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Larry Summers on income inequality

Former Treasury Secretary Lawrence Summers speaks during a discussion about tax codes and revenue hosted by the Brookings Institution, on May 3, 2012 in Washington, D.C.

Mitt Romney is in Jerusalem today raising money for his campaign. President Obama will be in New York for a fundraiser. We are now 99 days away from the election. And one of the key themes of the campaign up to this point has been income inequality.

Well, President Obama's former top economic advisor Larry Summers says that's not the debate we should be having. Summers would rather focus on inequality of opportunity.

As part of ongoing coverage of Wealth and Poverty issues, we were recently joined by Larry Summers here at the Marketplace Morning Report.

He says that while "not everything is amenable to public policy," and that the U.S. government "can't read to a child before the child goes to sleep," there are still many steps the administration could and should be taking to give every child an equal opportunity to succeed in life.

Jeremy Hobson: As part of ongoing coverage of Wealth and Poverty issues, we're joined now by Larry Summers. Welcome back to the show.

Larry Summers: Glad to be with you Jeremy.

Hobson:Well, what do you mean when you say we need to focus on inequality of opportunity in America?

Summers: It's probably inevitable that there's going to be substantial inequality. We want people who achieve extraordinary things. But, it's imperative that we have a system in which everybody has a fair chance to succeed if that system's going to be legitimate.

Hobson: So what's the answer then?

Summers: There's no single magic bullet. We've got to do much better at educating those from less advantaged backgrounds. We've got to make sure that everyone's got a fair chance at college -- that goes to controlling the growth in tuition costs; that goes to the kind of financial aid that we provide; that goes to admissions policies, which too often reward things that only very fortunate parents can provide for their children.

Hobson: What about the things, though, that you can't control from Washington -- like, for instance, what happens in the home? What the parents do, what choices the kid makes...

Summers: Not everything is amenable to public policy. The government can't read to a child before the child goes to sleep. What the government can do is assure that working families have opportunities to earn reasonable incomes. It can strive to create an economy in which people who want to work are able to work. These are all steps that contribute to  more equality of opportunity.

Hobson: And I'm sure that your political opponents on the right would listen to this and say: This is more government involvement. Wouldn't a free enterprise system be the best way to ensure that everyone has equality of opportunity?

Summers: They wouldn't be right. The market left to its own devices is not going to get poor children to college. The market left to its own devices is not going to help those least fortunate communities provide decent public education. There's much that government needs to do to create more equal opportunity.

Hobson: Well, you were the top economic advisor under President Obama. Do you think that he has done enough, and do you think that you did enough on this front?

Summers: There's certainly much, much more to be done. But I think if you look at college affordability; if you look at the steps that were taken in Race to the Top to strengthen public education, President Obama has done more to support equal opportunity than any administration in substantially more than a generation.

Hobson: Now, all of this ties, of course, into the debate over taxing the rich and whether they should pay a few percent more or less. Do you think that we can ever come to an agreement on that? This is a debate that's been going on for 20 years or so.

Summers: The top tax rate was 90 percent when Dwight Eisenhower was president. The top tax rate during most of President Regan's term was 50 percent. It strains credulity to believe that, at a time when we've got larger budget deficits than we've ever had before, somehow it will do grievous damage to the economy to restore tax rates -- only to where they were with President Clinton. I think that's an elementary kind of judgment about where we need to go as a country in the context of addressing our long run challenges.

*****

Hobson: Do you think that the housing market has hit bottom at this point?

Summers: It's hard to know. It's much closer to the bottom than it was two years ago, and the moment will come when there's a turn. I think it's a real possibility -- if nothing else, like developments in Europe, disrupt the economy.

Hobson: How concerned are you with the "fiscal cliff?"

Summers: If nothing is done and massive tax increases and massive spending cuts take place on January 1st, it will have devastating consequences on the economy, and make a recession almost inevitable.

Hobson: Whose fault is it that the European debt crisis is still weighing on the markets week after week after week?

Summers: Some of it lies in the original design of the European system. Some of it lies in the fact that European policy makers have not been able to take steps sufficient to get ahead of the problem, rather than simply try to manage the problem.

Hobson: And finally -- and I know this is something that you've had to look into while you were in the administration -- is it time to break up the banks? We've had just scandal after scandal?

