Raphael Bostic: Hello, everyone. This is Raphael Bostic, president and CEO here at the Atlanta Fed. I want to welcome you to another of our podcast discussions, where we try to bring interesting people here to the Bank and talk about the work that they're doing. Today, we have the great pleasure of having Anthony OrlandoOff-site link join us. Anthony is a professor at the University of California Polytechnic, Pomona—we usually call it Cal Poly Pomona—and he is a fellow here at the Atlanta Fed for the next year or so. So Anthony, welcome—it's really good to have you.

Anthony Orlando: Thank you. It's an honor to be here.

Author Anthony Orlando during the recording of a podcast episode
Anthony Orlando. Photo by David Fine

Bostic: We asked Anthony to come here because he's done a lot of interesting things from many different perspectives: he's a scholar, he's a teacher, he's been a journalist, he actually writes books, so he's a literary contributor—many things on many different topics. Today, we've asked him to talk a bit about his work around economic mobility, as well as his contribution and relationship to monetary policy. So Anthony, are you ready to go?

Orlando: Absolutely.

Bostic: Well, why don't we start with the book that you wrote called Letter to the One PercentOff-site link? Tell us a little bit about what the motivation of that was. What are some of the high-level messages that came out of that?

Orlando: Sure. So the motivation behind that book was, I was thinking about the fact that there's a lot of academic research around inequality and economic mobility, and there has been academic research into those areas for a long time now. But it's only in the last decade or so that it's reached the level in policymaking and in public debate that we've seen it at. This book was actually written about six years ago, when that was just taking off. Actually, one of the funny things I'm remembering about it is that when I went to the first few publishers, they said, "Well, it's in the news right now—but six, twelve months from now, maybe not. I don't know if we really want to publish that."

Bostic: They had some forward insight, huh?

Orlando: That wasn't a very good prediction, of course. It's in the news constantly now. But the idea behind the book is exactly what the title says, which is, I thought, "I could write a book about a lot of these topics that would speak to people who already know and care about this topic," but I actually wanted to speak to the 1 percent, the richest 1 percent of Americans. I wanted to frame it that way to talk about how they could be a part of the solution, instead of often getting targeted as causing the problem. I thought that might be a more helpful formulation to stimulate debate.

Bostic: Well, that's a very different take on it. You know, much of the discussion when people use the phrase "1 percent," it's almost in an accusatory way—that by your existence as a member of the 1 percent, you are imposing injustice on society. To talk about it as people in the 1 percent have a choice is actually quite interesting. What kind of choices do they have?

Orlando: Well, one thing that I think is important is that a lot of studies have shown that the more resources you have, the more political power you have the possibility to get. The voices of folks in the 1 percent are often heard more in policymaking circles on Capitol Hill than the voices of the 99 percent, so one of the things in the book is talking about how they can be more politically active to voice solutions that we might not expect to come from them. Policymakers probably aren't surprised if they hear the middle class talk about raising taxes on the rich, but when you hear a rich person say it they get a lot of coverage when they do so. We've heard people like Warren Buffet talk about closing capital gains tax loopholes and increasing taxes on millionaires. He gets a lot of coverage when he does it, and that means that he has a platform where he can speak out in a way that a lot of other people can't.

Bostic: Well, it is an interesting idea to know you have a platform and then try to use it. You know, it occurs to me that a lot of the topic here is very closely related to one of our strategic priorities here at the Bank, which is increased economic mobility and resilience. And issues around tax code or regulatory infrastructure, or even incentives laid out in certain programs—they can either enhance a family or an individual's economic mobility and resilience, or they can make it much less likely that they will have either. And so it's really interesting. I really was drawn to your work in this because that voice is one—and that perspective is one—you don't often hear. How has it been received?

Orlando: I think one of the things that I've noticed is, you talked about it as having a choice where they don't realize that they have a choice, and they're often targeted as maybe even the enemy because of what's resulted in terms of inequality and lack of mobility in recent decades. I don't think that a lot of people in the 1 percent think that they are the cause of the problem. They may not even be cognizant of the extent to which they can help address the problem. So one thing that I've found that's interesting, in talking to a number of people who've read the book, is that they didn't realize just how many policies have changed in the last 30 to 40 years—just how bad a lot of these problems have gotten. They haven't put themselves in the shoes of someone else who doesn't have the same access to opportunity that they have. And not just on a national level, but I think it's important to think about these things at a local level. If they've never stepped foot in certain neighborhoods they have no idea what kind of schools those children go to, they have no idea what kind of health care options those families have, and so they really had no idea that there was a problem that even needed solving in the first place. So I think raising that awareness is the first step, and it's an important thing for those of us who write books. It's an important thing for policymakers, and it's an important thing that the Fed is trying to help raise awareness about those things.

