Summers: We Have to Do Better on Inequality

Larry Summers:

We have to do better on inequality, by Lawrence Summers, A-List, FT.com: The principal problem facing the US and Europe for the next few years is an output shortfall caused by a lack of demand. ... It would, however, be a serious mistake to suppose that our problems are only cyclical...

According to a recent Congressional Budget Office study, the incomes of the top 1 per cent of the US population, after adjusting for inflation, rose by 275 per cent from 1979 to 2007. At the same time, the income for the middle class grew by only 40 per cent. Even this dismal figure overstates the case of typical Americans...

What then is the right response to rising inequality? ...

First, government must be careful that it does not facilitate increases in inequality by rewarding the wealthy with special concessions. ... Second, there is scope for pro-fairness, pro-growth tax reform. ...Third,... the ability of the children of middle-class families to attend college has been seriously compromised by increasing tuition...

At the same time,... a gap has opened between the quality of the private school education offered to the children of the rich and the public school educations enjoyed by everyone else. Most alarming is the near doubling over the last generation in the gap between the life expectancy of the affluent and the ordinary.

Neither the politics of polarization nor those of noblesse oblige will serve to protect the interests of the middle class in the post-industrial economy. We will have to find ways to do better.