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Monday, November 21, 2011

Larry Summers in Washington Post

Well, he's a known genius.  So let's see what he has to say:

". . . . When Steve Jobs revolutionized personal computing, he and Apple shareholders did very well, but those shareholders are all over the world, and a much smaller benefit flowed to middle-class American workers, both because production was outsourced and because the production of computers and software was not terribly labor-intensive.

"The market system distributes rewards increasingly inequitably. On one side, the debate is framed in zero-sum terms, and the disappointing lack of income growth for middle-class workers is blamed on the success of the wealthy. Those with this view should consider whether it would be better if the United States had more, or fewer, entrepreneurs like those who founded Apple, Google, Microsoft and Facebook. Each did contribute significantly to rising inequality. It is easy to resent the level and extent of the increase in CEO salaries, but firms that have a single owner, such as private equity firms, pay successful chief executives more than public companies do. And for all their problems, American global companies have done very well compared with those headquartered in more egalitarian societies over the past two decades. Where great fortunes are earned by providing great products or services that benefit large numbers of people, they should not be denigrated."

A bit of fuzzy thinking here, just like Gingrich with his Henry Ford and Bill Gates examples.  THOSE AREN'T THE PEOPLE WE ARE AFTER!  On the other hand, did the capitalist system really have to promise Bill Gates $60 BILLION dollars for him to write some crummy code that turned up on a lot of computers?  And Apple has always been priced too high for what you get.

But I'm getting distracted.  The point is NOT to take money from the hands of real entrepreneurs and investors.  It's to take money from the skimmers -- the people who don't provide jobs, and whose daily work typically does more harm than good to consumers.  I'm not sure, but I think Larry might be one of those.  Any consulting he does for any individual corporation or bank is sure to benefit that bank, almost certainly at the expense of society.  Those are the payments that we want to tax, just like we should have taxed those consulting fees that Gingrich got from Freddie Mac.

Seriously, if he is so smart, why is simplifying so much?  Is it truly beyond his big brain to figure out a system where investment is still encouraged and rewarded, AND skimmers get taxed?

To his credit, he then says "Meanwhile, those who call concerns about rising inequality misplaced or a product of class warfare are even further off base" and makes a few obvious points about income inequality.

And he ends with three suggestions:

"First, government must not facilitate increases in inequality by rewarding the wealthy with special concessions.  Where governments dispose of assets or allocate licenses, preference should be on the use of auctions to which all have access. Where government provides implicit or explicit insurance, premiums should be based on the market rather than in consultation with the affected industry. Government’s general posture should be standing up for capitalism rather than for well-connected capitalists."

The first and last sentences are obvious, but they are old news.  Government, including both Administrations that Larry served in, has always placed well connected capitalists over capitalism.  It shouldn't but it does.  We know the problem Larry, where's the Harvard solution?  The middle two sentences are too specific and vague at the same time.  

On to No. 2:

"Second, there is scope for pro-fairness, pro-growth tax reform. The moment when more great fortunes are being created and the federal deficit is growing is hardly the time for the estate tax to be eviscerated. And there is no reason tax changes in a period of sharply rising inequality should reinforce the trends in pretax incomes produced by the marketplace."

Can't argue with the estate tax point.  And the other point is good too, but I resent his "produced by the marketplace" dig at the end.  Yes, one can say that the skimmers' income is "produced by the marketplace," but only because the marketplace has become corrupt.    

And then No. 3:

"Third, the public sector must ensure greater equity in areas of the most fundamental importance. It will always be the case in a market economy that some will have mansions, art, etc. More troubling is that middle-class students’ ability to attend college has been seriously compromised by increasing tuitions and sharp cutbacks at public universities, and that, over the past generation, a gap has opened between the life expectancy of the affluent and the ordinary."

Ok, states have to keep tuitions low.  Good.  How is that done?  Raise taxes on the skimmers.  And STOP all student loan programs -- as the Economist recently explained, if we lend the kids more money, that translates directly into higher tuitions.  Not a good deal for the kids.

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