talking about would be Attempting to equal the opportunity playing field out there Could you talk a little bit about why you think Particularly in our culture today where there are some very gross inconsistencies and people's basic opportunities So my main point is that equal opportunities just equal outcome in a different point in the spectrum And the left has identified this a long time ago The right thought they had some new insight by saying oh, we're against equality of outcome But we're for equality of opportunity but equal opportunities a type of outcome Uh, and you can't achieve equality of opportunity And it just like equality of outcome achieving equality of opportunity requires hoarding some for the benefit of others It requires redistribution which which I am against I'm against sacrificing some for the sake of others I'm against this trade-offs of benefits and in my view what I am for is maximizing opportunities You know creating making it possible for people to have The most opportunities that are feasible and I think the best system to do that is a free market It's where the government is not trying to play Redistributor and figure out how to do this and and you know The example is I don't know if you're going to get to a question on this but an example of this You know, we're really seeing huge if you will inequalities is with education I mean our educational system is so immoral and so disastrous. It is it is really horrific If you look at public education, uh, the worst schools are In poor neighborhoods and and poor kids who who don't have who've already got a bad break in life because of where they're born And and they don't have money and they you know, their families might not be a supporter Then they get sent to the worst schools one can imagine We spend huge amounts of money of these schools and they're complete disasters all in the name of equal equal opportunity In my view what we're doing is destroying their opportunities because giving them allows the education I would like to see a world in which we Had real innovation real competition For schooling I'd like to see pure The entire school system privatized Where this was a market that entrepreneurs in silicon valley would go into to try to compete to make money off of poor kids education There's amazing opportunities here and we're destroying those opportunities. I won't even You know, you can't even get school choice voucher systems minimal little things, which I think are way too Minor to really make an impact You can't even get that past because the politics are such that these interest roots are entrenched and they It cannot be made. You cannot make the case That this is for the students None of this is for the students Here's a statistic in the inner city of chicago. It costs the city of chicago school district, by the way, which is technically bankrupt Officially bankrupt It cost them $15,000 to to to educate one child per year $15,000 The arch diocese The catholic schools in the same inner city in the same geographic location cost them 7500 to educate the same kid Half price you could shut down public schools in chicago Give the money to the arch diocese and return that the rest of the taxpayers And and that's without real competition I'm not even telling you marva collins who had a Phenomenal school in the inner city in chicago and charged half what the archdiocese was doing and every one of her children Went to college and she again no selectivity in terms of who entered if you really bring innovation and competition into schooling That's maximizes opportunity doesn't equate them. You can't equate them any more than you can equate outcomes That that is a mythology. It's a platonic ideal that cannot be in reality But what you can do is dramatically improve the opportunities these kids have Oh, dr. Abba, there are a number of questions here on this educational topic I'd be interested in your perspectives on what needs to be done In you know making Education more equal in this country and could it be done without government regulation? Well, uh, first of all, I'd like to To just call attention to the inconsistency in the in the argument. We just heard Uh, we it was an argument against government intervention But it all hinges on the idea that the government is giving vouchers I assume or some other mechanism to allow poor people to pay for the education that they get to choose in the free market So it's a mark. It's a reform of government policy, but it's a policy that would still have government very involved In the form of redistribution Charter reforms school choice There are there are arguments on both sides I certainly think there are a lot of arguments in favor of it particularly in poor areas It's in poor areas where charter schools seem to have the most impact And one can understand why because you're starting from a very very low baseline But you can't that's not a private system a private system is where the government says Bye-bye. You're on your own. No, you want to have you want to go to private school fine. You pay for it We don't have any proposals for that Again the people on the right who you say are you know giving giving up on everything None of them are proposing that we do that either And uh, I guess you're not proposing it either you're proposing that we still have government involved But we have them involved in a way that allows markets to operate better And I'm fully in agreement with that. Let's just not call it a lack of government involvement So let me correct the impression. I was offering I was offering a transition And this is what happens when I offer a transition, right? Ultimately, absolutely. You want an education pay for it. The government should have zero redistribution That is the ultimate how you get there. I you see I offer a middle ground and I get nailed for it Can do it You're listening to the commonwealth club of california and our guests are dr Yaron brook executive director of the and ran institute and dr Allen hourbock professor of economics at the university of california at berkeley We're discussing the importance of income inequality as related to achieving the american dream I'm mary cranstin past chair of the commonwealth club board of