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Hosted by WashU’s Sandro Galea, the Ideas Matter podcast is a space for thoughtful, informed conversations about the forces shaping our lives and institutions. In a time when public debate often generates more heat than light, Ideas Matter provides expert perspectives that deepen understanding and inform a better conversation about what matters most in the moment. We hope you find the dialogue responsive to topics of the day and yet evergreen in its focus on the issues that shape our world. From immigration, global trade, and public health to AI, creativity, and the future of democracy, we hope you will join the conversation.
About the host: Sandro Galea is a physician, epidemiologist, and author, and serves as dean of the Bursky School of Public Health and vice provost for interdisciplinary initiatives at WashU. He was named one of Time magazine’s epidemiology innovators and has been listed as one of the “World’s Most Influential Scientific Minds.”
[Sandro Galea]
Welcome to Ideas Matter, a podcast hosted by WashU. I'm Sandro Galea, vice provost of interdisciplinary initiatives and dean of the School of Public Health. America began with the proposition that all are created equal, yet America has long been a place of deep inequality, a country of haves and have-nots. What is the answer to this inequality?
Is it a more tamed capitalism or even the socialism ascendant in parts of the US? Is it an unrestrained vision of economic growth where tax cuts and deregulation raise a tide that lifts all boats? Will AI create, as some claim it will, a utopian future of leisure and abundance? Or will it deepen inequality by eliminating jobs and concentrating even more wealth in the hands of a few? Today's guests will help tackle these questions and more.
Professor Lukas Althoff is an assistant professor of economics at Stanford University. He studies long-run economic progress and inequality and how artificial intelligence and other technologies shape labor markets and scientific discovery. I am delighted to be speaking with him today. Professor Althoff, welcome.
[Lukas Althoff]
Thank you so much for having me. I'm super excited as well.
[Sandro Galea]
So let's start with your background. Tell us how you came to be doing the work you're doing.
[Lukas Althoff]
Absolutely. While I didn't grow up in the country of opportunity, I grew up in a country of opportunity, namely in Germany. I was raised by a single mom who experienced long stretches of unemployment and neither of my parents went to college. And yet I was able to go to college eventually. And I think that's in large part due to just having a great family and having the government support to do all of those things.
Bavaria where I grew up, the public schools are really excellent. And I think that's done a large contribution to my ability to go to college later on. I wasn't always a particularly good kid in school. I was very distracted. And very early on, I started working in a beer garden, which gave me some structure in my life, which was really fantastic and gave me economic autonomy very early on as well. And the distracted kid that I was, one day in high school, they put up a poster advertising a year abroad with an organization that would help you to go to different countries and I just applied for every single country on their list. Didn't think much about it. And then at some point I got the invitation to partake in their interview where you're assessed on your cultural intercultural competencies and so on. I think I did really terribly at that test because at some point I did get an invitation to go abroad but it was a country really far down my list that I had never really thought of as a destination. And that was Ecuador which turned out amazingly for me. And with the help of a scholarship provided by the organization, I very quickly after paused my high school career and went to Ecuador. And that was where I really learned to be a more disciplined student in part because I didn't speak any Spanish. So I really had to learn quickly and ask for help for various things, which I think was helpful in the long run for me. And at some point I was so bored in school that I asked my mom to send me my German high school books. And so there I started to be an autodidact and really focused on learning what I needed to learn. And so I came back to high school, graduated top of my class, and then went to college. And in the beginning, I didn't think of college as an intellectual endeavor. I thought of it more as a, almost a vocational training, a path towards a better job. Then as I took more and more classes in computer science and economics, I realized that it's really amazing to have some time to really think about problems. And I was particularly drawn to problems in economics. Even though I started studying computer science and finance, economics wasn't a big thing in my degree, but the one Econ class that I took really enlightened me or sparked some curiosity in me because I thought this disciplined way of thinking about very complex problems like how do unemployment and interest rates interact was a really incredible toolkit to have. And so I studied more and more economics, enrolled in a second degree, went to the US for a year to study at Harvard as an undergrad and there was the first time that I worked as a research assistant and saw what academic research looked like.
