In a modern adaptation of a Restoration comedy, The Way of the World, a very, very wealthy woman protests suggestions that she does little for economic equality by pointing to a squad of men out on her lush Southampton lawn painting each blade of grass a prettier shade of green. This got a laugh, but it epitomizes the irony of one of the features of this year’s Davos alpine wing-ding: an “Equality Lounge.” Davos is often replete with ironies, but a swanky Equality Lounge filled by those who flew in on private helicopters clad in fur-lined parkas verges on black humor. That the Equality Lounge until recently was called the Girls’ Lounge makes this an even darker comedy. Is an Equality Lounge & Spa next?
Politico put Davos succinctly when it said that the World Economic Forum is peopled by pragmatists. To be sure, there are philanthropists, but most are former pragmatists who did so well that they can now afford to be generous, often awesomely so as Bill Gates and George Soros show. Good-cause representatives are also to be found at Davos, but they are pragmatists hunting down the philanthropists. Davos’ predicament is self-evident in a photo that made the rounds on Twitter yesterday.
Proving the pragmatism point, some business leaders stopped on the way to the Equality Lounge to thank President Trump fulsomely for the new U.S. tax law. The tax law may well stimulate a bit of growth, but it is only part of broader U.S. fiscal policy already well into the equality red zone.
Rhetoric about economic equality is nice, but altering a hard reality is better. This isn’t easy – a recent IMF paper makes clear that reconciling economic efficiency with public equity is very hard to do. Many proposals that advance economic efficiency – big tax cuts for example – stimulate growth and at the same time do tremendous damage to equity. We know it intuitively, but rafts of income, wealth, mortality, labor-participation, contentment, and other data prove it dispositively: GDP growth misrepresents not only real macroeconomic prosperity, but also economic reality for the vast majority of Americans.
The real solution to the efficiency/equity trade-off is not to be found at cocktail parties. Instead, it lies in progressive fiscal policy, redesigned monetary policy, redirected financial regulation, and public-private partnerships. These can be a powerful way to reduce inequality by marrying public objectives with as much private profit as can be deployed to social-impact goals without conflicts with for-profit incentives or enriching politicians along the way. In public-private partnerships, public goals are not served as directly as they are through direct fiscal transfers nor is private profit as munificent as it would be if the bottom-line was the sole priority. But a tremendous amount of good can be done by creating incentives for companies to use some of their wealth efficiently for long-term equity.
Davos’s Equality Lounge agenda had absolutely nothing on this point. Maybe next year.