governors and your moderator You can hear commonwealth club programs on the radio and catch up with program videos on the club's youtube channel So let's change Gears a little bit. There's a number of questions here about the impact of inheritance on wealth distribution in this country and what you think The proper Role of our current laws on on inheritance are on this question So dr. Arobach you want to take a first crack at that? Well inheritance is an important factor in wealth of wealth just asked donald trump we We know that We know that large fortunes are there are not many families that have large fortunes, but there are large fortunes And that passing them along does perpetuate inequality of wealth We have a Very small and not particularly effective estate tax that now affects About half a percent of decedents. It's much weaker than it was say before the Bush administration certainly before the reagan administration when the changes began and frankly, I think that a more vibrant state tax would play a role in helping to address The concerns that people have about lack of fairness in society because to whatever extent people feel that People who are self-made and have accumulated wealth through their own industriousness and may view that as a Fair outcome. They're probably less sympathetic when it's three or four generations down the line Now I understand that you create disincentives to be industrious If you tell people they're not going to leave money be able to leave money to their heirs So i'm not speaking in favor of a confiscatory estate tax But I do think that our current estate tax is relatively weak. It's it's has many many opportunities for tax planning that make it not as effective as it could be And frankly, I think it's a small price to pay even for those who are subject to it to have a A more harmonious society where people believe that it all works for all of them Well, I mean, I don't think it's a small price to pay for for the small business owner Who has to liquidate his business in order to pay the tax because of the value of the business that he just inherited But I just think it's unjust. It's a double taxation. The money is being taxed already It is the property of the person who Who made it they can choose to give it a charity They can choose to consume it, which I don't think is necessarily the best economic option Or they could choose to leave it to their kids. It's none of our Business again, there's no collective pie. It's not our decision. It's his decision And if you create it's not so much that you create this incentive Um for them to create the wealth it's it you create a strong incentive for them to spend it Hey, if my kids if the government's gonna take it all I'm gonna buy the yacht I'm gonna I'm gonna get as much out of this as I can and The statistics also show that uh, so many people who inherit wealth lose it It's it's pretty amazing. Uh, the percentage of of Kids and grandkids who don't live up to the challenge of wealth and and land up losing it I think more so again In the heyday of of a more capitalist economy, but but even today with all the wealth managers and everything else Just look at athletes. It's very easy to to to squander away wealth Particularly if you didn't really work hard to to create it And children grandkids who don't deserve the wealth. They lose it very quickly You know inheritance is one aspect of it, but there's clearly starting to be In our culture, I I believe in some of the things I've read at least that there is a an empowered class that has inheritance reinforcing top education reinforcing good parents um highly educated parents who marry each other and then that's creating an increasing gap between the those that have those benefits and those that don't and uh That is a form of inequality You could argue it is unfair in the sense that people didn't actually always earn their way into or or Achieve their way into the empowered class And is it calcifying to the point that it does create instability and that government intervention of some sort is necessary to handle it Dr. Brooke you want to start and then sure uh look We're unequal That's a reality. That's metaphysical. There's nothing you can do to make us the same We're gonna be different and we're gonna marry who we want to marry and and yes people tend to marry If you're very highly educated you tend to marry somebody who's highly educated There's something bad about that. Maybe we should have government regulate that too And and to being about to being about marriage equality. We need marriage equality after all so I don't see I don't see I don't see where I know there's this big literature now There's I just read an article in the atlantic about total inequality where they're adding up Wealth and income and marriage they actually bring up the marriage issue and they add a Psychological inequality and they they add all these things up and then there's total inequality. How do we distribute? I mean, it's just ridiculous. We're different. We're gonna be different We're always gonna be different and that's a good thing We should actually be celebrating that and look part of the incentive as I came to america with nothing Basically, I mean a good education a good background good parents who good good marriage a great marriage And with somebody from a very different You know Very different background Wait first child to ever go to college and from a Thai family and so so very different in that sense and You know one of the incentives to work really hard and to make some money Is to be able to give the opportunities to your kids that you choose to give to them And then you want to say no the government feels like you're giving too many opportunities to your kids So the government's going to take some of your money away from you So you can't send your kids to the best school you choose to so somebody else Who maybe hasn't worked as hard as I have to create opportunities for his kids or whatever the reason is They they're unlucky or whatever so that they can why why isn't the money? I created to help my kids my money so that I can create my kids I pay 50 taxes in california today, right if you add everything up 50 of my time of my work of my effort goes