The first job I had was working for Roland Fryer, who at the time was studying racial discrimination in police use of force. And as an undergrad, I had no idea about the sort of discrimination that was present across really the country, historically and in the present,. and I was really struck by various newspaper articles, which I was supposed to transform into structural data. And so I kept reading about it and never thought I would have anything to do with these topics from an academic perspective. But then once I came back to the U.S. for my PhD, it just so happened that two of the classes I loved most were public and labor economics.
In those classes, I wrote research proposals and both of them happened to have an intersection with those thoughts that were sparked years ago while working on these topics as an undergrad. And here we are now, most of my research centers around exactly those topics.
[Sandro Galea]
That's a great path, thank you. Now let's dive into the U.S. landscape. So we want to talk about economic inequality. Can you really sketch what economic inequality looks like in the US today, and in particular, comparing to other times in history? And what are the drivers of inequality today?
[Lukas Althoff]
I would say in general, as time passed, inequality grew larger across the world. Very, very long ago, inequality was relatively low because we didn't have these very complex societies where we could accumulate large amounts of wealth and of course, as progress made people richer, some people benefited more than others and that gave rise to economic inequality. And I think it's really key to observe that these things, progress and inequality, often move hand in hand. And so they're really just the flip side of the same coin. In the United States, of course, the country from the very early beginning had massive amounts of inequality, a large part of its population being enslaved, first across the country, then in the South until the Civil War. And that went hand in hand with economic inequality as well. There were some really rich planters who owned a lot of land and there were poor immigrants who over time climbed up the ladder, often very successfully as the research of some of my mentors and colleagues has shown. And really inequality tended to be on the rise except for very distinct periods where inequality fell and those usually coincide with a war or epidemics. This is a hypothesis borrowed from Walter Scheidel who says that inequality rarely, if ever declines without these forces, without forces of revolution, violence, or war.
And we can see a similar pattern in the United States where after World War II, we see a decline in inequality and then around the 1980s that picks up again, so that gives rise to the famous U-shaped pattern in inequality. And that of course is mediated by various institutions like how we tax people, what kind of redistribution we allow for, what institutions we invest in, including public schooling and free higher education to the extent that it exists, healthcare, and so on.
[Sandro Galea]
So, it's of course interesting how much inequality has always been a feature of America given the land of opportunity story that America tells itself. But of course, you also mentioned opportunity. Talk us through some of the opportunities historically and in the moment that have counterbalanced these inequalities.
[Lukas Althoff]
Yeah, so one of the key pieces that the government has decided to implement to really democratize opportunity is its system of public education. And in that, it's been a real pioneer globally. No other country invested as early in public education as the United States did. And so first, this was
primary education and later on this was the high school , and after World War II this was the democratization of having a college degree. And I believe that by investing in people's human capital, the U.S. really by policy allowed people to partake in the rapid economic progress that the country has experienced over the decades and I think that was a key force that really opened up the door for many people to be successful in the U.S., either as immigrants or as native borns. And I think that is still true today, but perhaps less so than it once was at the peak of investment in public education in the United States. Today, there's growing barriers in accessing college degrees, there's rising costs of attending college, it's
harder and harder to live in cities as they become less affordable and there are often opportunities concentrated. And right now we're dealing with a rapid change in technology that creates a lot of uncertainty for people's careers, what they should invest in, and whether the occupations that they're preparing for still will exist to the extent that they do today.
[Sandro Galea]
So let us talk a little bit about some of the economic ideas we sometimes hear offered as solutions to inequality. And let me start first with what we might call capitalism with adjustments. So by this I mean what has broadly been the consensus in American economic policy at the federal level for much of recent history. So free markets with sensible regulation, which ebbs and flows between administrations, stimulus packages passed when needed, a reasonable social safety net, and perhaps a bit more redistribution than we have recently seen. So, how effective might such a model be in tackling inequality today.
[Lukas Althoff]
Absolutely, I think there's two pieces to it. One is investing in children and the other piece is providing a social safety net to families and adults. I think investing in children, we have some of the best evidence out there that there's incredible returns to those investments. So there's no dollar better spent in the U.S. economy than investing it in improving the education and democratizing access to education. And really nothing else comes close to it. Not job training, not housing vouchers, not unemployment insurance. The returns that education yields are incredible and unparalleled.
