Too Big to Fail and Economic Inequality

By Mike Lux
CrooksandLiars

As I wrote in a piece a couple of months ago, I am glad to be in the political party that is actually having a debate about how to revive the American middle class, because I think it is one of the two most central and important economic debates of our generation (the other being how do we convert our worldwide economy into one that doesn’t cook the planet). Given that the Republicans’ only big focus is how to keep taxes low on the rich and government too weak to function, I am happy my party’s debate is a little more focused on where it needs to be. The only problem I have with the debate is that too many of the establishment Democrats think it can be done without challenging the wealthy special interest status quo, the concentration of power in both our economy and politics.

Here’s one example of what I am talking about: a Larry Summers op-ed in the Washington Post just before Thanksgiving entitled “Three Ways to Combat Inequality.” I appreciate Summers caring enough about inequality to write something about it, but I found the op-ed disturbing (although not surprising) in that he totally buys into the establishment conventional wisdom that the reasons for increased inequality “lies substantially in changes in technology and globalization.” He goes on to say that on one side (presumably the side of crazy lefties), “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”. After that classic swipe, he talks about how the right wing is wrong not to worry about the issue at all, and then lists his three solutions: don’t reward the wealthy with special concessions, “pro-fairness, pro-growth tax reform,” and making sure there is more equity in areas like education and health care.

I agree with Summers on his three general policy proposals, although I suspect we would disagree on the details of those policy ideas — for example, I strongly support taxing speculation on Wall Street through a bill like Harkin and DeFazio’s Financial Transaction Tax, and Summers strongly opposed the idea while at the White House, and I strongly supported a public option on health care when Summers was happy to trade it away. But none of these three “solutions” do anything to more fundamentally solve anything, which Summers tacitly admits by saying upfront that inequality is pretty much inevitable because of globalization and technology. Summers, along with his mentor Bob Rubin and his protégé Tim Geithner, are dead wrong on their central approach to economic policy, which encourages “the market” (as they define it, at least) to do what it will and uses government to soften the rough edges and keep things from being quite so miserable for at least the poor. The fact that these proposals ignore the very heart of the matter, which is the power relations that drive our modern economy, speaks very loudly.

(More here.)