Lawrence Summers on Inequality

The Blog of Nathan Bupp
February 2, 2015

American economist Larry Summers, the distinguished former President of Harvard University and key economic adviser to President Obama, was interviewed the other day by Charlie Rose on the topic of the global economy and the state of the world. I must say that it is heartening to see someone of Summers' establishment pedigree acknowledging income inequality as a central problem highly detrimental to the other "98 percent." He admits that there has indeed been a "redistribution of income," but in contradistinction to the tired old Republican talking points, the redistribution has actually been from the working class to the corporate/ownership class and not the reverse. He perceptively links the scourge of inequality to a crisis of confidence in our institutions and widespread sense of unfairness, resentment, and apathy, all part of a downward and reinforcing cyclical pattern, devastating in the long-run to the middle class and the health of the nation as a whole.

Income inequality has been a central theme running through much of Summers' commentary over the past year. The release of Thomas Piketty's Capital in the Twenty-First Century elicited a spirited review from Summers in the journal "Democracy," where he called Piketty’s treatment of inequality in the book "perfectly matched to its moment." Summers does express some serious reservations about Piketty's policy recommendations for addressing inequality, but his thoughtful review (well worth reading) concludes that by "focusing attention on what has happened to a fortunate few among us, and by opening up for debate issues around the long-run functioning of our market system, Capital in the Twenty-First Century has made a profoundly important contribution."  

Perhaps of more interest is a series of invigorating pieces Summers wrote last year presenting his own analysis along with a set of specific policy recommendations for addressing and hopefully ameliorating inequality. Summers opened up his Washington Post op-ed "Changing the tax code could help curb inequality" with the following: 

The United States may be on course to becoming a “Downton Abbey” economy. There are valid causes for concern about inequality: sharp increases in the share of income going to the top 1 percent of earners, a rising share of income going to profits, stagnant real wages and a rising gap between productivity growth and growth in median family incomes. A generation ago, it could have been asserted that the economy’s overall growth rate was the dominant determinant of growth in middle-class incomes and progress in reducing poverty. This is no longer a plausible claim.

Equally interesting is a a piece Summers penned for Reuters,"Inequality is about more than money."  where he considers disproportionate trends in health and education. 

In the aforementioned op-ed in the Washington Post Summers stresses that "it is not enough to identify policies that reduce inequality. To be effective they must also raise the incomes of the middle class and the poor. Tax reform has a major role to play here. Apart from its adverse effects on economic efficiency, our current tax code allows a far larger share of the income of the rich than the poor or middle class to escape taxation."  Summers is a member of the "1 percent" and a strong advocate for the capitalist system, that much is clear. He avers that 

It is ironic that those who profess the most enthusiasm for market forces are least enthusiastic about curbing tax benefits for the wealthy. Sooner or later, inequality will be addressed. Much better that it be done by letting market forces operate and then working to improve the result than by seeking to thwart their operation.

Are his fellow economic and corporate elites listening to him, if nothing else, out of a sense of self-interest? (Such as they did back in the days of FDR and the 'new deal'.)   I don't hold out much hope for the next two years, but there is always 2016. 


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