Bostic: Well, we are definitely trying to do that. You know, listening to you has reminded me of some work that is happening out of our research department here. Our research director, David Altig, has started a program on what you would call the "benefits cliff." And it really tries to highlight the reality that for many people who get assistance there is an actual cost to trying to better themselves, to get more income, because many of the programs are set up so that for every dollar you earn you lose a dollar of benefits. But if you are on three different programs, for every dollar you earn you may lose $3 of income, right? So you can actually be worse off, and one of the things that Dave has tried to do is try to quantify how much worse off you would be, and how long it would take for you to break even.

In some instances—and he's used the nursing profession as an example—in some instances the "break even" point is 15 years. And so you start thinking, well, if these folks are facing that kind of environment, we've basically locked them into a situation where it's so costly to make themselves more resilient that the rational decision may be to not do it. And that's a really interesting insight, and it's something that we are taking around the Sixth District to try to make people aware of. And I'm gratified that it's being well received, and we're now starting to embark on about four pilots—with counties and with cities—to try to get them to rethink how they set up their programs to make that cliff far less steep and to make its impact less enduring over time. Because the closer you can bring that "break even" point to today, the more likely it is that I think people will choose to take that leap—"leap" is probably not the best imagery when we're talking about cliffs—and then get engaged and try to get to a place of self-sustaining.

Orlando: Yes. And it sounds like, from what you're saying, that that challenge exists at all levels of geography. It's not just national programs that have those incentive problems. It's also at local and regional levels. It must be, if you're implementing pilot programs at local levels.

Bostic: Well, it turns out that for many of the programs, the parameters are often set by counties. Some of these programs, they may be federal programs but they're administered at the county or local level, which then means you'll get variation within a state about how long that "break even" period is. And so that's why we're going county to county, we're going to state to state, and we're trying to work with anyone who's willing to be engaged to try to improve the situation and really give their residents the sense that opportunity is not so far away, and that it is accessible in a way that makes investing the time and resources worthwhile.

Orlando: Speaking of awareness: I don't think a lot of people realize just how much the needle can be moved at that local level, at levels like the county level or even the neighborhood level. They think about this problem as being a national problem. We talk about inequality and mobility, but we don't realize—and I think when people think of it nationally, they have a tendency to get pessimistic because it seems like a large problem that's too difficult to tackle. But they don't realize there are a lot of things you can do right in your own backyard to try to help address these problems and give access to opportunity to a lot more people.

Bostic: Well, it's funny you say that. It's almost as if you're interviewing me, because we are touching on so many of the things that we do here at the Bank. So the first Monday of every Rotary year here in Atlanta, I give a speech, and in this year's speech, one segment of the remarks—I had to talk about monetary policy, and the economy and outlook, all that kind of stuff—but one segment of the remarks was really about: What are small things that regular people can do to help improve economic mobility and resilience? And we talked about companies examining their reimbursement policies and trying to minimize the number of policies where they require a staff person to put money out of pocket and then get reimbursed. Because if you're living paycheck to paycheck, that is going to institute real hardship on that worker—and ultimately it's cash flow neutral, right? The repayment is going to be exactly the same whether the company pays it or whether the staff person pays it. But by just a little tweak in terms of the expectation of outlays, that can have large implications for programs.

We heard this from Meghan Cummings. She runs the Women's Fund of the Greater Cincinnati Foundation. We had her here to speak last fall, and she was describing a situation at the Cincinnati Zoo where when they made that flip on a transit subsidy, participation went from like 5 percent to 95 percent—very, very interesting. So these small things can make big differences, and one of the messages I tried to deliver at the Rotary was that the sum of a lot of small things can be a big thing. And so we should not be daunted by the fact that this has a national lens through which we look at this so often, but rather it's an opportunity for all of us to make a contribution that could actually move that dial.

