The fierce urgency of fixing economic inequality

By Lawrence Summers
November 21, 2011

By Lawrence Summers
The opinions expressed are his own.

The principal problem facing the United States and Europe for the next few years is an output shortfall caused by lack of demand. Nothing would do more to increase the incomes of all citizens—poor, middle class and rich—than an increase in demand, which would bring with it increases in incomes, living standards, and confidence. A more rapid recovery than now appears likely would reverse, at least partially, a growing disillusionment with almost all institutions and doubts about the future.

It would be, however, a serious mistake to suppose that our only problems are cyclical or amenable to macroeconomic solutions. Just as evolution from an agricultural to an industrial economy had far reaching implications for society, so too will the evolution from an industrial to a knowledge economy. Witness structural trends that predate the Great Recession and will be with us long after recovery is achieved: The most important of these is the strong shift in the market reward for a small minority of persons, relative to the rewards available to everyone else. In the United States, according to a recent CBO study, the incomes of the top 1 percent of the population have, after adjusting for inflation, risen by 275 percent from 1979 to 2007. At the same time, incomes for the middle class (in the study, the middle 60 percent of the income scale) grew by only 40 percent. Even this dismal figure overstates the fortunes of typical Americans; the number unable to find work or who have abandoned the job search has risen. In 1965, only 1 in 20 men between ages 25 and 54 was not working. By the end of this decade it will likely be 1 in 6—even if a full cyclical recovery is achieved.

To highlight the disturbing trends in a different way, one calculation suggests that if income distribution had remained constant in the U.S. over the 1979-2007 period, incomes of the top 1 percent would be 59 percent or $780,000 lower and the incomes of the average member of the bottom 80 percent of the population would be 21 percent or over $10,000 dollars higher.

Those looking to remain serene in the face of these trends, or who favor policies that would disproportionately cut taxes at the high end and so exacerbate inequality, assert, for example, that what could be called “snapshot inequality” is not a problem, as long as there is mobility within people’s lifetimes and across generations. The reality is that there is too little of both. Inequality in lifetime incomes is already only marginally smaller than inequality in a single year. And tragically, according to the best available information, intergenerational mobility in the United States is now poor by international standards, and, probably for the first time in U.S. history, is no longer improving. To take just one statistic, the share of students in college coming from families in the lowest quarter of the income distribution has fallen over the last generation, while the share from the richest has actually increased. Given the pressures associated with recession, it appears that more elite American colleges and universities have dropped need-blind admissions than have adopted it in recent years.

Why has the top 1 percent of the population done so well relative to the rest of the population? Probably the answer lies substantially in changes in technology and in globalization. When George Eastman revolutionized photography he did very well, and because he needed a large number of Americans to carry out his vision, the city of Rochester had a thriving middle class for two generations. When Steve Jobs revolutionized personal computing, he and the shareholders in Apple (who are spread all over the world) did very well, but a much smaller benefit flowed to middle class American workers, both because production was outsourced and because the production of computers and software was not terribly labor intensive. In the same way, the moves from small independent bookstores to megastores like Barnes and Noble, and now to Amazon and e-books, have meant that more books at less cost are available to consumers, but also mean fewer jobs for middle class workers in retail, publishing and distribution, and greater rewards for superstar authors and entrepreneurs who are transforming the way content is delivered. One other manifestation of progress is that increasingly sophisticated financial markets have provided ever-greater opportunities for those like Warren Buffett, with the ability to detect errors in prevailing valuations, to profit handsomely.

There is no issue that will be more important to the politics of the industrialized world over the next generation than its response to a market system that distributes rewards increasingly inequitably and generates growing disaffection in the middle class. To date, the dialogue has been distressingly polarized. On one side, the debate is framed in zero-sum terms and the disappointing lack of income growth for middle class workers is blamed on the success of the wealthy. Those with this view should ask themselves whether it would be better if the U.S. had more entrepreneurs like those who founded Apple, Google, Microsoft and Facebook, or fewer. Each did contribute significantly to rising inequality.  It is easy to resent the level and the extent of the increase in CEO salaries in the United States, but it bears emphasis that firms that have a single owner, such as private equity firms, often pay successful CEOs more than public companies do. And for all their problems, American global companies over the last two decades have done very well compared to those headquartered in more egalitarian societies. When great fortunes are earned by providing great products or services that benefit large numbers of people, they should not be denigrated.

