Monday, June 9, 2014

Larry Summers misses another important point

He's clueless about the consequences of inequality

From time to time, Larry Summers gets things very wrong. He hypothesized that women were largely underrepresented in the sciences at least partially because of innate gender differences.

He championed bank deregulation during the Clinton years (" would take a Republican Congress and the Clinton administration’s Robert Rubin and Larry Summers at Treasury to repeal Glass-Steagall."), a deregulatory step that others, including Ron Suskind, author of Confidence Men: Wall Street, Washington and the Education of a President, suggest had much to do with the economic collapse of 2008.

And, following that collapse, from which he seemed to have learned the wrong lessons, Summers, along with Tim Geithner, was one of the leading actors pushing bank and corporate bailouts and downplaying stimulus spending and infrastructure investment within the Obama administration.

As Dean Baker put it in "How Larry Summers' memo hobbled Obama's stimulus plan," posted on common, "In short, while the data was crying out for more stimulus, the Obama administration openly embraced the need for deficit reduction, effectively slamming the door on the prospect of further stimulus. The basis for this original sin can be found in [Summers'] December memo, which, unfortunately, provided the administration's game plan long after it should have been clear that it had been superseded by events."

Susskind makes it clear that Summers' policy recommendations suffer, in part, from his high opinion of himself. "Instead of looking at [Summers'] record pockmarked with bad decisions, people see his extemporaneous brilliance and let themselves be dazzled. Summers' career has come to look, more and more, like one long demonstration of the difference between wisdom and smarts," Suskind wrote in Confidence Men.

But no matter the various judgments of history, Summers isn't going to go away. He blogs on economic and political issues for Reuters, gives lots of interviews and writes a lot of op-ed pieces. His latest piece, "American inequality goes beyond dollars and cents," ran in today's (June 9) Washington Post.

Summers' op-ed begins with a nod to Thomas Piketty's new book, Capital in the Twenty-First Century, which examines the growing inequality in income and wealth in the United States and around the world. "This is indeed a critical issue," Summers writes.

Later he observes that increasing "tax productivity" would not do "any noticeable damage to the prospects for economic growth," but quickly moves on from serious consideration of policy changes that might reduce inequality. Instead, he considers unequal outcomes in life expectancy and educational achievement, two areas in which Summers has never previously demonstrated much interest.

Nevertheless, he's happy to point out that differences in life expectancy for older people "more likely have to do with lifestyle and variations in diet and stress..." Summers also cites figures that make it clear that children from affluent families are exposed to many more "enrichment" experiences than are children from poor families, but, he concludes, that to address unequal outcomes we should not merely focus on inequality. " is crucial to recognize that measures to support the rest of the population in other ways are at least equally important," Summers writes, though he does not specify what those other "measures" might be.

In any case, what seems mightily important here is a point missed by Summers, but noted elsewhere by others, notably Paul Krugman and Robin Wells in "The Widening Gyre: Inequality, Polarization and the Crisis," which they wrote for inclusion in The Occupy Handbook, edited and compiled by Janet Byrne. Citing the work of political scientists Keith Poole, Howard Rosenthal and Nolan McCarty, Krugman and Wells argue that there's no separating inequality from the political polarization and gridlock of our time.

"Soaring inequality is at the root of our polarized politics," they wrote. That polarization has "made us unable to act together in the face of crisis. And because rising incomes at the top have brought rising power to the wealthiest, our nation's intellectual life has been warped, with too many economists co-opted into defending economic doctrines that were convenient for the wealthy despite being indefensible on logical and empirical grounds."

Krugman and Wells may not have been including Summers in their list of "co-opted economists," but given his demonstrated preference for bank deregulation and bailouts over significant stimulus spending, we should be forgiven for assuming Summers belongs on the list. Krugman and Wells see many of Obama's policy compromises with his intractable opponents in Congress as a direct result of inequality-linked political polarization.

In 2009, they wrote, "we arrived at a Keynesian crisis demanding a Keynesian solution--but Keynesian ideas had been driven out of the national discourse, in large part because they were politically inconvenient for the increasingly empowered 1 percent."

Summers would probably prefer not to be reminded that the policies he has advocated in the past have done little to protect ordinary Americans from economic hardship. His Post op-ed actually includes a shout-out to progressive economist Dean Baker, suggesting that Summers would like us to forget his track record. But we ought not forget--if we want to reduce income inequality (and political polarization), and if Hillary Clinton follows Obama to the presidency, we want to do our best to make sure that Larry Summers finds employment somewhere other than the federal government.

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