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On December 18th, 2020, economist Larry Summers took to Bloomberg’s “Wall Street Week” to call for “a more just and generous society” after the Covid-19 pandemic. “Above all, though, we need to run this economy strong,” Summers said. “And have an economy where the dominant theme is jobs trying to find workers, rather than the dominant theme being workers trying to find jobs.”
Just over a year later, Summers railed against economic policymakers for creating exactly that. On January 14th, 2022, on the same Bloomberg program, Summers warned that low unemployment and high numbers of job listings in fields “from psychotherapy to McDonalds” meant workers had a “surfeit of purchasing power and demand relative to the capacity of the economy to produce, and unless we bring those things into balance, we’re going to have not just higher inflation, but possibly even accelerated inflation.”
To Summers, the path to that balance was clear: American workers immediately needed to become less wealthy and more desperate for work. “We’re going to have to control the pace of the growth of total incomes so that more of it can go into more employment and more output, and less of it into inflation,” Summers said on January 21, 2022. On April 1st of that year, he compared cheering for low unemployment numbers to “a doctor who celebrates the results of the prescription of their painkiller without thinking about what’s going to come down the road.”
Summers’ wage-driven explanation for inflation was far from the only one. Fellow accredited economists (even at the Congressional Budget Office) chalked inflation up to temporary supply chain disruptions, and noted corporate executives on earnings calls celebrating inflation as an excuse to jack up prices. Their solution to align America’s quantity of spending money with its quantity of stuff to purchase was to wait for the stuff to return while fighting profiteering from the top down, not to strip away the spending money, starting from the bottom up.
It now appears likelier than not that “Team Transitory” was right all along, though it’s still early to be definitive. But even Summers now concedes that we just might pull off a “soft landing,” cooling inflation while retaining high employment.
For two years, though, Summers spent nearly every week campaigning furiously to make life worse for the vast majority of people in this country and, due to the dollar’s global power, the world. How could inflation change Summers’ priorities so drastically, so fast? Did he not see a contradiction between his calls in late 2020 for an economy of abundant opportunity for workers, and his panic in early 2022 about exactly that?
It’s hard not to notice that Summers’ benevolence for workers dried up shortly after he personally got a Covid-19 vaccine. In December 2020 he pointed out that “For others, who work with their hands and provide those [grocery] deliveries, [who] don’t have the kind of space to be fully safe and may not even have the kind of cash flow to buy both their medicines and their food, it’s been a very very difficult period.” As soon as he was personally safe enough to resume something like normal life, though, this concern evaporated.
But I believe that cynical self-interest can only explain so much (unlike neoclassical economists like Summers.) It’s important to recognize that Summers is not a cartoon villain: he doesn’t think of himself as a cruel person, but a practitioner of, in his words, “economic science.” As he put it in September 2022, “No one should take any satisfaction in those dislocations [a euphemism for firings], or want those dislocations, or want to see anyone unemployed, but the necessary medicine from where we are is likely to involve a recession.”
There is no alternative, you see. It’s science. Nobody likes it, but suggesting mass immiseration isn’t the necessary next step in the American economy is apparently like saying we can legislate away gravity, or rule in court that the Earth is no longer round.
But this isn’t true. In Part 2 of this Hack Watch mini-series, I’ll try to define what “economic science” is to Summers, by examining his arguments on “Wall Street Week” throughout 2021 – 2022. In many cases, Summers refuses to distinguish between his personal ideology about economics and what he thinks are scientific laws of nature. He does not acknowledge that messy human politics, and clean mathematical economics, inevitably commingle. This led to major misrepresentations to the public, which Bloomberg just sort of allowed — after all, how could Larry Summers be wrong?
What Dual Mandate?
“The most basic responsibility that the central bank has is a stable currency and price stability and the avoidance of inflation,” Summers told “Wall Street Week” host David Westin on January 21, 2022.
This is factually wrong. Price stability is just one half of the Fed’s “most basic responsibility.” The other half is promoting full employment across the economy, a task of exactly the same legal significance for the central bank, according to the text of the law. The balancing act between price stability and full employment makes up the Fed’s “dual mandate,” which it received thanks to tireless campaigning by Coretta Scott King and other civil rights leaders.
