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Lawrence Summers demonstrates an art form

November 22, 2011

Great kudos to Lawrence Summers for his article today in the Financial Times!   A fantastic example of the subtle yet highly entertaining and downright humorous art form we see almost every day in the media.  As discussed previously, this particular art form is based on a very strict formula in which there is never deviation.  There’s four key components: 1) The author must be a well known establishment figure comfortable with the status quo and possessing an aura of profundity.  2) The title of the article must promise a no-nonsense real solution to an important problem.  3) The body of the article must describe that problem in a serious, truthful and sometimes even radical way.  4) It must conclude with an absurd solution that fully conforms with status quo thinking, doesn’t at all challenge power, and is in fact silly.  The great beauty of the art arises from the contrast between the seriousness of 2) and 3) and the outlandish immateriality of 4).  Tremendous humor arises from the contrast and many elites just roar with laughter when it’s done right as it powerfully brings home in a humorous way the essential truth that the system can never provide effective solutions to societal problems.

Principle 1) of course is easily met as Summers is a pillar of great profundity.  The piece is well titled as well, promising a serious solution to a dire problem.  In the Kindle version, it’s evocatively titled “Inequality can no longer be held at bay by the usual ideas”, although the online version is a somewhat less grabbing “We have to do better on inequality”.  Either way, the requirements of 2) are easily met.

Summers demonstrates profound profundity with a centuries spanning grand overview on the evolution of human civilization.  “Just as the evolution from an agricultural to an industrial economy has far-reaching implications for almost all institutions, so too does the evolution from an industrial to a knowledge economy. Trends that pre-date the Great Recession will be with us long after any recovery.  The most important of these is the strong shift in the market reward for a small minority of citizens relative to the rewards available to most citizens.

As just one example of the magnitude of ever rising inequality he summons forth this damning statistic: “In 1965, only 1 in 20 men between 25 and 54 was not working; by the end of this decade it will probably be 1 in 6, even if the full cyclical recovery is achieved.”

The stage then is well set for the grand conclusion, which we recall must be meaningless and completely nonthreatening to the status quo.  Connoisseurs sit back, eagerly anticipating the great laugh to come.

Here it is:

What then is the right response to rising inequality? There are too few good ideas in current political discourse and the development of better ones is crucial. Here are three.

First, government must be careful that it does not facilitate increases in inequality by rewarding the wealthy with special concessions. Where governments dispose of assets or allocate licences, there is a compelling case for more use of auctions to which all have access. Where government provides insurance implicitly or explicitly, premiums must be set as much as possible on a market basis rather than in consultation with the affected industry….

Second, there is scope for pro-fairness, pro-growth tax reform….When there are more and more great fortunes being created and the government is in larger and larger deficit, it is hardly a time for the estate tax to be eviscerated.

Third, the public sector must insure that there is 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 and the ability to travel in lavish fashion. What is more troubling is that the ability of the children of middle-class families to attend college has been seriously compromised by increasing tuition fees and sharp cutbacks at public universities and colleges.

At the same time, in many parts of the country a gap has opened between the quality of the private school education offered to the children of the rich and the public school educations enjoyed by everyone else. Most alarming is the near doubling over the last generation in the gap between the life expectancy of the affluent and the ordinary.

To summarize, the three-fold answer to the great problem of inequality boils down to something like: 1) have auctions when the government sells assets or issues licenses, and set insurance premiums based on market principles; 2) don’t further eviscerate the estate tax; and 3) while accepting the appropriateness of mansions, art, and the ability to travel lavishly, we should also look into how public education is doing and also life expectancy.

Great humor, Lawrence Summers.  Well done!  Bravo!

From → Dynamics, Suppression

  1. Andrew permalink

    This is the most progressive I’ve seen Summers. You have to be careful, lest you discourage him. The first proposal is silly. The second is important assuming a status quo economy. The third item is important too (but I’m not sure what mansions have to do with access to education).

    Summers’ “solutions” aren’t really absurd, they are just totally inadequate. Still, if supporting legislation could be enacted today, it would be an improvement. That the government — you and I and everyone else — allows NON-DISCHARGEABLE debt to be issued for student loans is a tragedy.

  2. Hi Andrew,

    Perhaps I should have replaced “absurd” with “totally inadequate”. But in 2), notice there’s no discussion on raising any taxes at all. He only says we shouldn’t further cut the estate tax. The term “pro-fairness, pro-growth” is a buzzword I usually take to mean cutting some deductions in return for lower overall tax rates. 3) doesn’t even seem to be a proposal, just an observation that education is getting expensive and there’s a gap in life expectancy. No calls for far greater public funding or how it would be financed. And on health, nothing on expanding health coverage or funding there either.

    Is it absurd that the comfortable elites in our world continuously propose totally inadequate solutions to our dire problems yet pretend to be representing our interests? It does seem absurd to me that someone could seriously think these 3 points could make any serious dent in the inequality problem. I think it’s pretty funny, actually.

    Agree on school loans! What does it say about our society that we force so many of our very own children into non-dischargable debt? Wasn’t it Biden who was one of the leaders on that?

    And no worries about discouraging Lawrence – the odds he’d find my remote outpost are very long…

  3. Stephan permalink

    Hi Jim,

    Great post about Larry “I’m the king of economists” Summers.

    Off Topic:
    I’m thinking maybe you are interested in this paper The second economy by Brian Arthur. Fits nicely with your “Race against the Machine” post. Although Brian Arthur has the better question/challenge:

    “This suggests to me that the main challenge of the economy is shifting from producing prosperity to distributing prosperity. The second economy will produce wealth no matter what we do; distributing that wealth has become the main problem.”

  4. I just downloaded it and will read it while traveling tomorrow. Looks interesting. The challenge of distribution is no doubt the central issue of our times, as of course it was in the 20th and 19th centuries as well. I think the initial point of Race against the Machine was right in that we’re entering a new era, but of course their suggestions on what to do about it are outrageous.

    Look forward to reading it and thanks for the link.

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