Lawrence Summers, a professor and past president at Harvard University, was Treasury secretary in the Clinton administration and economic adviser to President Obama from 2009 through 2010.
Even if the process proves protracted, the U.S. economy will eventually recover. When it does, issues relating to inequality are likely to replace cyclical issues at the forefront of our economic conversation. There is no question that income is distributed substantially more unequally than it was a generation ago — with those at the very top gaining share as even the upper middle class loses ground in relative terms. Those with fewer skills — especially men who in an earlier era would have worked with their hands — are losing ground in absolute and relative terms.
These issues frame an important part of the economic debate in this election year. Progressives argue that widening inequality jeopardizes the legitimacy of our political and economic system. A time when the market is generating more inequality, they say, is no time to shift tax burdens from those with the highest incomes to the middle class, as has happened over the past dozen years. They recognize that innovators such as Steve Jobs earned their billions while providing great value to consumers and making substantial contributions to both the U.S. and global economies, but they assert that the social value associated with the activities that give rise to many other fortunes — especially in the financial sector — is less apparent.
Conservatives argue that in an increasingly mobile world, high tax rates run ever more risk of driving businesses and jobs overseas. The central role of entrepreneurship is advancing economic growth, they note, and since most new ventures fail, the returns on successful ventures have to be very large if entrepreneurship is to flourish. They take umbrage at the suggestion that there is something wrong with success on a grand scale. And they worry that policy measures taken to directly combat inequality will have perverse side effects.
Both sides make good points. While I support moves to make the tax system more progressive, the reality is that inequality is likely to continue to rise, even with all that can responsibly be done to increase tax burdens on those with high incomes and redistribute the proceeds. Measures such as allowing unions to organize without undue reprisals and enhancing shareholders’ role in setting executive pay are desirable. But they are unlikely to even hold at bay the trend toward increasing inequality.
Where does this leave the public policy agenda? The global track record of populist policies motivated by inequality concerns is hardly encouraging. However, passivity in the face of dramatic economic change is equally unlikely to be viable. Perhaps the debate and policy focus needs to shift from inequality in outcomes, where attitudes divide sharply and there are limits to what can be done, to inequalities in opportunity. It is hard to see who could disagree with the aspiration to equalize opportunity, or fail to recognize the manifest inequalities in opportunity today.
The number of children not born into the top 1 percent who move into it must equal the number of children born into the top 1 percent who move out of it over their lifetimes. So a serious program to promote equal opportunity must seek to enhance opportunity for those not in wealthy families and to address some of the advantages currently enjoyed by the children of the fortunate.
By far the most important step that can be taken to enhance opportunity is strengthening public education. For the past decade we have focused on ensuring that no child is left behind. This effort must continue, but if everyone is to have a real chance for great success we must also ensure that every child in public school can learn as much and go as far as his or her talent permits. This means judging schools on measures beyond the fraction of students who exceed some minimum. Over the past 40 years, with the strong support of the federal government, the nation’s leading universities have made a major effort to recruit, admit, support and graduate minority students. These efforts will and should continue.
But as things stand, a minority youth with strong test scores is considerably more likely to apply and be admitted to a top school than a low-income student. The leading U.S. institutions must make the kind of focused commitment to economic diversity that they have long mounted toward racial diversity. It is unrealistic to expect that schools that depend on charitable contributions will not be attentive to offspring of their supporters. Perhaps though, the custom could be established that for each “legacy slot” room would be made for one “opportunity slot.”
What about the perpetuation of privilege? Parents always seek to help their children. But there is no reason the estate tax should decrease relative to the economy at a time when great fortunes are increasingly dominant. Nor should we continue to permit tax-planning techniques that are de facto tax cuts only for those with millions of dollars of income and tens of millions in wealth.
These are just a few ideas for advancing equality of opportunity. There are many more. It is an aspiration those of every political stripe should share.