If one only listened to Summers, one would never learn that the dual mandate exists. To the best of my knowledge, he has never once mentioned this responsibility of the central bank on “Wall Street Week,” despite haranguing the Fed about employment non-stop for two years.
In fact, to hear Summers tell it, one wouldn’t realize the Fed is even a part of the government. As speculation brewed about who President Joe Biden would nominate to the Fed in 2021, Summers said on August 6th “I believe that it’s government’s job to deal with the environment, it’s government’s job to deal with social justice. And I don’t think that trying to push those responsibilities to the Fed should be a priority.”
The Fed’s leaders are chosen by the White House, confirmed by Congress, and accountable to the American people. Its powers and responsibilities were granted to it by statute. It is not run for profit, and it exists to improve life for the American people as a whole. It is part of the government, and its leaders should and will be criticized the same as any government leaders.
Moreover, no part of society gets to declare that social justice, as a concept, does not apply to it. Whether intentionally or not, the Fed’s policies either promote equality and human dignity or they don’t, and people will analyze and criticize it either way. Put more simply, it can simultaneously be true that “social justice” is not literally written into the Fed’s mandates, and that the Fed’s decisions inevitably promote or deter social justice either way.
Who benefits when the Fed views one half of its mandate as more valid than the other half reflects, inevitably, the ideology of the decision-makers. Fed Govenors are always operating on incomplete information and imperfect (at best) economic models. Consciously or not, their beliefs fill in the gaps, and always will.
Yet Summers has repeatedly set up a false dichotomy between politics and the Federal Reserve. “I think that the Fed’s job is to manage money. The Fed’s job is not to make a broader and more just society. That’s the job of elected officials. That’s the job of the political process,” Summers said on October 15th, 2021. “I think it’s very important not to divert attention from the central issue, which is the management of demand and the recognition of overheating,” he said on November 26th, 2021.
Summers’ framework is incorrect from a legal perspective, and ridiculous from a power analysis perspective. But it makes perfect sense from the perspective of neoliberal ideology: to neoliberals, politics is fundamentally petty, a matter of partisans bickering over culture wars. The economy, however, is something separate, and too important to be trusted to democracy. The public, in its base and selfish desires, can’t handle that responsibility, which is why experts like Summers need to apply “economic science” to keep the whims of the mob at bay.
That Boring Regulatory Stuff
The closest Summers came to acknowledging the employment mandate came on January 14th, 2022. Summers called for Biden’s new nominees to the Fed to focus “on its fundamental jobs of maintaining a non-inflationary economy, with as strong employment as is possible on a sustained basis.” But that is not the fundamental job. The job is to balance both price stability and full employment, not to privilege one over the other.
These statements were partly responding to pressure from ourselves and others for Biden’s nominees to consider climate change-related systemic risks to the financial sector, as part of the Fed’s obligations to promote financial stability, to which Summers at least pays lip service. “Clearly you need someone with a commitment to a stable financial system who understands that Dodd-Frank was a beginning and not an end,” Summers said in the August 6th, 2021 interview.
But Summers’ disinterest in financial regulation betrays itself. “I think that the three new nominees, who don’t have a track record on the Fed, will have an opportunity to present their views” at their confirmation hearing, he said in January 2022. One of those “new nominees” was Sarah Bloom Raskin, the nominee for the top regulatory job, the Vice Chair for Supervision. Far from lacking a Fed track record, she served on the Board of Governors from 2010 to 2014.
Raskin, the main voice pushing for climate-related financial regulation, ultimately didn’t make it through the Senate. This didn’t stop Summers from attributing her views to the entire Fed months later. “Frankly, I think in 2021 our central bank lost its way,” he said on July 15th, 2022. “It was talking about the environment. It was talking about social justice, and a range of things.”
Again, Summers seems to believe that the only legitimate way to analyze the Fed’s performance is through the lens of inflation management, since he thinks that’s the Fed’s only real job — even though other jobs are literally written into the text of the law.