At the same time, those who are quick to label any expression of concern about rising inequality as either misplaced or a product of class warfare are even further off base. The extent of the change in the income distribution is such that it is no longer true that the overall growth rate of the economy is the principal determinant of middle class income growth—how the growth pie is sliced is at least equally important. The observation that most of the increase in inequality reflects gains for those at the very top—at the expense of everyone else—further belies the idea that simply strengthening the economy will reduce inequality. Indeed, focusing on American competitiveness, as many urge, could easily exacerbate inequality while doing little for most Americans, if that focus is placed on measures like corporate tax cuts or the protection of intellectual property for companies who are not primarily producing in the United States.

What then, is the right response to rising inequality? There are today too few good ideas in the political discourse, and the development of better ones is crucial to our democracy. But here are several:

First, government must be careful to insure that it does not facilitate increases in inequality by rewarding the wealthy with special concessions. Where governments dispose of assets or allocate licenses, there is a compelling case for more use of auctions to which all have access. Where government provides insurance—implicit or explicit—it is important that premiums be set as much as possible on a market basis rather than in consultation with the affected industry. A general posture for government of standing up for capitalism rather than particular well-connected capitalists would also help.

Second, there is scope for pro-fairness, pro-growth tax reform. A time when more and more great fortunes being created and government has larger and larger deficits is hardly a time for the estate tax to be eviscerated. With smaller families and ever more bifurcation in the investment opportunities open to the wealthy, there is a real risk that the old idea of “shirt sleeves to shirt sleeves in three generations” will be obsolete, and those with wealth will be able to endow dynasties. There is no reason why tax changes in a period of sharply rising inequality should reinforce the trends in pretax incomes produced by the marketplace.

Third, the public sector must insure that there is greater equity in areas of the most fundamental importance. It will always be the case in a market economy that some will have mansions, art, and the ability to travel in lavish fashion. What is far more troubling is that the ability of children of middle class families to attend college has been seriously compromised by increasing tuitions and sharp cutbacks at public universities and colleges. At the same time, in many parts of the country, 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 on the part of the fortunate will serve to protect the interests of the middle class in the post-industrial economy. We will have to find ways to do better.

Photo: An Occupy Wall Street demonstrator projects a message on the side of the Verizon Building during what protest organizers called a “Day of Action” in New York. REUTERS/Jessica Rinaldi

28 comments

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Posted by LYSANDER_0 | Report as abusive

The shift from a manufacturing to a “knowledge” economy has had a major impact on the U.S., but not for the reasons that Professor Summers states. Yes, Summers is correct that production these days is less labor intensive and more technology intensive than in the past and, consequently, a greater share of wealth goes to those who are highly educated or who have the capital to pay for technology. But Professor Summers fails to mention that worldwide output also has massively increased, and the total number of workers employed in manufacturing has increased. So nations like China and South Korea have been able to employ hundreds of millions of new workers, bringing them from peasant poverty into relative affluence.

So, the the problem is not that technology has displaced workers. Rather, the problem is that U.S. has not retained its share of the entire worldwide manufacturing employment base. Put another way, America’s leaders have bought the specious argument that it is both inevitable and good that America’s economy transform from a blue-collar economy into the “information” technology that Professor Summers discusses.

This transformation could have been avoided, had America’s leaders pursued a sound policy of “Fair Trade” rather than “Free Trade” that allowed our intellectual property and industrial base to move overseas.

Happily, that trend is beginning to reverse as manufacturing is already starting to return to U.S. shores. We can accelerate the return if we take the appropriate measures. Those measures do not include casting idle threats toward China, or beggging that they address currency imbalances. Rather, they involve changes in policy that would improve the standard of living for the 1 billion Chinese peasants who have been left out of China’s economic miracle — accelerating the movement from an export economy to a consumer economy.

That transformation would be in China’s interest, because it would provide a market for China’s industry –now threatended by the coming recession in Europe and by its credit and housing bubbles. It would be in America’s interest because China would export less to the U.S. and the U.S. would export more to China’s consumers.

Doing so would help move us back to a more-balanced economy with a robust manufacturing base that would employ the millions of Americans who cannot possibly thrive in an “information economy”

Posted by TommyPaine | Report as abusive

Mr. Summers gets the honorary “Do as I say not as I do” Brass Figlagee award for the next 20 years. In fact, why don’t we just name the award after him?

Posted by bshaw | Report as abusive

Larry Summers increased inequality by pushing for deregulation of big banks to let them increase leverage and take more risk, so their wealthy managers, shareholders, and bondholders could make more money. And increased inequality by pushing for bailouts of big banks, so the wealthy bondholders and managers could avoid losing money. Larry Summers also increased inequality by pushing for one-sided trade deals with other countries that put US workers in competition with workers in the third world.

