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It’s no secret that income inequality has been on the rise in the United States over the past generation. But it has been increasing in most other affluent countries too. This is not a product of cuts in taxes or social programs; it’s due mainly to rising inequality of market income.

Suppose we think it would be good for countries to try to maintain or move toward relatively low levels of inequality, something akin to the levels in contemporary Denmark or Sweden. What is the best way to do that?

My attempt at an answer is in the September-October issue of Challenge.

“People say you can’t do coverage without cost control. I think it’s the opposite. You can’t do cost control before coverage. We would do a huge amount for the cause of cost control just by covering people…. Once you get coverage off the table, the conversation gets more focused on cost control.”

That’s health economist Jon Gruber’s bottom line on health care reform. It’s my view too, and it’s the premise underlying the House and Senate bills. I hope it turns out to be right.

“In my opinion, we are past the point where tax cuts can fix what ails us. Large tax increases will be necessary to pay for all the promises that have been made. Instead of opposing them entirely, conservatives should use their insights to design a new tax system better able to raise higher revenues at the least possible cost in terms of economic growth and freedom.” That is Bruce Bartlett in his book The New American Economy. It’s a surprising message coming from a leading supply-side advocate of the 1980s, though it won’t shock anyone who has followed Bartlett’s print and online writings over the past few years.

Bartlett argues that successful economic policies tend to be effective only in a specific set of circumstances. Their success, however, encourages supporters to believe their applicability is universal. Eventually they get overused, prove counterproductive, fall out of favor, and get replaced by new ideas.

This, according to Bartlett, is the story of both Keynesianism and supply-side economics. Keynes was a pragmatist. His recommendation to use fiscal policy to stimulate the economy was formulated in response to the conditions of the Great Depression. It worked. But then, in Bartlett’s telling, it came to be viewed as an appropriate remedy for all economic downturns. By the 1970s overuse of fiscal stimulus contributed to inflation without reducing unemployment. This led to its abandonment by many economists and policy makers.

Bartlett tells a parallel tale about supply-side economics. Its core thesis is that if marginal tax rates are too high, they discourage innovation, investment, and work effort. Bartlett says this was the situation in the 1970s. The Reagan administration’s sharp reduction of marginal rates in its 1981 and 1986 tax reforms was therefore effective medicine for the American economy. It “laid the foundation for higher real growth well into the 1990s.” But like the use of budget deficits to fight recession, the supply-side strategy of reducing tax rates came to be seen by its backers as an all-purpose cure — the appropriate tonic irrespective of the economy’s ailment.

The chief economic problem we now face, in Bartlett’s view, is not high marginal tax rates. It is the aging of baby boomers to whom we have made Medicare and Social Security commitments. Absent “massive and politically impossible cuts,” this will cause federal government expenditures to rise from 20% of GDP to around 30% over the coming generation. Supply-side dogma leaves Republicans ill-prepared for this challenge. “When the crunch comes and the need for a major increase in revenue becomes overwhelming,” says Bartlett, “I expect that Republicans will refuse to participate in the process. If Democrats have to raise taxes with no bipartisan support, then they will have no choice but to cater to the demands of their party’s most liberal wing. This will mean higher rates on businesses and entrepreneurs, and soak-the-rich policies that would make Franklin D. Roosevelt blush.”

A better result, according to Bartlett, would be to bring government revenues into line with projected expenditures via a value-added tax (VAT), a type of consumption tax. Heavy use of VATs is a key reason, he says, why “many European countries have tax/GDP ratios far higher than here without suffering particularly ill effects. They may not be growing as fast as they would if taxes and spending were lower, but neither are their standards of living significantly below those of the United States. Even strenuous efforts to show that Europeans are poorer than Americans show that the differences are merely trivial.”

I agree with a good bit of what Bartlett says in the book, and I’m particularly sympathetic to this diagnosis and prescription (see here and here). It’s a long way from Barry Goldwater, Milton Friedman, and Ronald Reagan.

I wish Bartlett had gone further. If modern conservatism is by necessity “big-government” conservatism, what principles should guide it? If conservatives must give up the goal of rolling back the welfare state, if they must acquiesce to government provision of generous cushions and supports, what should they aim for in economic and social policy? David Brooks, Ross Douthat and Reihan Salam, Will Wilkinson, Ron Haskins and Isabell Sawhill, and others have weighed in on this question. I’d be interested to know Bartlett’s take.