On top of that, I believe that safety net is also critical. I've experienced that myself growing up in Germany. It's been critical for us to receive support when my mom wasn't able to find employment. And that was what allowed me to focus on high school even when employment wasn't present in our household.
And I believe that is true for many people who struggle due to transitional unemployment or having to raise their kids alone. That just requires help by the government and can have positive returns in the long run. A key question is, of course, how extensive should that safety net be? I don't know if any country really has figured out the optimal level of safety net, but I think that's exactly where a competition for ideas and voters is really critical and experimentation is needed. Obviously, all of that experimentation needs to be done in a way that really responds to people's needs and those needs evolve over time. But in general, I would say we've done a great job at reducing poverty and there's just more work to be done here.
[Sandro Galea]
So let me now move to a model that's in ascendance right now, a more libertarian economic model. And by that I mean lower taxes, minimal regulation, cultivation of foreign investment, and a warmer embrace of business generally. So what are your thoughts about that model as a means of creating more opportunity for more people.
[Lukas Althoff]
I think they go hand in hand. I think allowing businesses to flourish is really critical for people to make use of opportunities. If a small entrepreneur has a very hard time creating a business and faces an overly burdensome amount of regulation, then it's very hard to make use of the talent that people across the income distribution have. And I think one of the reasons why so many immigrants in the U.S., including myself, have a relatively easy time climbing up the ladder in the United States and have had that throughout much of history is because it is rewarded in the U.S. to come up with new ideas, to market those ideas, et cetera. So that amount of competition, I think, is critical. Now, again, of course, that needs to be regulated to some extent.
And again, I don't have the perfect answer where that regulation should stop. But I wouldn't say that the more libertarian model is in conflict with providing a safety net and putting safeguards in place. It's mainly a question of where the optimal point of providing safety net and providing regulation is.
Europe has clearly chosen the more conservative path in terms of adding more regulation and it's harder to create a business and that creates less inequality, but it also creates discontent. I think that's at a peak right now. A lot of people are unhappy about the amount of regulation in the economy. And in the long run, that regulation, I mean, each piece of the regulation could be a great idea, but in sum it can make it really hard to innovate and may deter new businesses from being created or businesses coming in from abroad. And so it clearly comes with a trade-off.
[Sandro Galea]
So let's go to third model, which is socialism. We have a democratic socialist as now mayor of America's largest city. And this economic model has a of a checkered track record in countries where it has been fully applied. But some elements of socialism could potentially play a constructive role in addressing American inequality. Talk us through your thoughts on that.
[Lukas Althoff]
I think it's worth defining what we mean by socialism because socialism in the strict sense can mean public or collective ownership of the means of production, which means that the government essentially owns factories, firms, resources, and directs economic activity centrally. That's very different from what people in the U.S. often mean when they say socialism, which is usually a market economy with a very generous welfare state, which people may think Scandinavia is a great model of. If we mean the latter, following the Scandinavian model, then I think there are elements to be borrowed from those countries that can both reduce inequality and promote long-run growth, so are both great for progress and for reducing the amount of inequality. One of those things is compulsory schooling laws. This is something the U.S. has implemented relatively early. It's a fairly interventionist policy. It's pretty paternalistic, we tell people to stay in school for at least 10 years, in some countries it's 12 years. But we also know that these compulsory schooling laws are really effective in generating intergenerational mobility. And that is because often when children don't have to go to school, the poorer children tend to choose to deploy their labor in the labor market early on. We saw this before those compulsory schooling laws. We saw that during World War II, where a lot of kids dropped out of high school to work in war production, where they could receive really high wages. But in the long run, course, substituting wages for schooling can have a detrimental impact on the human capital accumulation and on their very economic outcomes. So the universal provision of public goods, especially when it's education, has a great proven track record, but on full socialism as an economic system, I think there's weaker evidence that we're able to find a way to balance innovation and growth with reducing inequality.
[Sandro Galea]
Are there any economic models I left out that we should mention?