Orlando: One of the other things we're learning is that there are a lot of noneconomic benefits to the types of things you're talking about. We do research on things like raising the minimum wage or other kinds of policies that help the working class, and it's not just that it raises their pay. It can increase morale—it can increase retention, make it easier to keep employees. And you're talking about changing reimbursement policies: you can imagine that if they change reimbursement policies in a way that makes it easier for people to take those expenses and work on behalf of the company, they become happier to work there. And you see improvements in health. You see improvements in a lot of things throughout their life that we're maybe not measuring, at least in the conventional measures that we measure.

And I think that's one of the other steps that we need to start thinking about, and it's a step that I think the Fed is starting to take. But as a country, we are so used to thinking about the broad economic statistics, things like GDP [gross domestic product]. But there are so many other measures of a society's wellbeing that GDP is not capturing. There was a commission put together about a decade ago that the economists Joe Stiglitz, Amartya Sen, and Jean Paul Fitoussi were in charge of, where they came up with an idea for Beyond GDPOff-site link, what are the measures that we could keep track of that would not only tell us how the economy is performing, but tell us how each person in the economy is experiencing that growth, and whether that growth is sustainable in the long run? And they argue that if we had a richer host of measures—not too many, because at a certain point people can only keep so many numbers in their head. But if we had a richer way of thinking about how our economy is performing and how our society is performing, we might have a better way of anticipating things like the Great Recession and other crises that seem to come up.

Bostic: Well, not only that. I think that we would also have a better way to talk about the economy in a unified way.

Orlando: Yes.

Bostic: Right. So one thing that's been very clear as I've traveled around the Sixth District is that nobody actually experiences the aggregate GDP. As you said, GDP is 2 to 2.5 percent, but in Atlanta and Midtown where our Bank is, GDP is probably 6 percent. And if you go to some of the smaller cities in South Georgia or Southern Mississippi, the GDP may be 0 percent, right? And so trying to find ways to talk about "the" American economy—which I actually think is multiple economies, multiple realities—in ways that can get everyone to have that picture in their head I think can be quite helpful. We could talk this way for a long time. I wanted to make sure that we spend some time talking about your research and some of the things that you've been doing, and one thing that I think is quite interesting is the work that you've been doing about monetary policy and how it relates, or doesn't relate, to inequality and mobility. Can you talk a little bit about how you got into this, and then some of the things that you've been finding?

Orlando: Sure. I've always been interested in the distributional effects of policy, and what I mean by that is exactly what you were just talking about: that there's not just one experience. When a policy changes, different people are affected in different ways. For a long time, the macroeconomic literature had studied the effects of monetary policy on GDP, on inflation, and it was one number—and there's good reason for that. It's hard to measure multiple outcomes. It's hard to have the data, and it's hard to figure out how to figure out how monetary policy is affecting those things.

But nowadays, we do have better datasets and better ways of measuring these things, and so one of the pieces of research that I did was looking at how monetary policy—specifically just focusing on raising or lowering the federal funds rate—affects the distribution of housing prices. We know that a lot of literature has told us that asset prices tend to increase, at least in the short run, when it's easier to borrow, when interest rates are lower. But is that all houses? Are all houses affected the same?

Just as you said that the GDP is growing differently in the center of Atlanta than it is in certain rural areas, is it true that those housing markets are growing differently? And that's what I've found. It tends to be, for example, that tighter monetary policy, at least in the short run, has a stronger effect on houses at the bottom of the distribution—which makes sense if you think about the fact that those are different borrowers. The borrowers who are buying the lower-priced houses are the ones who are more financially constrained. They're more sensitive to those interest rate hikes. And I'm not the only one who is researching this. Now there has been a large growth in interest in this in just about the last five years, and I think it's going to give us a much richer understanding of these policies.

Bostic: So now I'm going to put you in the chair that I usually sit in and ask—how much do you think that policymakers should be considering this when they think about their decisions about what the appropriate stance for policy is?

Orlando: Yes, that's a good question, and I think it's the right question. I think there are two challenges that pop into my mind. One is that monetary policy is a blunt tool, if you're trying to address things like economic mobility. It was not designed for that. The original reason the Federal Reserve and other central banks were created was not for that purpose. And it's not targeted toward specific individuals. You only have one interest rate that everybody has to experience across the economy. It's one reason why one of my coauthors, Susan Wachter, and I have written about the importance of macroprudential policies—policies that can more finely tune the effects, things like capital requirements, in regulating the financial sector. There are other tools that the Federal Reserve and other policymakers have that can more specifically home in on those kinds of specific problems.

