Back in the 1980s, two young Harvard professors trying to reinvigorate the Democratic Party would meet at the Wursthaus restaurant in Cambridge, Mass., to have lunch and argue with each other. They must have made for an entertaining sight, one of them bearish and the other less than five feet tall, debating each other in a dark Harvard Square dive. The argument, in a nutshell, came to this. The smaller man — Robert Reich, a future secretary of labor — argued for something that he called “industrial policy.” Since the government couldn’t avoid having a big influence on the economy, he said, it should at least do so in a way that promoted fast-growing industries and invested in worthy public projects.
The bearish professor was Lawrence H. Summers, who was then the youngest person to have received tenure in the modern history of Harvard University. He loved to tackle big, broad questions, and, by his lights, industrial policy amounted to another version of the governmental meddling that had helped consign the Democratic Party to opposition status. How could bureaucrats know which industries and projects to support with tax credits? The better solution, Summers responded, was to get the economy growing fast enough that the problems of the middle class would begin to solve themselves. And the way to do this was to slow government spending and raise taxes on the wealthy, which would bring down the Reagan-era budget deficits and, eventually, interest rates. Once that happened, the American economy would be unleashed.
The debate, friendly as it was when Summers and Reich were having it, would come to dominate the struggle over domestic policy within the Democratic Party for more than a decade. Bill Clinton ended up embracing the centrist, business-friendly ideas of Summers and his mentor, Robert Rubin, and the situation played out just as they had predicted: interest rates fell, and along came a boom that helped almost everyone. In the late ’90s, the wages of rank-and-file workers rose faster than they had in a generation. A frustrated Reich left the Labor Department after Clinton’s first term, while Summers eventually ascended to the top job at the Treasury Department.
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On Oct. 30 of last year, Summers made his debut as a monthly columnist for The Financial Times. The column was titled “The Global Middle Cries Out for Reassurance.” He began by noting that the world’s economy had grown faster over the previous five years than at any other point in recorded history. “Yet in many corners of the globe there is growing disillusionment,” he continued. The main reason seems to be that the benefits of growth are flowing largely to only two groups: previously impoverished residents of Asia and an international elite. Summers’s favorite statistic these days is that, since 1979, the share of pretax income going to the top 1 percent of American households has risen by 7 percentage points, to 16 percent. Over the same span, the share of income going to the bottom 80 percent has fallen by 7 percentage points. It’s as if every household in that bottom 80 percent is writing a check for $7,000 every year and sending it to the top 1 percent. This is why the usual assurances that come from people like Summers — that an open, technologically advanced global economy is inevitable and good — feel, as he himself wrote in The Financial Times, like “pretty thin gruel.”
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http://www.nytimes.com/2007/06/10/magazine/10wwln-summers-t.html?_r=1&ref=magazine&oref=slogin
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