Back when economists still immortalized their thoughts on papyrus -- well, not quite that far back -- Arthur Okun, who had been Lyndon Johnson's chief economist, coined the term "the Big Trade-Off." The idea (which was hardly new even in 1974, but was rarely the subject of popular discussion) was that societies had to make choices between economic efficiency and inequality, that interfering in competitive market outcomes in the name of economic justice carried a price in the form of slower growth.

For Okun, though, the Big Trade-Off was the beginning of the discussion, not the end. First, there were caveats: Since markets outcomes didn't always reflect efficient resource allocation, it was sometimes possible to have one's cake and eat it, too. Second, there were more and less efficient ways to redistribute income. Indeed, one of the key goals of public policy, Okun suggested, was to figure out the least distorting/growth-inhibiting ways to achieve economic justice.

But the fine points of arguments rarely endure in political disputation, especially when it is in the interest of the folks who buy ink by the barrel (Servers by truckload? Bandwidth by the petabyte?) to keep it simple. As a result, it has become a conservative cliché that interference with markets -- or with the "job creators" as put it these days -- is self-defeating.

So why am I repeating what you probably already knew (or have already rejected as liberal posturing)? It's a convenient segue to talk about a terrific new publication from the OECD that outlines the sources of rising income inequality in affluent western countries, acknowledges the truth of the Big Trade-Off in some circumstances, and discusses ways to redistribute income with the least impact on growth.

The best news here is that western economies aren't all that close to the equity-efficiency "frontier," even when they are running at full capacity -- that is, a variety of market interventions would reduce inequality without impairing and maybe even improving growth prospects. The big opportunities, the report says, are in more/better education, intervention in labor markets to minimize frictional unemployment, and aggressive efforts to integrate immigrants into the economy.

Ah, but there's a big catch here. While the social returns to these interventions would probably be high, they would still cost a lot of public money at a time when we're already committed to spending tens of trillions of dollars we won't have. Thus the only way to get from here to there is to raise taxes in ways that have the least impact on efficiency and to pare government outlays in ways that have minimal impact on economic equity.

You're probably ahead of me by now, but let me spell it out. On the tax side, we're talking about reducing a bevy of middle-class tax expenditures ranging from the mortgage interest deduction to the exemption of premiums for employer-based medical insurance. And, as if that weren't rough enough, we're also talking about raising taxes on high-income households. (Did anyone mention carried interest?)

On the expenditure-reduction side (if you don't count the aforementioned tax expenditures), the really big money is in containing the cost (not access to) Medicare and Medicaid. Yes, of course, our rapidly increasing senior population (and their physicians and drug suppliers ) deserve the best Washington can buy. And anybody who thinks they don't is best be advised not to run for office.

So what am I really saying? (I promise this is the last rhetorical question in the blog post.) As Pogo, who was around even before Arthur Okun, put it very well: "We have met the enemy, and he is us." We already know how to push back at the income inequality that is corroding our society and polity. The giant question is whether we will muster the will to manage the job.