Opinion

Lawrence Summers

Inequality is about more than money

By Lawrence Summers
June 9, 2014

Graduates from Columbia University's School of Business hold a sign as they cheer during university's commencement ceremony in New York

With Thomas Piketty’s book, Capital in the 21st Century, rising to number 1 on best-seller lists, inequality has become central to the public debate over economic policy. Piketty, and much of this discussion, focuses on the sharp increases in the share of income and wealth going to the top 1 percent, .1 percent and .01 percent of the population.

This is indeed a critical issue. Whatever the resolution of particular numerical arguments, it is almost certain that the share of income going to the top 1 percent of the population has risen by 10 percentage points over the last generation, and that the share of the bottom 90 percent has fallen by a comparable amount. The only groups that have seen faster income growth than the top 1 percent are the top .1 percent and top .01 percent.

Applications are seen at a rally held by supporters of the Affordable Care Act in Jackson, MississippiThis discussion helps push policy in constructive directions. Taxes can be reformed to eliminate loopholes and become more progressive, while also promoting a more efficient allocation of investment. In areas ranging from local zoning laws to intellectual property protection, from financial regulation to energy subsidies, public policy now bestows great fortunes on those whose primary skill is working the political system rather than producing great products and services. There is a clear case for policy measures to reduce profits from such rent- seeking activities, as a number of economists, notably Dean Baker and the late Mancur Olsen, have emphasized.

Unless one regards envy as a virtue, the key reason for concern about inequality is that lower- and middle-income workers have too little — not that the rich have too much. So in judging policies relating to inequality, the criterion should be what their impact will be on the middle class and the poor. On any reasonable reading of the evidence starting where the United States is today, more could be done to increase tax progressivity without doing any noticeable damage to the prospects for economic growth.

It is important to remember, however, that important aspects of inequality are unlikely to be transformed just by limited income redistribution. Consider two fundamental components of life: health and the ability to provide opportunity for children.

Barry Bosworth and his colleagues at the Brookings Institution have examined changes in life expectancy starting at age 55 for the cohort of people born in 1920 and the cohort born in 1940. They found that the richest men gained roughly six years in life expectancy, those in the middle class gained roughly four years, and those in the lowest part of the distribution gained two years. To put this in perspective, the elimination or doubling of cancer mortality would mean less than a four-year change in life expectancy.

Why these differences? They more likely have to do with lifestyle and variations in diet and stress than the ability to afford medical care — especially since the figures refer to relatively aged people, all of whom, once they reach 65, fall under Medicare.

Children look at models of giant whales at the exhibition at the Natural History museum in the western city of MuensterOver the last two generations, the gap in educational achievement between the children of the rich and the children of the poor has doubled. While the college enrollment rate for children from the lowest quarter of the income distribution has increased from 6 percent to 8 percent, the rate for children from the highest quarter has risen from 40 percent to 73 percent.

What has driven these trends? No doubt there are many factors. But a crucial one has to be that the average affluent child now receives  6,000 hours more enrichment activity — for example, being read to, taken to a museum, coached in a sport or other kind of stimulation provided by adults — than the average poor child, and this gap has greatly increased since the 1970s.

A famous literary spat between 1920s novelist F. Scott Fitzgerald and Ernest Hemingway has been boiled down over time to a succinct, if apocryphal, exchange. Fitzgerald: “The rich are different from you and me.” Hemingway’s retort: “Yes, they have more money.”

These observations on health and the ability to provide opportunity for children suggest that the differences between the rich and everyone else are not only about money but about things that are even more fundamental. If society is to become more just and inclusive, it will be necessary to craft policies that address the rapidly increasing share of money income going to the rich. But it is crucial to recognize that measures to support the rest of the population are at least equally important.

It would be a tragedy if this new focus on inequality and on great fortunes diverted attention from the most fundamental tasks of any democratic society — supporting the health and education of all its citizens.

 

PHOTO (TOP): Graduates from Columbia University’s School of Business hold up a sign, May 2012. REUTERS/Keith Bedford

PHOTO (INSERT 1): The federal government forms for applying for health coverage are seen at a rally held by supporters of the Affordable Care Act, widely referred to as “Obamacare,” outside the Jackson-Hinds Comprehensive Health Center in Jackson, Mississippi, October 4, 2013.  REUTERS/Jonathan Bachman

PHOTO (INSERT 2): Children look at models of giant whales at a museum exhibition. REUTERS/Ina Fassbender

Comments
11 comments so far | RSS Comments RSS

We wonder why the world is stuck economically…… because the 99% don’t have enough money to buy stuff. That was fine before the ‘credit crunch’ because all we had to do was whip out our credit card and it was ours, even if we really couldn’t afford it.

Now…… the rich have ALL the money to spend, but how much does one man (or woman) need? So, the money (or digits on an electronic bank statement) is all in the the hands of people who can’t possibly buy enough to keep the economy going. And everyone else, well we reminisce about the time when we could get what we wanted (again, even if we couldn’t afford it). But how long can the rich stay rich when everyone else is too poor to buy what the rich are selling?

Best thought provoking book you can read for free: http://www.thelightsinthetunnel.com

Posted by euro-yank | Report as abusive
 

Many of the solutions would come out of a democratic process. The american people don’t vote though, and are too lazy and stupid and brainwashed to do what it takes to have a real representative government. There have always been fascists and greedy corporations, and for the most part the people were always brainwashed by religion and other control entities to follow and be good servants. We have only rarely been actively democratic. Usually only after great despare and suffering. The system is set up to make you as useful to the wealthy as possible. You have to see that and work to correct it starting with your self, but including understanding how the media, congress, the supreme court and the president manipulate you to be the losers that you are. Quit being stupid and lazy america, and stop believing magic and hocus pocus. That’s what it takes.

