According to former Clinton Treasury Secretary Larry Summers, the shift of income inequality over the last quarter century simply dwarfs the amount of money being discussed in partisan debates over wealth redistribution -- and represents a serious crisis of legitimacy for society.
The former secretary's frank evaluation of the effects of a generation-long transfer of wealth to the top one percent was notable in the political realm, since it came during a week in which Barack Obama's discussion with "Joe the Plumber" gave the issue of wealth redistribution a higher profile. In the final presidential debate, John McCain repeatedly chided Obama for his casual remark to Joe about intending to "spread the wealth around." But if Summers's analysis is correct, the scope of any government redistribution that has been proposed will be nowhere near as impactful as the natural swing of fortunes to the rich over the course of the last 30 years.
Summers, who is also an economic adviser to Obama and has been suggested as a potential future Treasury Secretary, made his remarks at a conference hosted by the Harvard Business School on Tuesday.
He asked attendees to compare the respective shares of wealth commanded by different classes of earners in 1979 to the contemporary figures.
In the last 29 years, Summers said, "you'll find that the share of income going from 80 to 99th percentiles has stayed the same. And those in top one percent have gained about $600 billion. Those in bottom 80 percent have lost about $600 billion."
Summers then calculated that this overall transfer of wealth averaged out to an additional $500,000 per year in earnings for those in the top one percent, and an $8,000 loss every year for those in the bottom 80 percent.
"If the bottom 80 percent had kept pace and earned that $8,000 ... their income growth would have been twice as high over the last generation as what we in fact observed. Think about this number: $600 billion a year. It is immense compared to any discussion of changing the tax system here or there," Summers added.
Later during his speech, titled "The Future of Market Capitalism," Summers suggested that the immensity of such a growth in income inequality should supersede the normal partisan debate over redistribution of wealth via the tax code -- unsurprisingly, a hot topic in this election season. "Whatever your broad approach to public policy," Summers said, "I would suggest to you this [inequality] represents a critical problem of legitimacy."
Summers also pointed out how life expectancy between the well off and less-well off has widened in the past quarter century to an amount equal to "the burden of cancer," something Summers called "hardly a mark of our social and economic success."
According to the AP, Summers refused to answer questions after the conference as to whether he would be open to a cabinet position in an Obama administration.