The former U.S. Treasury Secretary and Man Who Would Be Fed Chairman, now unburdened from the possibility of maintaining the globe's financial stability, is really letting his freak flag fly:
The United States may be on course to becoming a “Downton Abbey” economy. There are valid causes for concern about inequality: sharp increases in the share of income going to the top 1 percent of earners, a rising share of income going to profits, stagnant real wages and a rising gap between productivity growth and growth in median family incomes. A generation ago, it could have been asserted that the economy’s overall growth rate was the dominant determinant of growth in middle-class incomes and progress in reducing poverty. This is no longer a plausible claim.
"Downton Abbey Economy?" Paul Krugman himself couldn't have come up with a better analogy. For those of you not glued to Julian Fellowes remarkable "Upstairs Downstairs" English period series, what Summers is saying is that the economic disparities in this country are rapidly resolving themselves into a two-tier structure, one populated by genteel elites living in their well-manicured bubble, the other populated by a much larger panoply of working stiffs toiling for the benefit of the elites and scrambling over each other, greedily feasting on their crumbs.
Understand what Summers is acknowledging is really rather radical--that economic growth alone is no longer the determinative factor in improving the lives of average of Americans.
Summers cites to FDR, Truman, Kennedy and even Nixon to put President Obama's recent remarks about the corrosive effects of gross income inequality into perspective:
It is neither unusual nor un-American to be concerned about income inequality, the concentration of wealth or the influence of financial interests. Demands for action are hardly unreasonable given frustration with stagnant incomes and a growing body of evidence linking inequality to reduced equality of opportunity, reduced demand for goods and services and increased alienation from public institutions.
Summers discounts the idea of direct controls on salaries as being unrealistic given the fact that the majority of wealth accumulated is in investment assets. It is in those assets and the taxing of them, and the taxing of corporations, that Summers sees a solution to the problem. Summers notes that the lion's share of increased wealth for individuals in the last few years has been through inflated investment portfolios and that the capital gains from these investments are undertaxed and may in any event be deferred. Fair taxes on those gains are also prevented by current estate tax policy. The fairly obvious answer is to adjust the tax code accordingly.
[T]he ratio of corporate tax collections to the market value of U.S. corporations is near a record low, thanks to various loopholes. And the estate tax can be substantially avoided by those prepared to plan and seek sophisticated advice. Closing loopholes that only the wealthy can enjoy would enable targeted tax measures such as the earned-income tax credit to raise the incomes of the poor and middle class more than dollar for dollar by incentivizing working and saving.
Summers couches his pitch in language that has at least a facile appeal to those whose ideology prevents them from relying on other than market-based solutions.
It is ironic that those who profess the most enthusiasm for market forces are least enthusiastic about curbing tax benefits for the wealthy. Sooner or later, inequality will be addressed. Much better that it be done by letting market forces operate and then working to improve the result than by seeking to thwart their operation.
Summers considers the possibility of reducing the fees allowed to financial services organizations for the management of assets, but notes that such a reduction would in reality only provide a windfall to the assets' owners. Notably omitted from the discussion is a tax on individual financial transactions, as is any attempt to address the problem of globalization and outsourcing. While Summers' view of the Earned Income Tax Credit and its effect on wealth disparity may be quixotic, and in spite of what some of us think of Summers personally, it is undoubtedly helpful to have someone of his stature addressing the issue. It also suggests the issue carries political currency going forward. This simply would
not be occurring absent the efforts of Occupy Wall Street.
The Downton Abbey analogy is also apt in that the class status of the characters (thus far) remains relatively fixed throughout the series. With few exceptions, escaping one's class in the Downton world involves luck rather than work or education, resembling what is becoming an all-too familiar scenario for middle class Americans. The Great Depression and the Second World War, events just now appearing on the "Abbey's" horizon, dramatically uprooted the mores controlling social mobility and class, not just in England but around the world. Whether a similar cataclysm will be required to reverse the current concentration of vast wealth among a privileged few remains to be seen.