Posted by brotherkenny4 | Report as abusive
 

I think that people who focus on inequality gloss over the no. 1 reason why inequality happens, the choices that people make.
If inequity is such a Huge issue, then there is an obvious why to solve a large part of if which is to take away people FREEDOM to make bad & unwise choices.
If their were laws & draconian enforcement that prevented people from over spending, having children that they can’t afford or out of wedlock, dropping a demanding job because they don’t want to the stress, outlawing divorce, etc. then a lot of the social factors that create inequality would disappear but I don’t know anyone who thinks that is an improvement.
In the end it is a farce talk about inequality & separate it from freedom of choice. Almost every artificial means of controlling it creates an new leadership of the elite who benefits from the limits & restrictions that they place on freedom of choice.

Posted by slotowner | Report as abusive
 

I think that people who focus on inequality gloss over the no. 1 reason why inequality happens, the choices that people make.
If inequity is such a Huge issue, then there is an obvious why to solve a large part of if which is to take away people FREEDOM to make bad & unwise choices.
If their were laws & draconian enforcement that prevented people from over spending, having children that they can’t afford or out of wedlock, dropping a demanding job because they don’t want to the stress, outlawing divorce, etc. then a lot of the social factors that create inequality would disappear but I don’t know anyone who thinks that is an improvement.
In the end it is a farce talk about inequality & separate it from freedom of choice. Almost every artificial means of controlling it creates an new leadership of the elite who benefits from the limits & restrictions that they place on freedom of choice.

Posted by slotowner | Report as abusive
 

Aside from the variables of Lady Luck, hard work, personal ambition, self discipline, and persistence, the greatest separator of the classes is the ability to make prudent decisions in one’s life.

Easy to write, but very difficult top practice in real time. Then again, life is always about choices, isn’t it?

Posted by Packard | Report as abusive
 

Commenters here hone in on “choice” and “prudent decisions”, yet they fail to see that for the working poor and middle class there are few choices and decisions are usually made for them. Education coupled with capital has been the road to success for most new wealth.

The American middle class does not get a quality education and instead of having any capital, they are in debt. Even those who do “choose” to get a quality education end up deeply in debt, till their 30s and 40s.

Summers’ statement that the problem is “not that the rich have too much” is absurd. Of course it is the problem. It has bought the US government, left a “democracy” only in name, and is leaving the majority of population without any stake in the economy. That is indeed a problem, especially when so much wealth today is created out of speculative trading than actually building capital – thus jobs.

Posted by Acetracy | Report as abusive
 

What is this, Mr. Summers? “the key reason for concern about inequality is that lower- and middle-income workers have too little — not that the rich have too much.” What a stupid statement. Almost as stupid as advising President Clinton to get rid of Glass-Stegall act and paving the way to housing price manipulation and the global financial meltdown that sent such disproportionate wealth to the top 1% global financial elite. Your ideas are a disgrace to democracy.

Posted by njglea | Report as abusive
 

It seems Mr. Summers argument is that serfdoms are just fine as long as the lords are providing for the serfs.

I do agree with him that the rich having so much is not the problem as most people see it. Most think the rich have gigantic hordes of cash and swim in it late at night like Scrooge McDuck. I don’t think that’s the problem. Nor do I think that the poor and middle class not having enough is the problem. These are just arguments for jealousy. I think the problem is truly fairness and opportunity. The American dream is dead. Fix that and there would be no problem. First and foremost the current form of capitalism must be regulated in different ways than it was before. We must not allow for mega-conglomerates that wipe out competition in more and more sectors. This destroys the dream. I don’t care how much stock one person owns, but he should have to buy it from far more companies. GE should make one thing. IBM should make one thing. Philip Morris and Kraft Inc. should not own ALL the food types, and nothing other than food types. These gigantic global corporations are destroying capitalism as we were taught it, and causing the inequality and most importantly the lose of opportunities.

Posted by tmc | Report as abusive
 

All the talk is about taxing wealth, however that is not what is happening – wealth is not being taxed due to the tax code – what we are taxing is income. Yes, I am addressing deferred compensation in all its forms including perquisites.

Posted by buckaroo5 | Report as abusive
 

@buckaroo5, taxation is not the way to solve inequality anymore unless you try to tax estimated wealth. The top 1% own virtually all of the stock in all it’s forms, and assets in their forms. These people are “worth” a lot of money. They don’t “have” all of it. At their level it’s the same thing, but at ours it’s not. They are just playing you to think that you can tax them out of power. You can’t.

Posted by tmc | Report as abusive
 

Dear Larry and fellow conservatives..

The problem today is the right sees all taxes as wealth redistribution. That is too narrow a view.

Taxes are best used to pay for a free and prosperous society’s infrastructure.. Including…
1. Quality education through college.(cost for college has far far exceeded inflation since 1980 due to reduced funding from gov sources). Raise taxes on the wealthy and subsidize the costs to bring them back to 1980 levels. In return you get the best educated work force in the world!
2. Roads.. Why do we have so many toll roads now? Because tax breaks for the rich and businesses prevent the government from providing this service any longer.
3. Medicine.. Nationalize the drug companies and get rid of $1,000 pills for diabetes. There are no free markets in health care .. We cannot wait for the invisible hand of the market to pick us clean.

Corporate welfare only benefits the wealthy!! Why should the walmart store be allowed to suit for lower property taxes while I see my taxes continue to go up!! Because corporations don’t want to pay their fair share.. That’s just their nature and gov is the only institution that can prevent this.

Posted by michaelryan | Report as abusive
 

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