Those Greedy Debtors
One might think that his focus on low prices would make Summers an ally of consumers. But at least when it comes to consumer debt, he had remarkably little sympathy.
“I can’t imagine a lower priority use of federal resources than improving consumers’ balance sheets,” Summers said on February 19th, 2021, expressing bafflement at supporters for Biden’s $1400 stimulus checks. “[W]hen you put to them that it may overheat the economy, they say ‘no no, it won’t, people will save the money and people will use it to pay down debts,’” Summers said, claiming that a better use of resources would be “repairing the country’s infrastructure, making tests available for people to be vaccinated, starting investments in a green economy, [and] doing things for Pre-K education.”
Biden went on to accomplish three of those four priorities in the Bipartisan Infrastructure Law, the vaccination surge, and the Inflation Reduction Act. Clearly, the checks didn’t foreclose other policies — Biden’s political capital and Congress’ literal capital were larger than Summers thought. The Jain Family Institute’s Claudia Sahm found that most Americans indeed spent their stimulus checks paying down debt, much like the earlier CARES Act checks.
In the same interview, for good measure, Summers called it “ironic and pathetic” that Sens. Elizabeth Warren and Bernie Sanders were “all excited to give $50,000 or more in debt relief to young people who are working at Wall Street investment banks making six-digit sums of money, rather than focusing on the needs of the high-school dropouts, the needs of those who are graduating from high school but not going on to college and need specific training.” When Biden finally did enact a more limited form of debt relief, Summers said that government transfers ought to instead go to “people who are poorer, who are more in need, and who would use the money to invest more in the future of the economy.”
The data has not been kind to this perspective. A Politico review of the 23.6 million applications for debt relief found that most came from ZIP codes with per-capita income below $35,000, and 98 percent came from ZIP codes with per-capita income below $75,000.
As I wrote for The American Prospect a few weeks ago, the stimulus checks and student debt relief remain two of Biden’s best polling policies. Summers would say that it’s not his role to care about popularity with the public, just about the economic consequences of policy. But he’s not very good at analyzing that either. This also reaffirms that Summers’ “economic science” is fundamentally anti-democratic, being unconcerned with public opinion or the real state of real people’s economic lives.
Workers Of The World, Shut Up
Summers’ obsession with curbing inflation wasn’t just a matter of Federal Reserve policy. On March 11, 2022, Summers went beyond dismissing alternative policy proposals to lower inflation, and seemingly criticized the idea of having any other goal in economic policy whatsoever. “Buying American will make this [inflation] worse, because it will mean higher prices,” he said. “Blaming corporate greed will chill business confidence, will reduce investments in expanding capacity, and will likely make this worse. We need to simply operate the tools of macroeconomic policy in responsible ways.”
Operating those tools meant crushing worker power at the Fed, in the White House, and in Congress. On December 3rd, 2021, Summers’ “Outrage of the Week” mini-segment was about the Build Back Better Act containing provisions “that if you buy an electric car with a union you get a far larger credit than if you buy one without a union. That seems to me to be exactly the kind of special-interest measure that will compromise our chief and vital environmental objectives. And so I’m sorry to see it.” Yes, a putative Democrat in 2021 called unions “special interests.”
In September 2022, as railroad workers threatened to strike for paid sick leave, Summers told the Biden administration “to pay attention to holding costs down rather than rewarding workers,” and added “I worry about provisions that seek to enshrine high wages, for example, in those who are producing goods related to the environment.” He did endorse “restoring appropriate labor [organizing] rights, which has been a real flaw and huge problem for the last 30 years.” This was a red herring: railroad workers have been unionized for over a century. The issue at hand wasn’t process, it was that Summers cared more about contractions from a strike than the railroaders’ right to a few sick days per year.
The Anti-Monopoly “Horror Show”
What about labor issues besides unions? When Federal Trade Commission Chair Lina Khan voiced concern for working conditions in private equity-owned firms last June, Summers was blasé: “That’s not her job. Her job is competition. Competition between companies and making sure it’s robust. It’s not to pass judgment on who the owners of the companies are.”
