The FT headlines an interview between Martin Wolf and Larry Summers, the former Democrat Treasury Secretary, this morning with the headline:
I have to say that I find Larry Summers incredibly uninteresting: why a man who has got so much wrong still attracts attention slightly baffles me, but he goes on, and on.
And he gets this one wrong too. Unlike the world's major international financial organisations (the IMF, OECD, etc) Summers wants the US to head low, when the need to spend appears paramount. In my opinion, Summers is the one who has got this wrong. There are three reasons.
First, stimulus packages can be turned off. But if they are never turned on they have no hope of working. He'd prefer to never turn them on than turn them off.
Second, he assumes that the private sector will do the heavy lifting if the state does not. I think he's wrong. It has no reason to spend, and nor will be the wealthy be doing so once a quick summer splurge has been done, for reasons I have explained many times before. He disagrees, and thinks that they will spend.
And third, the US (and many other countries) does not need a private sector stimulus. It needs massive public investment much more. Its infrastructure is worn out, inefficient and not green. It has to be renewed, sustainably. That is of higher priority, by far, than more consumer spending (except by those on low incomes, who must be helped more). So he gets his basic economics wrong, or at least confused (as the interview implies to m), and ignores the fact that if there is risk of overheating as a result of this necessary public spend there is a mechanism to also cool the economy. It's called tax. He talks about it in the interview but never seems to make this connection.
It really is time we had economists who could join the dots. Summers isn't, in my opinion.
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Larry Summers is part of the old world global establishment.
Proof of point is revealed in Yanis Varoufakis book “Adults in the Room”. Prior to taking the position of Greek finance minister Yanis had an informal meeting with Larry Summers to seek his advice. Summers, though largely sympathetic, told him that you either became part of that global establishment or else you would be seen a “boat rocker” and excluded from any real power. As events turned out that was exactly what transpired. Varoufakis was dropped by his own party and friend Alexis Tsipras due to pressure brought by the EU Commission, Eurogroup, ECB and the more conservative neoliberal states like Germany.
Stephanie Kelton explained in her book how Summers “nixed” a $1.8 trillion stimulus package advocated by Obama’s chair of the Council of Economic Advisers, Christina Romer, worrying that anything close to £1tn would “provoke ridicule.”
Exactly…
Summers famously argued, when he was at the World Bank in 1991, that dirty industries should be encouraged to migrate to poor countries. This is because the cost of health-impairing pollution is measured by foregone earnings, so “the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.”. Not only that, but “demand for a clean environment for aesthetic and health reasons is likely to have a very high income elasticity.”
His main claim to fame should be his success in revealing the immorality and unsustainability of mainstream economic thinking.
What do you expect?
Summers is multi-millionaire economist – Mr OTC himself with regard to derivatives that he helped prevent them from being regulated in the States. The Godfather if you like of the derivative world. You wouldn’t give him a second glance on the street but that is part of his MO.
Don’t under estimate him and we must remain intensely interested in what he says and does – he’s a very dangerous intellectual force in Neo-liberal Thought Collective (see Mirowski).
In the documentary ‘Inside Job’ watch and hear how he intimidates Brooksley Bourne, the female head of the SEC about derivatives. The way he is seen eyeballing her at a hearing is typical male bullying. He is not a very nice man – ‘greed personified’ is how I would describe him.
Apologies for appearing to be pedantic, but it was Brooksley Born and she was chair of the Commodity Futures Trading Commission (CFTC) until June 1999 when she resigned following Congress passing legislation, at the behest of Robert Rubin, Alan Greenspan and Larry Summers, that more or less proscribed any regulation of derivatives and effectively deprived her and the CFTC of any effective role.
It’s simply best to ignore people like Larry Summers. He has no access to power and is simply sniping from the fringes. The Biden administration is irrevocably pivoting away from this misnamed neoliberalism and a lot of those who previously had their snouts in the trough have had said snouts put of joint.
I wonder whether we are starting to see a fracture between 2 different sections of the system, the technocratic bureaucrats who are concerned about negative effects of imbalance in western economies (inequality, flat lining productivity, fragile supply chains) and large corporations. Larry Summers being the mouthpeice for large corporations. I noticed last week, prior to the news shutting down, that there was a meeting between the IMF, WTO and Yellen to discuss agreeing a floor on corporation tax. In addition, there’s Biden supporting trade union organizing in an Amazon warehouse in Alabama, much more talk about infrastructure/green spending , the loss of unity around fiscal austerity and so on. The most worrying aspects of post Covid economic breakdown that you articulated months ago, seem to be on a lot of people’s minds.
On the question of the UK, if there is an opportunity to make the wrong decision for the economic health of this country, then evidence suggests that this govt will embrace it.
Larry who?
The cat?
My nickname for him whenever I see him is ‘Fat Larry’ – his corpulence extends from the physical to his back accounts.
An odious character.