Summers: It's clear that we need to look at a lot of issues in financial policy, and there are clearly excesses that will need to be addressed. It's far from clear that breaking up the banks is the right solution.

Hobson: So you wouldn't do that?

Summers: I think we've got to study all the issues and certainly what has come out -- the continuing scandals around LIBOR, around rogue trading -- these are all alarming problems. But I also think it's a mistake to assume that somehow breaking up the banks would be a panacea.

Hobson: You want to go back to Washington if President Obama is re-elected?

Summers: I'm enjoying my life in Boston, thinking, and writing. So I'm very happy doing what I'm doing.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.
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I would like to point out that Summers' use of Bear Stearns & Lehman Brothers' bankruptcies as reasons that it is not 'clear that banks should be broken up' is clever but very misleading. The reason the government (that is - we the taxpayers) were forced to bail out the banking system is because of the interconnectedness (i.e. the banks' investments/bets) with institutions like Bear Sterns & L.B. If the normal, everyday banking system was not involved in the ridiculous MBS, CDS, CDO, CDO-squared, etc. bets, then the government (I hope) would not have needed to rescue the banking system. All of the investment houses could have been allowed to fail without threatening the economy's necessary banking functions.

I agree with the other commentators when they say that NPR should put more focus on educating the public & stop allowing such 'easy' interviews to pass as informative pieces.

I'm coming to the end of my patience with NPR as an honest news outlet especially after articles such as this. Why weren't the stewards of the worst economic tank in modern history held to account when they were actually engaged in all the nonsense. Where was NPR? Why weren't they in Summers' face years ago? All of this navel gazing is, from a journalistic perspective, absolutely worthless.......................I can't even begin to describe how frustrated I am with this level of journalism....and I've been listening to NPR since the late 70's......

Where do I click to "like" these comments? About both Summers' role in the financial crisis the is still wrecking havoc globally, and public radio's narrow range of views presented.

Larry Summers' belated concern for income inequality is too full of hypocrisy to be of use to NPR listeners -- or anyone, other than the largest banks. Jeremy Hobson, you're a professional journalist, so you know Summers does not sit in a chair in Boston "thinking, and writing." You must have seen Charles Ferguson report "Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms."

Ferguson's documentary "Inside Job" details how Summers and other academic economists have made millions from the banks that he defends here and elsewhere. James, you must know all this. Why give Summers all this air time without even asking about it? Why would you think that his defense of the big banks is objective? What are we Marketplace listeners supposed to conclude, other than that you, too, are in the pocket of the JP Morgans, Morgan Stanleys, etc. etc. ad nauseum?

Lots of reports on NPR's morning edition make me angry for their obfuscation and unrealistically cheery view of a financial and political system still exhibiting "excesses" (to put it far too mildly). But talking to Summers without really asking him the tough questions he deserves to be asked burns me.

Mr. Summers stated, “There's no single magic bullet. We've got to do much better at educating those from less advantaged backgrounds.” But Mr. Summers did not address the massive fraud that led to the mortgage backed securities bubble that he helped usher in as Secretary of the Treasury when Glass-Steagall was ended. He states that there will always be income inequality, and that income inequality is not necessarily a bad thing. Perhaps, but the gross income inequality that his policies helped create does not have to exist, and to argue that lack of equal opportunity is the real culprit deflects attention from the very policies he helped create that resulted in widening income inequality. Not only did he help create the policies that allowed the financial sector to threaten the world economy, he derided experts that warned of the dangers. As Charles Ferguson points out in his most recent work, Predator Nation, Summers at the 2005 Federal Reserve conference at Jackson Hole denounced the paper presented by Raghuram Rajan warning of risks in the financial sector. Summers either failed to understand the risk or turned a blind eye; neither enhances his qualifications to speak about income inequality in America. That he was selected by Market Place Morning Edition to represent “the Left” position on income equality indicates the degree to which Market Place, American Public Radio and NPR fails to report on the substantive and real problems afflicting the economy and has shifted towards the “right.” Summers’ record in the past fifteen years weakens his credentials to speak authoritatively on economic ills. Market Place should know better and should be doing a better job educating the citizenry about what has happened in the economy rather than contributing to misdirection and deflection.

I see we were typing our angry post-Charles Ferguson thoughts at the same time. Right on!

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