to help other people's kids have a better life Why I mean my kids need the money right now? Well, they don't right now, but they needed it a few years ago Dr. Arbor, what would you say about this issue about the The calcification of the you know the haves and have nots and what we need to do about it Well, it is certainly true that a sort of mating has increased there's been a lot written about divergences of social measures In at different parts of the income distribution marriage divorce family formation Everything's like that. I you know, I think I worry less about Success at the top coming from a sort of mating than I worry about the failures lower down I'm I find it very disturbing the many pieces of evidence we have just within the last year about increasing mortality of people lower in the income distribution Now you can say well, this is their choice to take addictive drugs that kill them Or to you know become alcoholics or Criminals or other things that that lead to early death And they're just making a choice and this is the outcome You know, I think that that's that's a you know, not a not a particularly productive way of thinking about the situation And I don't necessarily want to just take money from successful people and give it to people who are not doing very well But I think we have to recognize that they aren't doing very well and think about things that we can do other than Giving them a pat on the back and congratulating them on their opportunity to fail Well, let's let's take that on really directly then if you had a magic wand and could just change things both of you To open up mobility and opportunity from the lowest Ecome levels in this country. What would be the one or two things you would do first? I mean, I would start with Getting government out of the out of the way of business I would start with there because I think what what is really lacking and I and I agree there is this there's this increasing death rate among Middle-aged white working-class males, which is really scary and and it's it's it's these are people voting for Donald Trump And I think to some extent for Bernie Sanders because they're mad. They're angry. They're frustrated There's something clearly wrong in the system And I think part of it is that they don't have good jobs Part of it is is they they're living through a period of economic stagnation I would like to see this economy grow Significantly and I think this economy can grow significantly. I don't think there are any barriers to growth I don't agree with economists to say this is it the era of growth has ended There's there's a there's a book out now that is basically arguing that what we need is to massively massively Deregulate this economy massively get governed out of the economy and that includes by the way the other side of the regulation If I were a republican candidate, thank god. I'm not I would run on a platform that says no more subsidies to business Start start there start with getting rid of the of the of the side of the closure I would slash regulations and create a corporate income tax rate Ideally it would be zero but but if it's if zeros is not Political feasible with no loopholes. So there'd be no reason to lobby, right? You can't get any favors just something very simple very straightforward and And I think this economy I you know You try maybe we're biased because we live in california and particularly in silicon valley You see the dynamism you see the entrepreneurship You see what americans are capable of doing when they're freed up and and it's not accident that technology is one of the least regulated businesses of all It's where you get the innovation. I'd like to see that expanded to all businesses and and get this economy really growing Now to really address the issue of of of people who are struggling I think it has to be more than that because I think there's a psychological element here Which is driven by a philosophical element which goes back to my educational point But at least let's get the simple stuff, which I think is economics. Let's get that done So that's your solution. Dr. Arbaugh. What would be your one or two things with your magic wand to open up? opportunity well first of all I Well, I think reform of government involvement in the economy Has many arguments for it in certain areas I don't think that's going to have an appreciable effect on the economic growth rate I just don't think there's any evidence at all for that Which is not to say that we should have bad government regulations It's just saying that one has to be have have realistic Understanding of what can be accomplished. I think we've talked about education reform and I I think that's extremely important The u.s. Has a great university system People come to the u.s. From other countries to study at our universities to study at the postgraduate level That's not happening at the k to 12 level and we've got to think about what we're doing so badly at lower levels of education We obviously can be good at education because we do it at levels In higher education and we have to think about ways in which we can make it better It is going to it's probably going to cost money it whether whether it's whether the additional reforms are accompanied by A lot of additional spending I think is is crucial for the success of these These approaches I don't know that it's politically feasible I mean a lot of the reforms that whenever one thinks about a reform that's expensive that it immediately confronts The limited resources that our government has given our Current commitments for other programs But I think something along those lines is probably the the thing I would put At the very top of the agenda and I would think emphasize it much more than anything else I can think of You know dr. Brigham made a point about the fact that The american wealth in total is is not is that we think of as the group pie is is actually not The governments or people as a whole it's an individuals piece of it that adds up But what would you say to elizabeth warren's perspective that Nobody in this country gets rich on their own. They uh, they are Working off the back of infrastructure and other Investments in the society and in the community by