And I would say the other challenge in using monetary policy to specifically address distributional issues is that we have a good understanding of the short-run impacts, but still not a great understanding of how it affects long-run mobility. I might be able to do my calculations and tell you how housing prices react a year or two from now. What I can't tell you is how the people who live in those houses are therefore affected 20 or 30 years down the road. And I think that is one of the forefronts that we should be pushing in research, but until we have those kinds of answers, we shouldn't be too confident that we know how to use monetary policy to address that kind of issue.

Bostic: Well, I think that those are very good perspectives. The data on this is not readily available, and I think it'll take some real attention and focus to make sure that we put ourselves in a position where we can answer those sorts of questions moving forward. So we've talked a bit about housing affordability and monetary policy. Can we just talk about housing affordability in the context of where we started, which is economic mobility and resilience? How do you see those two fitting together, and how do we try to grapple with that? In the Sixth District, just about every city I go to—whether it be Knoxville, Tennessee; Birmingham, Alabama; or Miami—they are all talking about the challenge of housing affordability. How should we think about that?

Orlando: I'm glad you said that, because I think when we talk about housing affordability, a lot of people tend to think that this is a problem just for the large cities, where we know that housing prices are the highest. But if you go across the country to pretty much every county across the United States, there is a sizable segment of the population that struggles to afford housing regardless of what the housing prices are in that given county. So that's the first thing: it is a national problem, even though it may be worse in some localities than in others.

To the question of how housing affordability relates to economic mobility: it's a lot more important than we used to think it was. One of the great new projects in economic research has been the Equality of Opportunity ProjectOff-site link , where a team of economists have been measuring, at a very fine level, how the neighborhood that you grow up in affects your likelihood of moving up the economic ladder 20 or 30 years into the future. Previously we didn't have the data to follow people that long—now we can.

Bostic: That's Raj ChettyOff-site link's work, right?

Orlando: Exactly.

Bostic: We had Raj here on the podcast, so it's a nice follow up.

Orlando: Well, I probably shouldn't explain his work for him then. But to be fair, it is a team of economists—this is an enormous effort. They have to go through census and IRS data where they have to follow all of these people over time. And as I'm sure he said, you can look within the same county, within the same ZIP code, and you can find areas where if you lived on this block you had much higher odds of succeeding than if you lived on that block. What we don't understand fully is what makes those blocks so different. We know that it has to do with a lot of the things that we've been studying—access to education, crime rates, etc.—but one thing that is incredibly clear from all of this is that your ability to afford to live in a neighborhood that has those opportunities has tremendous implications for your children as they grow up.

Bostic: It's interesting, I actually think that people have known that for a while and the—

Orlando: Economists are just catching up?

Bostic: Well, I think economists approach the question in a different way, where the answer isn't, "These neighborhoods matter." The answer is, "If I have $10 to spend to fix the neighborhood, how would I spend it?" And so that's a very different question, and a lot of Chetty's work was trying to quantify: how much extra money does someone earn? I think others who have been in this policy space haven't really cared too much about, "Is it $20,000 or is it $16,000?" because they're not doing cost-benefit analysis to that level of precision. It's really a different kind of approach, but it's one that I think has actually gotten a lot of attention and has pulled a lot of resources into this space that we haven't seen before. And I think that's actually ultimately going to be the benefit that we get out of this: many more eyes thinking about this, many more people—smart people—being able to attach their intelligence to seeking solutions that might be enduring, and that'll be a very good thing. So let me ask you a different question. You said you wrote Letter to the One Percent six years ago. Would you write that book today? Is it a book that is carrying a message that still resonates in today's society, or are there aspects of it that you would tweak to put a different spin on it?

Orlando: I think it's still incredibly relevant today. In fact, I think maybe it's more relevant today than it was even when I wrote it. But I think that there are more dimensions that could be added to it. The way that I wrote it, partly just in an effort to keep it clear for the audience, was fairly one dimensional. It was looking purely at economic differences across the income distribution and how we got to that point. Now when we talk about inequality, what a lot of us mean and what a lot of us understand is that that same economic inequality—those same forces that have led to that—have also been intertwined with racial inequality, gender inequality, and inequality with regards to sexual orientation. And I think that we have a richer idea of the divides that are in our country now than we did then, and I think that a book that's written on that topic today should include those things. And I think the other thing is that, as we've been talking about, we have a better understanding of how local the issue is, how geographic it is, how much it differs by where you live. The way that the book was written was focusing on a national problem because that was the headline problem at the time. But I think between my research and others' research, we're starting to get a better picture of how much of this problem is local and how much the solutions can be local.