[Lukas Althoff]
Well, you know, I think there's a key question often between like, what exactly should the government do? And so I think people disagree less on the amount of interventionism, but more on what exactly the government intervenes on. And again, I don't have a perfect answer to what the government should do, but right now the U.S. government is experimenting with different ways of investing in science, including investments in non-educational institutions. And in the past, it has proven to be possible. And so I think that's where the key questions are. How do we spend that money? And it seems like we can get people around investing in research and investing in education. It's often the more contentious point is on what that education should look like. So in addition to thinking about what economic system do we think is optimal, I think once we settle on a system that, you know, taxes people to a certain degree and spends that money, the even bigger question is what exactly is that money spent on?
[Sandro Galea]
Let me shift a little bit. Let's talk a little bit about AI. And there are many schools of thought about what AI is going to mean for the economy, for society, for our shared future. Some think it's going to usher in an age of superabundance. Some think it will lead to a kind of feudalism, where those who control technology rule over everybody else. So what do you think AI means for inequality and opportunity in America?
[Lukas Althoff]
AI, I believe, will really affect inequality through two main ways. One is the distinction between labor income and capital income. So how much people earn by working versus how much people earn by just owning capital that is becoming more and more productive as AI supercharges the capabilities of computers and hardware more generally.
And then the second component is, within the labor market for the people who are workers and don't own large amounts of wealth, how does wage inequality change over time? And in my own research so far, I've focused on really the latter point, thinking about the labor market and how inequality is impacted there. And our research here really provides a more optimistic answer than many people expect, especially people who are not as familiar with how economists think about technical change and inequality. Specifically, what we suggest in our paper is that AI is a simplification technology, making it easier for people of all educational backgrounds to participate in jobs and opportunities that used to be the exclusive territory of higher skilled workers. So for example, I can now fix my own bike, which is neither automated by the machine nor is the regular person who already knows how to fix a bike much faster at it than before, but I can uniquely now with never having learned how to fix a bike have AI talk me through what exactly I need to do to fix it. So it's specifically the lower skilled workers who tend to benefit from these forms of simplifying tasks and simplifying work. And so by lowering the barriers to occupations that used to be the territory of higher skilled workers, like being a software engineer or a marketing professional. There's now more competition for those very jobs, which means that the premium those jobs used to pay for very high education are eroded so that everyone earns a more similar wage. And so that gets to a fall in inequality. Now, the first component I mentioned is not answered by that, namely, how is the split between labor income and capital income going to change?
There, the answer is really not 100 % clear, I would say. It really depends on whether we believe AI will generate mainly returns to those who produce AI, or whether AI will mainly increase the benefits of being a small entrepreneur who can make use of AI and, for example, create a startup that produces software without having to hire a large number of software developers.
And so here the key distinction is whether we believe that the returns of AI are high-scale biased, meaning that only companies that can make massive fixed-cost investments like training their proprietary large language model, whether it is those companies who will benefit or whether we think that will be a commodity. There's already a huge amount of competition. There's labs that produce AI for free that very quickly catches up to the closed weight models. And so we may believe that, well, the returns are not going to come from providing the large-language model to the consumer, but they're going to come to the entrepreneurs, to the capital owners of the very small firms. And AI will be small-scale biased in that way, allowing us all to come up with startup ideas and implement them cheaply and quickly.
[Sandro Galea]
So let's combine the two strands of questioning. Let's talk about AI and dominant economic models now. So let's talk about the role you think the AI economy may play in determining the dominant economic model in coming decades. So for example, I think it's possible to imagine that if AI generates unlimited wealth while eliminating some jobs or many jobs, some form of socialism-like policies might be seen as necessary, even by those who are philosophically opposed to redistributive economics. So to what extent then might AI force our hand economically or even socially in the policymaking of the mid-21st century?
[Lukas Althoff]
Yeah, that's a real possibility. And history offers a somewhat loose parallel here, where mass public education was partly a response to industrialization and a way for society to adapt institutions to the new technologies. And if AI dramatically increases productivity, while displacing some workers, then some redistribution may become necessary, and people talk about universal basic income, retraining provided by public services, et cetera.