Indeed, Summers appears to be fascinated by the neo-Brandeisian anti-monopoly movement. He claimed on June 25, 2021 that neo-Brandeisians “in many cases, [are] not very familiar with economic reasoning in its intricacy.” He called pre-Borkian antitrust rulings “a horror show in terms of their economic illiteracy, where companies make efforts to defend themselves by saying they’re inefficient and therefore they’re not going to win out over competitors in competition. That is the way to American failure.”
For one, plenty of accredited Ph.D economists are on the neo-Brandeisian train. “Economic reasoning in its intricacy” means different things to different people, as Summers knows. But either way, one of the neo-Brandeisian movement’s core arguments is that centering economics in antitrust was a mistake in the first place. Why would Congress have given antitrust to the courts if it meant for antitrust to be decided by economists all along?
Summers’ grumbling about antitrust also directly connects back to his inflation obsession. Under the economistic consumer welfare standard, firms generally prove that a merger will increase efficiency by persuading a judge that they won’t raise prices if they combine. The problems with this are manifold, but the theme with Summers’ other criticisms is clear: the job of economic policy is to keep prices down, and absolutely everything else is secondary. This would seem to be a consistent explanation of what “economic science” is about in Summers’ view — a morose view which one might disagree with, but at least a consistent one.
Patriotic Price Hikes
And yet, there was one case where Summers directly endorsed higher prices for consumers, on one of the most essential commodities in the economy, for purely political reasons.
When Biden sanctioned Russian oil exports in the wake of the invasion of Ukraine, Summers said “it probably will raise the prices of gasoline for some interval. It’ll raise the prices of heating oil for some interval. But look, this is the price of freedom. The question of our times is ‘what is the future of democracy, market-based, freedom-respecting systems like our own?’ And we can’t have them endure if tyrants can invade neighbors with impunity. So if higher prices of gasoline are the price of freedom, it is a price that this generation of Americans should pay.”
I don’t raise this to disagree with Summers. I agree that higher gasoline prices were a completely fair tradeoff for the goal of punishing Russian aggression. But in this one case, Summers defended a policy which contradicts everything he argued for before and after, and he openly did so because of his political beliefs.
So “economic science” is not the pursuit of low prices above all else. It’s the pursuit of low prices if the tradeoffs aren’t too great in Summers’ mind, and the permittance of higher prices if it’s for a greater good in Summers’ mind. To put it more simply, “economic science” is about working through the tradeoffs required to achieve the kind of economy and society Summers wants.
To put it even more simply, “economic science” is politics. Specifically political economy, a field which predates economics itself. With this in mind, the truth of Summers’ anti-inflationary advocacy becomes clear: it’s not that having any goal besides curbing inflation by immiserating workers is economically illiterate. It’s that Summers doesn’t personally want to do any of the things the Biden administration is doing, and he isn’t willing to accept any tradeoffs besides impoverishing the working class to get to lower prices.
I doubt that Summers himself even realizes how much his rhetorical style uses a stance of scientific certainty to mask what are fundamentally his personal, ideological preferences. Far from the consensus of the economics field, his views are always fiercely debated — as I wrote in Part 1, Bloomberg once ran a ludicrous bar graph implying that the number of economists agreeing with Summers was “going way up” from 20 percent to 27.5 percent.
If Summers’ “science” were indeed the truth of the world — that the poor must always be kept as poor as possible so that prices never rise, while any checks on the rich are fundamentally unscientific — then we live in a dismal, bleak world indeed. Thank goodness, then, that his “science” is just his opinion, and plenty of equally qualified experts disagree with it. There are, indeed, ways that we can make economic life better for everyone.
That’s a fundamentally hopeful story, the kind people always complain that the media never tells. Perhaps reporters and editors should stop listening to Larry Summers.
PHOTO CREDIT: “Larry Summers offers keynote remarks on smart public investments in infrastructure at Brookings.” by BrookingsInst is licensed under CC BY-NC-ND 2.0.