Some likely candidates:

A tax system conducive to entrepreneurship, investment, and work (Bartlett’s emphasis)

Employment incentives for able working-age adults

Enhancement of individual opportunity: early intervention, improvements to K-12 schools

Limited regulation of product and labor markets

Competition and choice in public services: charter schools, vouchers for schools and child care, maybe even a public option in health insurance

Decentralized administration of public services to ensure attentiveness to local conditions

Privatization of services where possible

Benefits and services targeted at the most needy rather than the middle class

Data. Many conservatives believe the poor are better off — more affluent and upwardly mobile — than government statistics and social scientists’ analyses tend to suggest. Why not allocate money for a large high-quality panel survey (something like a PSID on steroids) that will allow us to better assess this claim?

As it happens, we have a real-world illustration, albeit on a small scale, of what much of this — all of it except heavy privatization and targeting — looks like. It looks like this.

Life is getting much better in an important respect. That’s the message of Tyler Cowen’s book Create Your Own Economy. The gain is in personal enjoyment. The driver is new information and communication technology.

At the center of this is the internet, which gives us access to much more information, and more quickly and cheaply. What about information overload? Doesn’t the resulting sense of bewilderment and paralysis offset, and for some even outweigh, the benefit?

Cowen says no, because we have new ways to control the flow of information. Internet search engines let us target the particular information we want. RSS feeds allow us to focus on the websites that most interest us.

The same holds for music, books, movies, television shows, sporting events, and other types of entertainment. From iTunes you can purchase individual songs rather than entire albums. With an iPod you can then listen to those songs in a sequence of your choosing at whatever time and place you like. Kindle-type devices allow virtually instant purchasing of books and the ease of reading them whenever and wherever you please. DVRs, online rental services, and on-demand television make it possible to borrow or record movies and TV shows and watch them when it’s convenient.

Technological advances also enhance our control over communication. A telephone conversation occurs at the convenience of the caller, whereas email and texting allow you to receive inputs when it suits you. They also permit you to reflect a bit before you respond. With Facebook, chat rooms, blogs, and Twitter you can move in and out of ongoing conversations at will.

Imposing order on information is psychologically satisfying. The increase in our ability to control the amount, the content, and the timing of information and entertainment we consume may be just as valuable, in terms of our well-being, as the increase in the amount of information to which we have access.

The benefit varies across individuals. Enhanced ability to organize information is particularly valuable to people with a cognitive style that prizes order. For some of us more than for others, exerting control over the flow of information is pleasing. Greater access to information and culture is especially valuable to those with narrow and atypical interests. If you want to know a little about current political debates and what celebrities are up to, you may be able to get your fill by reading a daily newspaper or Time magazine or by watching a half-hour network news program. But if your interests are less mainstream — say, soccer in Argentina or west African music or Asian architecture — the internet makes a huge difference.

Autistics tend to be on the extreme end of both of these continuums; they often find the organization of information highly satisfying, and they tend to have narrow and unusual interests. Advances in information and communication technology are therefore likely to enhance the enjoyment of autistics to an even greater degree than of others. This, according to Cowen, suggests heightened potential for autistics, and people with similar if less extreme cognitive traits, to have a rich life experience.

Create Your Own Economy is well worth reading. Cowen’s case for optimism about the contribution of new technologies to individual well-being is stimulating and fairly compelling. The writing is engaging, and the book is more coherent than a few of the reviews I’ve seen led me to expect (and which I half-expected anyway based on the style of Cowen’s blog).

I wish Cowen had pushed further on two issues.

First, his assessment of the prospects for autistics focuses on consumption. But there’s also the matter of how to make a living.

Cowen rightly notes that autistics tend to have cognitive strengths in matters that interest them: keen perception of details and patterns, an ability to focus clearly, and a capacity to effectively store and organize information. For autistic individuals this cognitive profile may serve as a comparative advantage in a world in which production and analysis of information dominates the production of things. Cowen spends some time discussing the successes and contributions of famous innovators and thinkers and writers who may have been autistic, from Thomas Jefferson to Immanuel Kant to Arthur Conan Doyle.

