Address looks to the Great Gatsby Curve to illustrate the relationship between technical tools and impact.
October 11, 2021
Cristi Kempf
Steven Durlauf, Steans Professor in Educational Policy

As he delivered the Aims of Public Policy address at the University of Chicago Harris School of Public Policy on Sept. 20, Steven Durlauf, the Steans Professor in Educational Policy at Harris, challenged incoming students to see data as a starting point to making change in the real world, emphasizing how Harris will teach them to ask the tough questions needed to evaluate data and create policy that makes an impact. 

“I want you to see how the tools that Harris will teach you will let you address these questions and think them through,” Durlauf said.

Kicking off Orientation Week, the annual Aims of Public Policy address is a reflective pause for Harris’ newest students. After wrapping up math and coding camps, master’s and Ph.D. students get inspiration from a senior faculty member as they gird themselves for their first-year economics, statistics, and analytical politics courses. Those courses are part of The Core, Harris’ rigorous core curriculum.

“The things that you’ll learn this year in The Core will help you dive into the policy challenges that motivated you to come to Harris,” Katherine Baicker, dean and Emmett Dedmon Professor at Harris, said as she welcomed the audience of students, staff, faculty, and alumni listening to the address, which was live-streamed around the globe. “They will be incredibly valuable for you in addressing not just today’s problems, but the problems of the future that no one is thinking about right now. That's why we think the first-year toolkit is so important.”

Echoing Baicker, Durlauf said it is natural to wonder how such technical tools “map to the real world.”

“Better understanding the world around us is related to the technical tools, and part of our job as instructors is to demonstrate that,” added Durlauf, whose microeconomics and macroeconomics research centers on inequality, poverty, and economic growth.

Alan Krueger, who coined the term "The Great Gatsby Curve."

To make his point, Durlauf turned to “The Great Gatsby Curve,” which looks at links between a nation's income inequality and intergenerational economic mobility. Coined in 2012 by Alan B. Krueger, then-chair of the Council of Economic Advisers, and riffing off of F. Scott Fitzgerald’s novel about class distinctions in the 1920s, the Gatsby Curve shows the relationship between two fundamental facets of inequality. It finds, he said, that “countries that exhibited more inequality also exhibited greater persistence of socioeconomic status across generations.”

The Gatsby Curve was “a very big deal in policy discussions” said Durlauf, making headlines largely because the United States performs relatively poorly in both of its measures. 

“Central to the American mythos is that this is a country that has enormous opportunity and, as a result, is going to tolerate quite a bit of cross-sectional inequality,” Durlauf said. “So, from the vantage point of the myth, this figure was very disturbing.”

The findings “stimulated enormous amounts of research in the last decade, trying to understand this relationship: Does mobility beget inequality, does inequality beget mobility. And if so, what are the mechanisms that underlie it and how can we ameliorate these challenges?”

When faced with findings, like those in the Gatsby Curve, Durlauf said, policymakers, must poke and prod with the tools Harris teaches to determine what they actually say – and determine their potential impact on policy.

“What I'm putting on the table,” Durlauf said, “is that the first question I have to ask is whether the measurements are credible as stated. Is it the case that these statistics that are given for mobility and for inequality are grounded in appropriate data construction?”

“The second question is going to be that if the data are appropriately constructed, is there an actual relationship between the data being measured?” (Spoiler alert: Durlauf agrees there is one.)

Data, he said, “don’t exactly speak for themselves, but “sometimes “you've got to listen carefully to see whether or not the evidence of a relationship is strong.”

“The third thing you have to think about,” he added, “is whether or not these are even the appropriate measures of inequality and mobility.”

“And then the final thing,” Durlauf said, “is to ask whether or not it even makes sense to think about mobility and inequality as separate things. Maybe they're all part of the same story.”

What answers, Durlauf said, would students reach by using their Harris toolkit? “You will hear much about the importance of actually understanding the nitty-gritty of data construction,” he said. “It may not be glamorous, but it is fundamental.”

Once there’s an understanding of how the data work, statistical theory comes in. “In other words,” he said, “you will have to ask basic questions associated with whether or not the correlations are strong enough to be attributable to an actual relationship?” 

Social science theory is crucial to determine appropriate policy design and to understand the significance of data relationships. For instance, is it wise to compare Norway, with its largely homogenous population of less than five million people, to the United States, with its largely heterogeneous population of nearly 330 million people? “What social science theory helps you do is think about whether it even makes sense to put these observations in the same regression,” Durlauf said.

“There aren't going to be algorithms for making those judgments. And that's one of the hard things you’re going to learn here. But that's going to be the upshot of learning how to translate interesting empirical relationships into interpretable objects.”

Durlauf explored how inequality and mobility relationships can be explained with four theories:

  • Family investment, or the money and time parents devote to their children.
  • Social environments, and the ways they affect a child’s opportunities.
  • Political economy, which looks at such questions as if inequality increases, what does that do to the policies that are implemented by a government?
  • And cultural capital, such as how teenagers form aspirations about going to college.

Learning to consider many such perspectives, he explained, is part “of what the interdisciplinary approach of Harris gives you.”

“The problems that you're going to be thinking about, be they macro problems such as the overall level of intergenerational mobility in the country or micro problems such as what's the right way to allocate children across classrooms in elementary school – all of those ultimately require integrating all of these different perspectives,” he added.

Durlauf then showed data on different mobility levels in different regions of the United States, the widely varying school district spending per student across Texas, and the impact of levels of violence or exposure to lead in Chicago neighborhoods. Or, he said, how “micro things have macro consequences.”

“In thinking about the inequality-mobility nexus,” he added, “the nexus is defined with respect to income inequality but there are also ethnic inequalities, and that's really what the horizons are going to be in the research and policymaking.”

“These are the types of things,” he said, “that led me to propose something that I call the memberships theory of inequality.” The theory is that Individual beliefs, preferences, and opportunities are conditioned by group memberships. Some of the memberships, whose impact can be positive or negative, are mostly fixed, like ethnic group or gender. Others are more fluid, like living in a certain neighborhood or working at a certain company. 

Such memberships, he said, evolve and can create social or economic segregation, putting families with different incomes, for example, into different neighborhoods and schools. Combined, persistent intergenerational inequality and poverty can result, with the result, as it is in the Gatsby Curve, that “more inequality begets greater persistence of that inequality.”

Through such exploration, he said, “what's relevant is that you understand the distinctions … about how policies ought to be evaluated. … how to think about responsibility, how to think about trade-offs.”

And, he added, when creating policy, it's not enough just to talk about ethics.  Policymakers have to consider efficacy, he said, and what’s going to be possible.

“What you're going to be receiving here [at Harris] is a huge number of dimensions for the conducting of successful social science and policy evaluation,” Durlauf said. “You’re going to work on measurement, you’re going to learn about statistics, you're going to learn about social science theory, decision theory, and philosophy. 

“They’re all fundamental for doing policy work.”

Previous Aims of Public Policy Addresses