We can certainly do better on inequality than Summers

As I’ve argued many times on this blog (e.g., here), mainstream economists can barely glimpse, let alone fully understand, the problem of economic inequality.

Larry Summers is, unfortunately, no exception. Yes, he recognizes that inequality exists and that “strengthening the economy” won’t magically make it disappear. And he even makes an important argument: that “focusing on American competitiveness could exacerbate inequality, if that means corporate tax cuts or the protection of intellectual property for the benefit of companies that are not primarily producing in the US.”

But then he falls asleep. His explanation of why inequality exists remains confined to the usual neoclassical reference to “changing technology and globalisation” and his idea of responding to the problem of inequality repeats the neoclassical nostrums of avoiding special concessions, enacting pro-growth tax reform, and providing widespread access to education.

What Summers and his neoclassical colleagues simply can’t or won’t understand is that how the economy is organized—how the surplus is appropriated and distributed, by and to the 1 percent—is an important factor in determining the growing gap between the 1 percent and everyone else.

That’s an explanation that would wake neoclassical economists like Summers from their slumber.