Larry Summers Denounces Inequality -- But Why?
Why is Larry Summers suddenly so worried about inequality?
The Harvard professor -- a former U.S. Treasury Secretary and Barack Obama’s first Director of the National Economic Council -- penned an opinion piece last week decrying the concentration of income at the very top. Warning of "a strong and troubling shift in market rewards for a small minority," Summers cited "dismal" figures, such as a 275 percent increase in incomes of the top 1 percent from 1979 to 2007. During that same period, income grew a mere 40 percent for the middle class.
The need for fixes is fiercely urgent, he said. But his timing is curious. Summers was driving economic policy during the worst economic downturn since the Great Depression, yet he remained largely silent on income inequality. A scan of news items featuring Summers during his recent time in power turns up almost nothing on this topic, at a moment when economic matters were at the forefront of public debate.
The gist of Summers' op-ed -- that the United States has become a profoundly unequal society -- will surprise no one who's been following economic trends for the last several years, to say nothing of the country’s thousands of Occupy protesters, whom Summers conspicuously did not mention. But it's remarkable to hear the alarm being sounded by someone who's been portrayed by detractors as an embodiment of the tight link between Washington and Wall Street.
Summers' motivation is largely political, according to several economists contacted by The Huffington Post.
"Reputation," said Derek Shearer, who served in the Clinton administration as an economics official in the Commerce Department and is professor of diplomacy at Occidental College, when asked about the purpose of Summers' recent move. "Show he’s a good liberal guy." Summers did not return request for comment for this article.
A career-minded technocrat like Summers -- especially one who’s been associated with discredited policies like financial deregulation -- has to try to stay on the leading edge of political discussion, Shearer said. "These are issues of the day, and he’s out marketing and branding himself. The facts are there, you can’t deny them. All he’s doing is stating reality. It’s like, 'Oh, my god, there’s global warming.' "
Dean Baker, co-director of the Center for Economic and Policy Research, agreed: "My guess is he’s being political here -- he’s trying to go with the tide."
This isn't the first time Summers has swung to the left while out of government. Baker and Shearer mentioned a series of increasingly progressive-sounding opinion pieces Summers wrote in the run-up to the 2008 election. "If you go back to ’06, ’08, he started to say some really good things in the Financial Times. There was talk about a new Larry Summers," said Baker.
But when Summers joined the Obama administration, where his job was to gather and present the president a range of economic policy options, many observers criticized him for marginalizing progressive opinions, including those of former Federal Reserve Chairman Paul Volcker and economists Joseph Stiglitz and James K. Galbraith.
"None of the economists who were named to the council were particularly progressive," Shearer said. "What you can fairly say is that there’s no evidence Larry was concerned with the issue [of inequality], and he really limited the range of interests and expertise that would be provided to the president. He saw himself as an expert on the economy, not somebody with strongly demonstrated progressive values."
In fact, when Summers is quoted talking about inequality in Ron Suskind’s new book, "Confidence Men: Wall Street, Washington, and the Education of a President," it's in starkly different terms than those employed in his recent opinion piece:
"One of the challenges in our society is that the truth is kind of a disequalizer." Summers is quoted as saying. "One of the reasons that inequality has probably gone up in our society is that people are being treated closer to the way that they’re supposed to be treated."
Summers has disputed aspects of Suskind's account, but the remarks seem in line with a couple of other famous Summers statements.
While a vice president of the World Bank in 1991, Summers penned a memo suggesting it was only logical for high-pollution industries to move to developing countries. Once the memo was leaked, Summers said it was written in jest. And in 2005, Summers said innate ability may partially explain why women are underrepresented in the sciences -- comments that drew a firestorm of criticism at the time.
To be sure, Summers has publicly adopted progressive positions before. During the 2008 campaign he spoke forcefully about inequality in a speech at a Harvard Business School conference.
At the time, Summers was an adviser to Obama, and seen as a potential candidate to head the Treasury. Once secure in the White House, however, Summers seems to have lost focus on inequality: His next prominent statement about the issue came on October 14, 2010, when his departure from the Obama administration had already been announced. In an interview with the Washington Post, Summers spoke of the subject almost in passing, seemingly at the prompting of the interviewer, while discussing the benefits of letting upper-income tax cuts expire. The chief reason to do so, Summers said, was to allow the government to invest in job-creation: "Summers, who will step down and return to Harvard in January, agreed that tackling income inequality is also a factor," read the article. "But 'this isn’t about redistribution,' he said."
Ira Kalish, director of global economics at Deloitte Research, said Summers should be forgiven for having other priorities while working in the White House. "The Obama administration was dealing with a near-collapse of the financial system. It was in a sense a triage," said Kalish, who authored a study of income inequality’s implications for U.S. business. "They had to prevent the economy from collapsing before they could focus on longer term issues, and this [inequality] is a longer term issue."
While Shearer agreed that the Obama administration had to address many short-term issues, he said it wasn't an either/or situation. "If this inequality was a major concern of yours, after dealing with the meltdown you move into the reform stages," Shearer said, "and you of course could have been much tougher in the reforms you proposed."
At the very least, Shearer said, the White House could have established a presidential commission on inequality in the U.S., its causes and potential solutions. "That’s the bare minimum you could have done. That’s something Larry seemed to have no interest in. Instead they set up a Simpson-Bowles deficit reduction commission."
In his recent op-ed, Summers was careful to position himself at the political center, chiding those who blame "the success of the wealthy" for "the disappointing lack of income growth for middle-class workers," as well as those who "call concerns about rising inequality misplaced or a product of class warfare." But this equivocal stance -- part denunciation, part defense of inequality -- lead Summers into a vague and limited appraisal of the problem and its solutions.
None of the economists contacted by The Huffington Post were impressed with Summers’ assessment of the problem of income inequality and potential solutions.
Baker called the analysis "really the standard textbook stuff, small-bore stuff." The cause of the problem, according to Summers, is that "the market system distributes rewards increasingly inequitably." But Baker notes that the inequality we see is consistent with the direction of policy: "They designed the system to redistribute income upward. The taxpayers are subsidizing the executives at the banks and the shareholders. We have those huge compensation packages on Wall Street; that has nothing to do with the market, it’s government subsidy."
Trade agreements too have played a large part, Baker said, putting less educated workers in direct competition with people from the developing world. "That puts downward pressure on their wages, and at the same time we largely protect the most highly educated professionals -- doctors, lawyers -- so that they aren’t competing with their counterparts in the developing world."
"This is stuff that’s been said since the Clinton years," Baker said. "The position is, 'We have inequality from the market and we can ameliorate it a little bit with good policy.' The position is that inequality came from the market, not inequality came from the policy."
"He’s not going to say something too controversial,” Shearer said. "Because then he’s not going to be hired by another hedge fund."
"You do very well if you don’t rock the boat in America. I don’t expect Larry to lead the charge," Shearer added. "I’d be shocked if he did."