Unfortunately he is wrong about the direction of change. Apparently Summers has missed the downturn in the last six years and the weak growth since the turn of the century. In his post column today he warns readers:
"If total income were independent of efforts at redistribution, there would be a compelling case for reducing incomes at the top and transferring the proceeds to those in the middle and at the bottom. Unfortunately, this is not the case. It is easy to conceive of policies that would have reduced the earning power of a Bill Gates or a Mark Zuckerberg by making it more difficult to start, grow and globalize businesses. But it is much harder to see how such policies would raise the incomes of the remaining 99.9 percent of the population, and such policies would surely hurt them as consumers."
It's interesting Summers picked Bill Gates. Back in the early 1990s Microsoft helped to lock in its monopoly on operating systems by contracting with major manufacturers so that they paid Microsoft for each computer they shipped that had a competitors' operating system. Needless to say, such deals strongly discouraged Dell, Hewlett-Packard and other major manufacturers from experimenting with niche operating systems that might have potentially had larger uses. Had the Justice Department taken anti-trust law seriously we might have better software today and Bill Gates would be considerably less wealthy.
We could also impose a modest sales tax on financial transactions as even the I.M.F. has advocated. This would both hit many of the fortunes being collected on Wall Street and also reduce the enormous amount of waste in a financial system that consumes five times as large a share of GDP as it did forty years ago.
We could cut back on the fortunes in the pharmaceutical industry and tech sector and get better drugs and technology by moving away from patent supported research. (Yes, there is such a thing as the National Institutes of Health and everyone agrees it does great work.) We could also make it more difficult to bring frivolous patent suits so that Apple, Samsung and the rest will have to compete to make the best products, not in the court rooms.
And we could cut back on the Walton family's fortunes by pushing China and other developing countries to raise the value of their currencies. This would reduce their profit margins on low cost imports. It would also have the great advantage of moving us toward more balanced trade creating millions of jobs and increasing growth. In addition, by getting us closer to full employment, tens of millions of workers would be in a position to get wage gains.
So Summers is absolutely right. Total income is not independent of distribution and many of the steps we might want to take to equalize distribution would also foster growth.
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