Former Senator Phil Gramm, Lawrence Summers Discuss American Inequality at HKS Talk

Former U.S. Senator Phil Gramm discussed the complexities of measuring American inequality at a Harvard Kennedy School talk moderated by former University president Lawrence H. Summers on Wednesday afternoon.

The event was hosted by the Kennedy School’s Mossavar-Rahmani Center for Business and Government, where Summers serves as director.

During the event, Gramm — a former Republican Senator from Texas — said his research challenges traditional views of inequality and underscores the necessity for improved measurement approaches.

Gramm began by lauding Summers — with whom he worked when Summers was Secretary of the Treasury under former U.S. President Bill Clinton — and what he called Summers’ resolve to challenge “conventional wisdom,” describing him as “the most credible economist in the American post-war period.”

Gramm continued that he himself has also been challenging convention in his current research, and he questioned the accuracy of the economic statistics currently used to measure well-being.

“For about 20 years, I have found myself marveling how the fundamental economic statistics of the country seem to be at such great variance with a world that I live in,” he said.

“The Census Bureau counts only about one-third of transfer payments as income to the people who receive the transfer payments for people in the bottom 20 percent of income earners,” Gramm added. “They don’t count food stamps. They don’t count Medicaid, what government pays for your health care. They don’t count rent subsidies, where government pays your rent. They don’t count refundable tax credits.”

Gramm’s recent research found that “if you count all transfer payments and taxes,” the poverty rate is 2.5 percent.

“Actually, income inequality is lower today, very slightly lower than what it was in 1947,” he said.

Gramm said the largest contributor to income inequality is the decision to have a job, followed by the quality of one’s education.

“The biggest cause of income inequality is the decision to work or not work,” Gramm said. “The second cause, as my mother would say, how sharp are your tools, how much education do you have and how good is it?”

“The economy is an escalator and if you don’t get on the escalator, you don’t move up,” he added.

The former senator also emphasized the importance of reaching a consensus on the numbers used in public policy debates on inequality. Gramm pointed out that although the U.S. Census Bureau releases supplemental poverty rates, which incorporate some of the transfers Gramm advocates to be included in the official poverty rate, the official poverty rate remains the number cited in political discourse.

“All I’m saying is that I just want to get the numbers straight so that when we’re debating, we’re debating the same thing. We’re not talking past each other,” he said.

Summers talked about some common threads in the debate, including a “clear agreement that the official poverty line substantially overstates poverty.”

In closing remarks, Gramm asked his audience how to “prevent people from dropping out of the labor market and therefore out of economy and giving up the American dream.”

“I’ll just conclude by saying that one of my frustrations in my 25 years in government is, we never found a way to help people help themselves without destroying their incentive to help themselves,” Gramm said.

“Mobility is alive and well in America,” he added. “In any other country in the world, it would be a Golden Age.”

Correction: April 6, 2023

A previous version of this article incorrectly stated that former Harvard University president Lawrence H. Summers was a member of the Harvard College Class of 1982. In fact, Summers received his undergraduate degree from MIT and completed his Ph.D. at Harvard’s Graduate School of Arts and Sciences in 1982.