If Larry Summers wants to reduce inequality, we can start by repealing the policies Larry Summers has pushed for over his career: deregulation for connected big businesses, and bailouts for connected investors.

Summers is a hypocrite. Just like Reuters writer Chrystia Freeland, who complains about inequality, but argued for the policies that contributed to it.

Posted by vbounded | Report as abusive

Perhaps much might be achieved by outright prohibition of
well-funded lobbyists buying votes of our congressmen through “favors” and political “contributions” (read bribery). With the ability of companies “too big to fail” to sway political decisions in their favor at the expense of the other 99%, results are stacked on their side. Then, fostering domestic manufacturing rather than outsourcing, might also work to the nation’s benefit.

Posted by schmendric | Report as abusive

Though all these suggestions appear noble, there are too many particulars to fix. My proposal is as follows: SHMITA (מיטה), in the Year of the Jubilee, as referenced in the Torah; Relieve all debt, neither purchase nor sell any product of service for one year and let the poor have free access to food. All old contracts are void, any new contracts shall not be made until after one year of rest and any new agreements made after the sabbatical year shall only be valid for six years. Simple economics. God as the economist.

Posted by humate | Report as abusive

Inequality of income is not a product of “knowledge” but a product of Government.

Institutions structured under one set of assumptions (“banks”) have been hijacked using Governmental regulation, sometimes seen as the lack of it but not so. The new set of regulations have plundered the wealth of the country and intentionally transferred it to a class of people whose primary skill is in using Government to steal by deception. That is obviously the only thing they do well. Just look around you.

We have no politicians who want to return our financial system to the purposes for which it was structured. Such thinking is taboo, and “old fashioned”. This is because the political system has been gamed so that the only thing represented in our “representative” form of government is money. And the major purpose of “both” political parties is to continue the rape of the American people. So there is in truth just one Party, and it does not respect elections. It produces them like a Broadway musical.

Inequality will end, as it always ends. Usually this happens in a river of blood, followed by a new class of “gods” sitting on the same thrones as the old “gods”. If it is to be different here, someone will have to awaken, and soon.

Posted by txgadfly | Report as abusive

“Most alarming is the near doubling, over the last generation, in the gap between the life expectancy of the affluent and the ordinary.”

Much of that gap is due to rise of affluence for the ordinary over a generation. The ability to afford fast food rather than homemade; to travel by car rather than on foot; to watch TV rather than walk around the neighborhood; and generally adopt an unhealthy lifestyle are a product of affluence. The growing wealth of countries that were formerly almost universally poor has been accompanied by a growth of life shortening diabetes and heart problems,etc – just like America.

Posted by kpop | Report as abusive

“Why has the top 1 percent of the population done so well relative to the rest of the population? Probably the answer lies substantially in changes in technology and in globalization.”

No mention of deregulation. The rise of organized money? Wall St taking in fees when things are on their way down or up? Market fundamentalism wherein the bottom line takes precedence regardless of the near-term/long-term damage? Corporations get to outsource jobs AND game the system to avoid paying taxes? Have their cake and eat it too?

This man is the status quo, he has no answers to anything. He is and has been part of the problem.

The entire debt/consumption model is a house of cards waiting to fall. Regardless of the damage to the people of the world, those pulling the strings of this model make out. The bankers, the wealthy, the fees…

Sustainability should be the mantra of the future, there is no other way. You can’t spend and consume your way to a better life.

Posted by TheUSofA | Report as abusive

Why can these ideas only come about when these intelligent people leave office. The system is broken with each pol looking out for themselves, mainly getting reelected at any cost and lack of virtue.

Posted by Karnac | Report as abusive

You can forge any society into what you would have it be through the incentives offered and how those who successfully pursue them are then taxed on their success.

America, when it had a “progressive” tax rate punitive to the successful discouraged success. The pendulum had today swung too far the other way.

America has for too long encouraged the emergence and growth of a permanent, undereducated underclass. This is both expensive and utterly stupid.

There is no “one size fits all”. Yes, for large corporations and individuals who are the “Captains of Industry” that, even when incompetent, get “golden parachutes”, taxes are not equitable today in terms of their burden and ability to pay. That said, I see the problems as arising from a change in the effective manner in which America is increasingly governed.

