Larry Summers Finally Asked About The Crypto Industry
In a recent interview with Former Treasury Secretary and frequent austerity pundit Larry Summers, tech journalist Kara Swisher finally asked what we at the Revolving Door Project have been beseeching the media to spotlight for months. To Summers’ clear displeasure, Swisher asked why he has been so comfortable legitimizing the fraudulent cryptocurrency industry.
Summers argued that crypto’s rampant fraud was common in any new industry, including the early automotive industry. He also blamed the pervasive criminality on a lack of special regulations for crypto assets, a typical industry talking point that assumes that laws must be changed to bring the law into compliance with industry norms. (Revolving Door Project and Gary Gensler, among others, think that tech bros need to comply with the law as is and that any other approach undermines the rule of law and representative democracy).
Summers ended his defense by stating that he does not have a fiduciary duty to any crypto company, which should somehow absolve him of guilt.
That’s only true in a strictly legal sense. Summers isn’t personally liable for the crimes of a company over which he did not have managerial power. But lending his name and reputation to a firm legitimizes it in the public consciousness, can help it attract funding, and can deter regulatory oversight. Just because Summers isn’t (we think) on the hook for jail time does not mean that his actions were moral, nor that journalists and government officials shouldn’t consider his time as a crypto hack to be a mark against his judgment. Though Summers does not have a fiduciary duty to any crypto company, he does have a fiduciary duty to multiple crypto-aligned companies where he serves as a board member.
One of these companies is Block Inc., a company Summers joined when it was still known as Square. Why did they change names? Because the company Summers helps lead rebranded itself as Block to highlight its connection to crypto blockchain technology. Much like other companies in the crypto space, it has been alleged that Block has participated in major malfeasance regarding its flagship product, Cash App. It has been alleged that between 40-75% of all accounts on Cash App are fake or fraudulent, that its management has suppressed internal concerns about the app’s use in criminal transactions including sex trafficking, and that its partner banks helped facilitate fraudulent claims for Covid relief funds.
Summers also sits on the board of Skillsoft, an online education company that has a large selection of cryptocurrency education courses, and Doma, a ”blockchain-based, shared ownership platform for equitable real estate.” Furthermore, Summers still is employed by other crypto-tied firms even while lacking a fiduciary duty. Summers previously served on an advisory board of Xapo, a private Bitcoin bank that offers Bitcoin debit cards. He has also been an employee of both crypto-connected Atlas Merchant Capital (where he is a Senior Advisor) and a Board Advisor to Digital Currency Group (where he was a Board Advisor.) Both Atlas and DCG have invested heavily in the world’s second-largest stablecoin company, Circle Internet Financial. It is unclear why a lack of fiduciary duty to these companies would absolve him of any guilt. After all, he’s still making money from the crypto industry.
Unconvinced by Summers’ deflections, Swisher noted that Summers provides credibility to the companies he’s involved with. Again, Summers disagreed, stating that he has a policy of not engaging with elected officials or public advocacy on behalf of these companies. Here again, Summers offers a strictly legalistic answer to a much broader question. While Summers may not personally engage in political advocacy for the companies he advises, they certainly use his name to provide legitimacy. In one case, Summers was publicly touted as an advisor by a crypto company in a call with the SEC. In other cases, Summers has given public speeches at conferences or on podcasts with Crypto CEOs about the importance of the crypto industry, the need for a regulatory regime that aligns with the goals of Circle Inc. (a stablecoin company with which Summers has significant ties) and Summers’ belief that crypto company employees are smarter than the regulators who oversee them.
Given Summers was saved only by Swisher’s lack of prepared follow-ups, we at Hackwatch have decided to prepare some for the next journalist brave enough to ask Summers about a subject he very clearly does not want to discuss.
- You sit on the board of three companies that have significant involvement with cryptocurrency – Block Inc., Skillsoft, and Doma. How can the media consult you as an independent economic expert when you have a fiduciary duty to companies dependent on the success of the crypto industry writ large?
- You have a significant financial interest in the success of crypto-aligned companies like Atlas Merchant Capital and Digital Currency Group while lacking a fiduciary duty. As a mainstream economist, your general assumption would be that rational actors with your economic interests would seek to ensure that their industry did well. Why do you think it is justifiable to ignore this connection on account of a lack of fiduciary duty?
- You may not interact with public officials directly on behalf of the crypto companies you’re aligned with, but your name has been used in calls with the SEC about SPAC mergers and you’ve had multiple public conversations with Circle Inc. CEO Jeremy Allaire. Allaire’s company has engaged in lobbying efforts on Capitol Hill. Does this violate your personal policy on advocacy? Do you believe that these companies are not citing your name when discussing their regulatory goals with Members of Congress? Do you believe that regulators manage to avoid your seemingly ubiquitous public commentary?