Bostic: Well, many of the amenities that matter, such as a school or access to a job or a training program—they're spatial. And for many families, the school their child is going to go to is defined by where their home is in space, geographically. And so I think that that geographic element is one that you really can't ignore, moving forward. So we've talked about a lot of things. Are there other things that you feel like we haven't touched on, that you think we should bring up?

Orlando: I think what the Fed is doing is important, and I think there's a reason why this focus on economic mobility is more important and nuanced than a lot of people realize. When we hear policymakers talk about inequality, they often talk about it the way I talked about it in that book, which is that it is a large societal problem. And I think the average American has a hard time getting their mind around that idea—for a very good reason, which is that if they haven't made it into the 1 percent, I don't think most people look at people in the 1 percent and say, "That person is the reason why." Right? So framing it as a large societal issue, as this big class gulf, may not actually be the message that (A), helps get the right attention to the subject and (B), actually captures people's individual experience. I think one thing that we can do better is understand individual's experiences of mobility: how they actually go about getting health care and education, and how they actually experience the benefits programs that you were describing. I don't think that we talk enough about that richer portrait at the individual level, and I think that that would resonate more with people. Because at the end of the day, I think if most Americans feel like there is a problem with this, it's not that so many people are richer than them. It's that they don't feel like they have the ability to succeed in a way that they should. It's much more personal.

Bostic: Well, the personal is definitely true, and I think that it is a challenge for individuals—for families also—to think of themselves in the context of a broad swath of thousands, and millions, of other families. And that's a challenge to even understand what the potential choice could be, relative to what they see, and that's something that we're definitely going to continue to talk about, moving forward. Just to close, I'm curious as to current research that you're doing that excites you in this space around inequality, around mobility, perhaps around monetary policy. What's that hot new thing that you're going to be producing in the next year or two?

Orlando: Well, you make me want to talk about uplifting things, but most of the news is bad. Most of the problems we study are just that: problems. One of the things that is near and dear to my heart, particularly where I live, is the problem of homelessness—which takes housing affordability to the extreme level of the worst outcomes that can come out of it. And so I have a new paper that I'm working on with Ben HenwoodOff-site link at USC and Tom ByrneOff-site link at Boston University, where we're studying the effect of inequality on homelessness. I think those are two things that a lot of people understand are somehow linked, but they don't quite understand the mechanism and they don't quite realize that it's possible for inequality to be driving up housing prices and benefiting a certain group of people at the same time that another group of people is being harmed by it. And I think that's important because it's important to understand that—to flip things back around—these local problems do have some national solutions, too. There is something that unites all of these cities that are facing these problems, and while it is possible for us to do a lot of things at the local level we still also need to pay attention to the big picture of inequality. To put it this way: what happens in Los Angeles isn't just a problem for Los Angeles. It's connected to the problems that other people have throughout the country, and vice versa.

Bostic: Well, that's not a message you often hear about LA. People think LA is its own place that sits in its own sphere. But I think it's important to remember: it is a place, and all places share some things. I look forward to seeing that research, and I look forward to getting the learning out of that to make progress on another problem that some say is intractable, but I think there are things that can be done to make a positive difference.

Orlando: Absolutely.

Bostic: So I've been talking with Anthony Orlando. He is a professor at Cal Poly Pomona. I failed to say this at the beginning: he also is a graduate of the University of Southern California and graduated while I was working there as a professor. So I've done some work with Anthony, and it's really good to have him here—as I hope you have seen and heard through this conversation. He has lots of thoughts, lots of ideas, and lots of ambition to help make progress in pressing issues such as economic mobility, resilience, inequality, and the policies that will hopefully improve them. So Anthony, it has been great to have you here—thank you.

Orlando: Thank you for having me.

Bostic: And thank you for listening. I hope you found this to be interesting, and I hope you stay tuned to the Federal Reserve Bank of Atlanta's podcast series for our next installment. Have a great day.