We have, more and more, given over our society and institutions to the legal profession, which produces nothing. Attorneys (and their economic interests) constitute a majority of our federal elected officials as well as the Supreme Court. This was not always so and was not intended by our founding fathers. It has been, and continues to be, bad for our country.

Each year America graduates more and more lawyers. These then go out into the world to facilitate citizens preying on other citizens, companies preying on other companies, and promulgate an ever-increasing matrix of unnecessary, conflicting and contradictory regulations that act as a dragging brake on our otherwise productive people and economy.

“We, the people” have only ourselves to blame. We have sat silently as our Supreme Court has unilaterally decided over the years, without ANY challenge, that no judge is accountable to ANYONE when they misread or misapply the law, or apply the wrong , or act in their duties contrary to the the “public interest” (defined as “we, the people” and not “we, the bureaucracy” or “We, the judiciary”.

The Oaths required by law before judges and elected officials may assume their robes and/or duties no longer have any meaningful effect. America has thus been transformed without debate or public vote from a society of laws into a society of men. Men, being of unreliable convictions and motivation, almost always then prove that absolute power absolutely corrupts.

The only long term remedy is to adopt forever a new standard: “There shall be no instance where responsibility may be less than the authority authorized or exercised”. Don’t hold your breath.

In the beginning, our elected representatives were our “best and brightest”, men of intelligence and accomplishment who donated some of their time as part-time unpaid public servants in the most noble sense. Over time we have allowed politics to become a profession which has then rewarded itself far, far beyond those they supposedly serve.

Concurrently we allow them to become rich from all sorts of patronage and influence far, far, beyond even the lavish salaries and lifetime benefits we have allowed them to grant to themselves. Is it any wonder that ours is not the name they “see” on their “paychecks”?

From the beginning our success and freedom has depended on an informed and active electorate. We are no longer that. Increasingly each of us rely on the “sound bite” of the day most consistent with our economic interests. Until we can restore the concept of common foals and a common good this will not improve. Don’t hold your breath.

Posted by OneOfTheSheep | Report as abusive

If you ARE the problem – how can you be part of the solution.

PS – Please stop teaching, Larry, and retire, your particular brand of “knowledge” needs to be un-learned.

Posted by Hinch | Report as abusive

From Summers’ story, it seems that the 1 percent at the very top of the income pyramid is much, much, more educated than the 60 percent that forms the middle class, the only comment is that the lower income levels send less children to college.

His story ignores Douglass North’s basic insight that rules are made by those with the power to make those rules. In Medieval societies, owning land was the source of power. Modern capitalist societies offer other sources of power. With that, it should be no surprise that many in the 1 percent work in the financial industry, which has the position – thanks to decades of deregulation – to capture increasing shares of the wealth produced by the rest, and therefore get the power to influence the creation of rules that favor them.

Posted by All4reason_00 | Report as abusive

Sounds like what the French court intelligentsia might have said to Marie Antoinette. Gives us a break. The people on the top lie, cheat and steal and we supposed to be OK with that?

Get a clue. Nobody wants to take away Steve Jobs money or incentive. Listen to Warren Buffet, dude. And then get the damn Justice Department to do their job on all the Wall Street and Goldman Sachs crooks.

Posted by rhess595 | Report as abusive

“Why has the top 1 percent of the population done so well relative to the rest of the population? Probably the answer lies substantially in changes in technology and in globalization.”

The 1% have done relatively well economically compared with the average American because the 1% finance elections and lobby politicians on behalf of their economic interests (more precisely they usually do so on behalf of the interests of the large corporations that they own and operate). It is as simple as that. There is nowhere near the level of political voice speaking on behalf of the 99%’s economic interests as there is speaking on behalf of the interests of the wealthy. The logical result is that policy is made to benefit the wealthy. Those who can afford to speak loudly are the ones who get their way. Jobs have been allowed to go overseas because the cost savings benefit the wealthy through increased profit. The top tax rate has steadily declined over the last several decades because it benefits the wealthy through increased profit. It is not technology that has caused inequality. Inequality is simply the nature and product of a political system that is strongly influenced by a small socioeconomic elite. The manner in which technology and globalization have progressed is just another result of the 1% informing policy. These two things, along with other aspects of our society, have progressed in ways that benefit the top 1%. These sorts of things have also happened over the same period where it first became impossible for an average middle class American to support a household on one salary. It is now becoming difficult to do so on two. So average houselholds have had to steadily put more work into the system to attain generally the same level of wealth while the top 1% have reaped the benefits that getting more labor for the same cost creates.