everybody And that we should think about paying it forward rather than thinking about trying to grab our little piece Well, I mean, I think she is making a very important philosophical point for her side And and this is why president obama has jumped on it. You didn't build that was not an accidental speech This is this is what they are driving towards. I disagree Very strongly with that point of view, of course people help you right bill gates didn't make 70 billion dollars by himself There were lots of employees who all got paid More millionaires were creating microsoft than any other company suppliers You know variety of them everybody got paid everybody got paid In a trade win-win microsoft got better and the other party got better Um infrastructure. Yeah, we got infrastructure. Who paid for that infrastructure the guys who made a lot of money I mean most attacks revenue comes from the very top Particularly with regard to infrastructure, right? So they paid for that. They're the ones who paid for it Yeah, if you had a great teacher, how many you had a great teacher in in school who really impacted your life Say, thank you And if you're really wealthy write her a check, I mean, that's a personal thing that you should do How many of you had lousy teachers, you know, what are we gonna do to take money back? So So the point is that yes, we all we all Benefit from other people. That's wonderful. You know, I I believe and this is a more philosophical point All of us owe a huge debt to avastartal John Locke Newton Einstein we all stand on giants It's a few giants that made the civilization possible So what are we supposed to feel guilty because because they were so successful? No, the question is given Given the world that you live in how do you make your life the best that it can be? How do you take advantage of the opportunities that you have and how do you maximize? Your flourishing as a human being how do you live the happiest most successful? And maybe most prosperous if prosperity is important to you life that you can live That's what it's about and are the people important for that? Absolutely, they're important for that and and good and say thank you when somebody does something nice to you and and make sure that you engage Not in donald trump type deals, which I suspect a win-lose deals But in win-win transactions where both parties are winning you're better off and the people around you're better off Which I think is how wealth is created at the end of the day through win-win transactions I mean wealth that's honestly made is made through win-win transactions Both of you have made passing reference to our current candidates and I just wondered if You'd be willing to share your perspectives on on their policies And if you think there's anything you could support or anything that you'd like to point out as particularly nefarious Dr. Arobach oh, I'm the lucky one gets to go first on this I think that candidates have largely Come to understand that proposing Putting realistic policies is boring and doesn't get you And doesn't get you much support Particularly if you know their policies that involve trade-offs Because being realistic if they cost money the money has to come from somewhere And so uh, we have policies of various kinds proposed by various candidates that are simply not feasible Leaving aside whether they would be desirable even if they were So, you know there you one can find nuggets in various places of Good ideas, you know in in a con context of generally bad bad ones But I you know, I think in general the It's more a matter of signaling like people will hear a candidate say something and understand that that candidate can't possibly mean What's being said, but they kind of think they know what the candidate really means And I so I think it's it's it's sort of the policies that are being signaled rather than the ones that are really being proposed That one might want to evaluate but it's very hard to pin down what that might be at this stage So I think we're gonna end on agreement. I mean But let me let me first say I run a 501c3 so we can't take any political positions I'm you know, I can't endorse anybody and da da da da But what really scares me is not the candidates The candidates are particularly bad. I think this cycle. It's the american people It's the response to these candidates. It's the passion that people have engaged in It's the fact that people are responding to trump and to sanders and to what I consider demagogy and and authoritarianism and And riling up emotion and an appeal to fear that I've never seen in america at this level Of of an appeal to fear a fear of the other right fear and this is this was this has always been Authoritarians in europe have always used this, but I've never really seen an america. We should all up problems. We're great America's never made done anything wrong. We're fine. We just haven't kept good enough deals with you know It's because the chinese are screwing us the japanese are screwing us the mexicans are screwing us the muslims are screwing it Everybody everybody, but we're fine. We're great. We've made all the right choices other than that and that whole mentality Which I think bernie reflects. I think bernie and san and trump are two sides of the same coin Really scares me that people respond not that there's such a person like trump that exists you expect that But the people respond to that is is very disappointing and very scary in in a country that I think was much much better than this in the past Well, unfortunately, we are out of town time and that seems like a good a good place to end I do we're on a sincerely thank Dr. Yaron brook executive director of the an ran the institute and co-author of the new book equal is unfair And dr. Alan our buck professor of economics and law and director of the birch center of tax policy at the university of california Thank you so much We also want to thank our audiences here and on radio television and the internet a reminder to everyone um that Uh, dr. Brooks book is for sale and he will be signing copies right outside after the program And i'm mary cranston and now this meeting of the commonwealth club of california the place where you are in the know Is adjourned