Monday, November 21, 2011

Responses to rising inequality

Larry Summers writes about inequality in today's FT:

It would, however, be a serious mistake to suppose that our problems are only cyclical or amenable to macroeconomic solution. 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. .... 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.

So what should be done about it? More open auctions for public assets like electromagnetic spectrum or implicit insurance, he says, as well as keeping the estate tax, and containing the rise in college costs. It does seem like a small-scale response to a massive shift in the underlying nature of economy.The argument I've been making is we need to think about underlying incentives and behavior and public ethics. That is why I have (a little to my own surprise) found myself discussing Aristotelian virtue or contemporary ideas about happiness as much as, of not more than, the labor market and growth.

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