Posted by t1326 | Report as abusive

Lawrence Summers!?! Really?

Posted by regalbeagle | Report as abusive

Demand confidence in America.

Posted by effoff | Report as abusive

I don’t want to seem critical, but—

I always ask myself where on earth do these CEO’s,
CFO’s, COO’s learn all this stuff—like how to institute all these shady financial products or how to take every corporate tax increase out of their labor forces’ living hides? These individuals who “rule” can’t be on these “thrones” of power unless they have purchased a very expensive “key” from some higher educational institution that unlocks that door to those places of “opportunity.”

And what keeps them on these immoral “thrones?” Like-kind behavior. Monkey-see-monkey-do

So, how come our universities are graduating these degenerate bunch of ape-kings that only care about hoarding all the bananas for themselves?

I say the answer starts in our educating system.
If the teachers would teach good Christian ethics and morals with good Christian ethics and morals, then the learners would pick that up to pass on.

I remember way back asking a professor about stem cells.
Oh, that was taboo because of all the ethics and life issues surrounding the unborn.

Now, look! Don’t you see….the beginning of the fall
is coming from the fall in who is teaching our under twenty-somethings.

Posted by limapie | Report as abusive

A lot of thoughtful and interesting comments here but I especially like the way txgadfly puts things. Well said.

Posted by breezinthru | Report as abusive

‘Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,’ Treasury Secretary Lawrence H. Summers said. ‘This historic legislation will better enable American companies to compete in the new economy.’ [New York Times, Nov. 5, 1999]

http://forums.wallstreetexaminer.com/top ic/804393-lawrence-summers-the-glass-ste agall-act-and-enron/

ALONG with the above, Mr. Summers joined Mr. Greenspan and Mr. Rubin (of Citibank $100 million+ pay check) on TIME magazines cover as the

“COMMITEE TO SAVE THE WORLD”

http://www.time.com/time/covers/0,16641, 19990215,00.html

In a just world, these three should be stirpped of all their assets and be in jail!

Posted by XRayD | Report as abusive

Mr Summers, why don’t you give us a lesson about this

http://www.pbs.org/wgbh/pages/frontline/ warning/

It would teach us many things especially your role in this financial crisis.

Posted by reuters11899 | Report as abusive

OneOfTheSheep made a critical error: Since the end of World War II, the lowest unemployment and some of the greatest growth in the wealth of the middle class has occurred in periods of high taxation. In 1953, the maximum marginal income tax rate was 92 percent; corporate taxes maxed out at 52 percent and capital gains were taxed at 25 percent. Unemployment was 2.9 percent. In 1968, the highest marginal tax rate was 75.25 percent, corporate taxes were capped at 52.8 percent and capital gains were still taxed at 25 percent. Unemployment was 3.6 percent. In fact, the highest unemployment from 1948 to 1974 was 6.8 percent in the recession of 1958. The next highest, 6.7 percent, was in the first year of John F; Kennedy’s administration. In the same period, the lowest the maximum marginal income tax rate went was 70 percent, the lowest corporate income tax rate was 48 percent. Over that period, the average unemployment rate was 4.8 percent. The average during Ronald Reagan’s two terms was 7.5 percent. During George H.W. Bush’s single term, when tax rates were their lowest in the postwar period, unemployment averaged 6.3 percent. George W. Bush’s Administration averaged 5.3 percent. With the same tax structure, the Obama Administration has averaged 9.5 percent. Incidentally the highest annual unemployment rate in the postwar era was 9.7 percent, recorded in 1982. All figures from the Internal Revenue Service and Bureau of Labor Statistics.

That said, the so-called “knowledge economy” is a sham. You can’t drive knowledge; you can’t eat knowledge; you can’t wear knowledge; you can’t live in knowledge. It’s a wonderful thing, but knowledge depends on a manufactured infrastructure and that’s where we’ve fallen down. We don’t have “globalization,” we have economic colonialism. For the most part, American corporations don’t have manufacturing done in China to sell their products to the Chinese, they have it done there to sell products to us. In fact, right now, American companies are pleading with the Chinese government to halt the improvements in worker wages and conditions because they are driving up costs. And they are moving to Vietnam and Bangladesh to find newer, and cheaper, labor.

Posted by TexasBill | Report as abusive

Income inequality in the U.S. has structural components, to be sure, but to ignore the policy components advanced by Republicans since the Reagan years is folly. Tax the rich. Close corporate loopholes. Invest in infrastructure. Get people back to work.