But what about the earning prospects of less extraordinary autistics? Autistics tend to have a range of impediments to effective social functioning: they may read social cues poorly, lack interest in non-instrumental conversation, get easily distracted, react to imperfection or irregularity with extreme frustration, have strong sensory aversions, engage in odd repetitive motions, and some don’t develop the ability to speak. Cowen is certainly aware of the barriers these impose, and at one point he says “if you take [autistic] abilities and disabilities and stick them into a rapidly evolving market economy, you will get some people who achieve relatively high social status and other people — many others — who end up with much lower status” (p. 21). But he says little more about this.

In the book’s final chapter Cowen writes:

You may know that the division of labor is a key idea in Adam Smith’s Wealth of Nations. Smith’s notion of the division of labor referred to increasing specialization in economic production. He gives the example, from a pin factory, of how each worker performs a very specific and repetitive task in the interests of greater productivity for the factory as a whole.

It’s not what Smith intended, but I read this discussion of the pin factory as a parable of autism and the rising returns to autistic cognitive strengths. If you can perform a repetitive task with the proper skills, you can earn a decent income because you are no longer expected to be a jack-of-all-trades or to master a wide variety of skills. It increases the chance that you can have a “dysfunction” and still do well in life and in your career…. Today it’s often enough to be very good at one specific professional task. In other words, the division of labor provides disproportionate benefits to people with specialized cognitive talents and that includes many people along the autism spectrum. (pp. 215-16)

I think there may be something to this, but it strikes me as a pretty thin reed on which to hang an optimistic conclusion. I want to hear more.

Throughout the book Cowen argues for greater appreciation of neurodiversity. Partly this involves recognition that autistic traits are part of a continuum; they differ in degree rather than in kind. It also means we should pay better attention to the cognitive strengths of autistics.

That would be a good thing, but surely more is needed. Early diagnosis and intervention are now widely agreed to be critical. So too are teachers and aides in K-12 schools who foster social development in autistic children without stifling their interests and skills. Less discussed but potentially very helpful is an ongoing shift toward individualization in the administration of government benefit and service provision. Citizens and policy makers in the United States and many western European nations have increasingly wished to encourage employment by able working-age adults. A key lesson from their efforts to do so is that incentives are useful but often insufficient. If you want people to work, it helps to facilitate that with individualized assistance and monitoring. Individualization gives caseworkers better information about what types of help — at-home support, financial assistance, training, job placement, transportation, and so on — are likely to be of greatest benefit. To maximize opportunities for autistics, and to ensure the best possible utilization of their skills and strengths, we need not only the wider appreciation of neurodiversity that Cowen commendably encourages but also a helping hand from the state.

Second, I wish Cowen had addressed the worry that creating your own prosperity will come at the expense of the greater good. Specifically, the internet and other individualized forms of information sharing and communication might hasten the erosion of social capital. Researchers have found links between social capital and economic and political health (though these associations and their magnitudes are by no means a settled issue). If we spend more and more of our time glued to our RSS feeds, iPods, Kindles, and on-demand movies, will we engage less in human interaction, communication, and participation in social groups and activities? Are we heading toward a future of browsing, listening, reading, and viewing alone, bereft of face-to-face connections and civic engagement?

Maybe. But the new technologies might help to offset any such loss. For one thing, they enable us to identify and interact with a better-targeted set of compatriots. We now have fewer widely shared if shallow experiences, such as attending PTA or Elks Club meetings. They may be replaced by more fulfilling ones shared with smaller groups: interacting in a Facebook friend network or an online chat group, emailing or instant messaging with people who you’ll never meet in person but who share your particular passion.

By allowing us to locate other people with similar interests, new information and communication devices also help us to feel connected in a way that, for some, may not have been possible before. Attending church or a committee meeting can be highly interactive for some people. But others may experience them as boring or even alienating. For the latter, reading Facebook or blog or Twitter posts may create a greater sense of connection, of belonging, of membership, of community.

The internet and new communication technologies also make it easier for some people to actively contribute. A person who sits silently in the back of a PTA meeting might experience more engagement and efficacy by writing a blog post, commenting on someone else’s post, editing a Wikipedia entry, reviewing a book, posting photos, or participating in a chat room dialogue.

Perhaps, then, we’re moving toward not less social capital but simply a different form — more fulfilling to some of us and no less useful for sustaining a healthy society.

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