Larry Summers is a former US Treasury Secretary and President of Harvard University.
WORLDPOST: President Obama has said that "inequality is the defining challenge of our times." In the US, wages for working-age men have fallen nearly 20 per cent since 1970 while the incomes of the top 5 per cent have soared.
What is behind America's wage stagnation and growing inequality?
LARRY SUMMERS: I would frame the challenge differently. The challenge is to the economic well-being of the middle class who, as Bill Clinton used to say, "work hard and play by the rules." You see this in the fact that in the mid-1960s only one in 20 American men between the ages of 25-54 were not working; today, even after recovery from this recession, is closer to one in 7.
That economic disenfranchisement has consequences not just for the adults who can't find economically viable work, but for their partners and their children - and their communities.
That is the defining problem of our time.
Clearly, the skewed distribution of income is a big aspect of this problem, but not the only one. Rapid rather than slow recovery from downturns is a central. So also is accelerating the overall rate of economic growth.
In a stagnant economy where growth is only marginally ahead of population growth there is little scope for sustained increases in the standard of living no matter what else happens.
Framing the issue as inequality eclipses these other aspects that are more critical to addressing the problem of people who can't find viable work. If we had more people like Steve Jobs, Bill Gates, Mark Zuckerberg, Jeff Bezos or Henry Ford in the world it would be a better place -- that is, more prosperity and opportunity for all - even though this would mean a higher Gini co-efficient indicating great inequality.
We just can't say that anything that causes more inequality is bad, because there are things that are good -- such as great inventions by successful entrepreneurs that create new rounds of wealth - that also increase inequality.
For this reason, I prefer to think of the challenge as more shared prosperity. That means more prosperity - and more sharing.
More prosperity requires in the short and medium run means doing something about the so-called "secular stagnation" risks we now face in the US and globally. Above all, the world needs more demand. And you can't get there from austerity.
But even if can break this stasis and reach escape velocity and finally put the financial crisis of 2008-2009 behind us, there is much more that needs to done.
There is plenty of room to strengthen education everywhere, especially in the United States. Almost everywhere, we have focused on one kind of public debt - public deficits and the issuance of government bonds - while ignoring equally or more important deficits.
There is the deficit represented by deferred maintenance of infrastructure and inadequate investment in new infrastructure. There is the deficit created when workers are compensated with promises of future pensions. There is the deficit created when there is significant underinvestment in science and technology. There is the deficit when the government allows its most able workers to be recruited to the private sector because of inadequate compensation.
WORLDPOST: These were all pillars of the growth scene that existed from 1950-1975 in America's golden age?
SUMMERS: Yes, we were investing in these much more productive ways before this last generation. The task or political leadership is to break out of a vicious cycle: Lower trust means less resources for government. Poor performance means lower trust. Less confidence means less preparation for the long-run, which in turn means less confidence in the future. That in turn means a scramble for the spoils now. That means conflict and gridlock.
As we all know, in 1960 John Kennedy was able to stand up in his inaugural address and say "Ask not what your country can do for you, but what you can do for your country."
This was because middle class standards of living has soared over the previous 15 years.
After a generation of middle class malaise, no president today can call on the American public to sacrifice for their country the way Kennedy did. Yet, the need for collective action today to confront our challenges - from climate change to security -- is no less than in Kennedy's day.
WORLDPOST: How did we get into this self-reinforcing malaise?
SUMMERS: Surely the Vietnam War, where elites led us astray played a role. That was the last American war in which the sons of the American middle class were drafted, fought and died.
Surely the betrayals of integrity represented by Watergate. The oil shocks of the 1970s eroded confidence that our economic destiny was within our control. The anti-government ideology and shift to the right of the Reagan years further sapped trust.
WORLDPOST: Ultimately, what you are saying is that only political leadership, not a specific set of policies, can release us from this loop that is bringing us down?
SUMMERS: We are going to need a way of framing a collective strategy for shared success. We will not get there by pitting one group against another as the pie gets smaller. We will also not get there if we fail to recognize the importance of assuring that success is widely shared. We need to make sure that the most able in our society are committed to contributing instead of only exploiting opportunities to prosper.