But even when people are philosophically opposed to this, they may come around if the alternative is mass unemployment and instability. But I would push back on the premise slightly and say that AI creates wealth while eliminating jobs assumes that there's a static labor market. Historically, these major technologies have created more jobs than they destroyed, even though of course the transition is often brutal. So we need to care about the two things, the short run when people have to deal with their old occupation potentially becoming obsolete and having to find something new. And then in the very long run, I think history has taught us that humans tend to find great use for their time. And these jobs that were created arguably have always become better than the jobs that existed before. So I don't think that AI will end work, but it will change what the skills are that are valuable. And it will force a massive amount of reallocation of people from one job to the other. And so I think the single most important thing that we can do is invest in people's ability to partake in opportunities. And in the era of AI, that may take different forms than in the past. So it may not just be traditional education, but it could be fostering entrepreneurship capabilities, giving people a leg up in founding a company to make effective use of those AI tools, and investing in lifelong learning and adaptation to those tools, which obviously rapidly evolve every other week, the landscape completely changes, and so I think it's super critical for workers to have the ability to keep up with those things.
[Sandro Galea]
While I know any comparison is imperfect, what do you think is the best historical analog in terms of a technology that emerged that resulted in this kind of job shift that you are talking us through?
[Lukas Althoff]
Yeah, I mean, things like mechanization, the steam engine, the electrical motor, these drastically changed the means of production and forced people to completely reorganize around that new technology, and that meant that work completely changed as well. Now, I don't know if people opposed those technologies would have wanted to go back in the old days, but I'm sure that created some pain in changing the way people work and especially the uncertainty that comes with change often means that it's unclear whether the skills that a person has built are going to be valuable at all. Am I going to be able to provide for my family, etc.
[Sandro Galea]
So we have been talking about ideas and technology. I'd like to start winding down by talking about people now. So to what extent can people working through politics, social movements, or as individuals create opportunities for themselves and others in a moment when so much can seem in the realm of large-scale forces and outside of our immediate control?
[Lukas Althoff]
I think the most important lesson we can draw from economic history is that nothing is inevitable and people really matter. The expansion of public education, for example, that I focused on earlier, that was a political choice. And it was really state legislatures that passed compulsory schooling laws and individual communities build schools. One of the greatest examples of education intervention in my view is the construction of the Rosenwald Schools throughout the U.S. South, which schooled around one third of all Black children in the early 20th century. And it did so by combining the funds of philanthropic sources and the local communities. And these local communities decided to invest in their children. And they did so with incredible success, even though the institutions at the time, in the form of Jim Crow segregation, were really stacked against them. And similarly, we've studied the GI Bill as a political decision in my research with Christiane Szerman, which shows that, again, it was a policy created by individuals that helped shape the massive expansion of the middle class. But of course, it also meant that not everyone benefited equally. So it really matters for us to think about how we design those policies and who's gonna benefit from them. Of course, there's the negative flip side too. Jim Crow policies themselves were a political choice to restrict Black Americans access to education. And that was really devastating policy with measurable consequences that persist across generations. We can trace in our data how defunding black schools after reconstruction directly reduced economic mobility for decades. And so again, people can shape outcomes, both in terms of institutions, technologies, they can shape them directly and collective action can really matter. If we think about then of Jim Crow, that was driven by the civil rights movement. And again, this is driven by people calling for desegregation and expanded school access. So I think at the individual level really, the most powerful thing is investing in one's own and in one's children ability to partake in opportunities. Again, this can take the form of traditional education and the skills to stay on top of the game when it comes to technologies. But I think that's always been the most reliable path to economic opportunity and will be even more important as we will see change because exactly those kinds of capital that you can carry with you are what's going to form your ability to adapt to rapid change.
[Sandro Galea]
Well, I think that's nice segue to my last question. Let's end on a positive note. What gives you hope in the moment?
[Lukas Althoff]
What gives me hope is students and seeing people all around the world really having a spark and unlimited curiosity. I think at Stanford, I'm particularly blessed with incredibly smart and driven students, but in my experience, it's really been true wherever I go that people tend to be really curious and driven and hardworking. And the vast majority of people I've met are really well-meaning. And I think that gives me trust in whatever happens to direct, as if from a grassroots level, direct our future in the right direction.
[Sandro Galea]
I could not agree more. I'm Sandro Galea. I have been talking to Professor Lukas Althoff about inequality and opportunity in America. Thank you, Lucas, for talking to us.
[Lukas Althoff]
Thank you so much for having me.
[Sandro Galea]
And thank you to everybody who has joined us for Ideas Matter. I look forward to continuing the conversation.