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Monday, May 04, 2015

'Okun’s Equality and Efficiency'

An excerpt from Larry Summers' prepared remarks delivered at the Brookings Institute on the 40th anniversary of Okun’s "Equality and Efficiency: The Big Tradeoff":

Okun’s Equality and Efficiency: ... For many years now, it has been the case that the income distribution has been growing much more unequal. ... Certainly because of what has happened in the economy, I would in thinking about tax policy put much more emphasis on distributional issues relative to efficiency issues than I would have during much of my career.  Similarly, I believe that concern with issues relating to the cost of capital and the adverse effects of taxes in increasing it has been very legitimate at points in the past. At present, when zero interest rates make capital costs as low as they have ever been but corporate profits are at record levels, there needs to be much less concern with capital costs and more concern with the distributional aspects of capital taxation.
The same basic idea that rising inequality tips the balance between fairness and efficiency applies in other areas of policy as well. ... I would judge that he benefit cost ratio seems tilted towards minimum wage increases and towards relaxation of the rules regarding the rights of private sector workers to bargain with management.
Another area where conditions have changed over the years is with respect to policy directed at the financial sector and corporate governance. The financial sector has shown itself to be less of a source of diversification and stability and more of a source of instability than most judged a generation ago.  At the same time compensation levels in the sector, and in firms engaged with the sector has gone up rapidly. The simultaneous emergence of high profits and low interest rates raises the question of whether monopoly power is on the increase. So the question of regulatory actions looms much larger than it has for many years. ...

    Posted by on Monday, May 4, 2015 at 11:53 AM in Economics, Equity | Permalink  Comments (46)


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