Posted by Fishrl | Report as abusive

Excellent article!

You’ve anticipated my next blog post, in which I’m planning to explain why the “free market” is not fair. Hint: difference between:
* Unearned income->
* Earned income->
* Take-home pay->
* “disposable income”

The last point is perhaps the most stark and obvious. The proportion of high salaries that are “disposable” is much greater than the proportion of disposable income within a working-class “take-home” salary. We all need to eat…

Posted by matthewslyman | Report as abusive

Amazing – in this age of information and interconnectness, how quickly folks can identify the wolf under sheep skin.

Fierce urgency? Why?

It took 15+ years to slowly chip-away American competitiveness via unregulated free trade to the point where the local job-losses and polarization started slowing down the business growth.

This urgeant heart for economic inequality has little to do with the welfare of the nation nor the public but is to accelerate the demand in whatever manner it takes to business growth – that need not necessarily translate to local growth.

You want fast growth? See if you can talk to the 1% to see how much of th 275% they are willing to share with the 40-percenters in the name of economic equality. These folks are stuck at Bush-era temptations and are killing the growth and the future of this nation.

Posted by Mott | Report as abusive

TexasBill,

You said: “OneOfTheSheep made a critical error…” which may or may not be true.

You then proceeded to discuss “unemployment” and “knowledge economy”. I did not address these issues in this thread. Perhaps you were referring to TommyPaine’s post?

Posted by OneOfTheSheep | Report as abusive

The problem with some idealistic liberals is that they want to create a perfect system. But nothing is perfect. People have tried to do it before, and failed badly: socialism, communism, collectivism, etc…

From my view point there are not just the rich and the poor on 2 sides. There are 4 of them. (There are not just left wing, right wing, there are also libertarian and populists). So we have
1. The undeserving fortunate mean-spirited selfish rich (the racist far right, the fraudulent corrupted fake-nice part of the left and most politicians)
2. The middle class
3. The unfortunate very poor with bad job/unemployed
4. The nice fortunate deserving noblesse obigue rich (These are the main driving force that moves mankind ahead, like the brain in a body, we must have them)

Government policies should be done so that we minimize both number1 and number3 as much as we can. Many mistakenly think that there are only two types, and it’s a zero sum game so if they reduce the rich (both 1 and 4), there will be less of the poor 3 and more of 2 and vice-versa.

It’s also important to note that there must be all of them. Trying to create a perfect system will unavoidably lead to utter failure. Live with it, suffering is part of life, we can only minimize it.

Tax rates, policy should be done to minimize 1 and 3 depending on the counts of all 1, 2, 3, 4. They cannot be rigid, they should change all the times accordingly.

One problem that the West have right now regarding inequality (inequality problem in the East is different) is that there are just too many of type 1.
(Lawyers, scammers, etc are examples) My personal view is that if we can precisely reduce 1 and 1 only. Things will largely solve themselves.

Another problem is that there are inequalities in the East, and in a connected global economy, this has significant impact on making inequality in the West worse.

The best way to pump up economic activities around the world right now depends on China. People in the East are extremely conservative, they save a lot of money. If China creates some sort of social safety net, they will have more confidence, spend and we will be on the way out of this recession quickly.

But in the end, we have to reduce our innate differences. At the same time, we have to allow personal liberty. Most of 2,3,4 are willing to mixed and reduce the root cause of inequality. 1 will never want to mix, we MUST respect their choice, we cannot force them. If we do, there will be chaos. 1 will go down by themselves, inbreeding will ultimately cost them in the long run.

Things are more complicated, and there are a lot more to say, but I hope my limited opinions here make sense and are of any use.

Posted by trevorh | Report as abusive

I am slightly amused by Mr Summers reference to switching from “an industrial to a knowledge economy”. This seems to infer that America, due to the wonders of her knowledge and innovation, has no need to produce any manufactured goods. Or is this statement meant to justify the gross, unhealthy expansion of the financial sector in western economies today as a valid forfeit for manufactured and traded goods?

Sorry just won’t do Mr Summers. How can you put forward such blurry economic assumptions when America is limping uncompetitively along with a manufacturing sector that represents only 12% — 13% of US GDP ?

And no, you will not now be able to manipulate the Debt/Treasury cycle or the Floating dollar exchange rate to America’s advantage because many powerful mercantilist countries are so actively working against the dollar now.

Next time, try and avoid propaganda fluff Mr Summers.

Posted by slowsmile | Report as abusive