- You have been a colleague and counterpart of senior Administration officials like Janet Yellen, Jared Bernstein, Martin Gruenberg, and Gary Gensler. Do you ever discuss what those people are like and what might be convincing to them with the companies you advise or help lead?
Why Isn’t Dylan Matthews Interested In The Politics Of Trade?
From our very first edition of “Hack Watch,” I’ve argued that elite economists demand respect from political actors, but have little respect for politics themselves. They get huffy about politicians not doing what they claim is optimal, but don’t want to think about why politicians might do so. An effective press would see that as something to explore. Whenever an expert wants reporters to publicize their opinion, reporters should poke at the expert opinion’s weaknesses, especially by attacking it from a different lens than the expert’s own.
Instead, this week, Vox’s Dylan Matthews demonstrated why you shouldn’t completely defer to a source’s own framing. Matthews interviewed economist Kimberly Clausing, a former Biden administration tax official, about why she’s “deeply disappointed” in Biden’s efforts to revitalize American manufacturing as part of the green energy transition. Vox headlined the story “The nationalist dark side of Joe Biden’s climate policies.”
Matthews frames the interview as an exploration of the “strange continuity” between Trump and Biden’s trade policies, which he calls “a pretty brazen return to protectionism” of the sort Clausing condemns in her book Open: The Progressive Case for Free Trade, Protectionism, Immigration, and Global Capital.
Yet not once does Matthews ask why Biden is pursuing these policies. Apparently to Matthews, if it doesn’t fit with neoclassical economic theory, and especially if Trump pursued it, it must be bad, and there’s nothing else to ask about it.
Any discussion of why Biden is feeding this “nationalist dark side” would get into the unassailable political logic of it: support for manufacturing was key to how Trump won in the first place. Working-class neighborhoods in Rust Best swing states used to vote Democrat back when Democrats were the party of unions. Then the party embraced free trade in the 90s, those neighborhoods fallowed as a result, and the partisan bargain was severed. Since so much of politics, especially Presidential elections, now rests on the votes of these neighborhoods, Biden should obviously do everything he can to revitalize them. If Matthews despised Trump, as he strongly implies, then he should support a policy agenda aimed at moving Trump’s most electorally important voters into Biden’s camp.
And that’s just realpolitik thinking, separate from the moral, high-minded cases against (corporate structured) “free” trade. Trump and the rest of the right mainly substitute xenophobic hatred for addressing the real problems — inequality, corporate power, alienation — unleashed by free trade and the rest of the neoliberal economic agenda. To fight back against far-right bigotry, America needs to restore a real social compact, and rebuilding good jobs lost to trade is key to that. I’m sure both Clausing and Matthews want to stop the far right. Does that matter more to them than going against economics textbooks?
Moreover, even Clausing says in her book that she wants to restore union power as a counter-balance to corporate power. Unions fight, first and foremost, for their members’ jobs. Unions have always been the most vocal and consistent critics of globalization. Clausing doesn’t get to say that she likes unions, but only if they do what she wants them to.
Matthews and Clausing’s main concern is that the Biden administration is trying to build a domestic green energy industry powered by good union jobs, but that this means foreign-made green products (electric cars manufactured abroad, for instance) aren’t eligible for subsidies, and that if rich countries prioritize their own green transitions, it could make poor countries’ transitions more difficult. Clausing worries that “When you’ve got an institution like the WTO that’s built around solving a global collective action problem, and then you pretend that it doesn’t apply to you, it would be better if you could think a few steps ahead, and imagine, what happens when the global collective action unravels?”
It’s quite something to claim that the WTO is the best way to act in the global South’s best interests. Global South nations have criticized the WTO, and the whole free trade project, as neocolonialist enterprises for as long as they’ve existed. Moreover, economic history shows quite clearly that if a country wants to develop a domestic industry into eventually becoming an exporter, it should start by protecting that industry from global dumping during its development. That development process also results in building better products faster, which cost less overall — and the government can further subsidize sales to global South countries to offset cost.
This doesn’t mean that there’s no tradeoffs to Biden’s approach. Developing homegrown industries does mean further chilling relations with China, for instance. But China-US relations is a multifaceted issue, informed by China’s expansionary geopolitics, its authoritarian political and economic systems, its central place in global manufacturing, its modern national self-conception, and many more factors. There are tradeoffs either way, in other words. The US fostering a domestic green energy industry is not the only factor, or deciding factor, in Great Power competition or in global collaboration on the climate crisis (which wasn’t working well under the old free-trader regime either.)
None of these objections — from realpolitik, from opposing the far right, from union self-determination, against neocolonism, or against a simplified model of US-China relations — are explored in the interview. The conversation instead plays out like an Econ 101 lecture on trade theory: trade is good because it spreads better goods for cheap, any job losses are temporary and can (theoretically) be smoothed out with social safety net policies, period. (The economics field is currently rife with disagreement over that last point, another fact which goes unexplored.)
These other arguments require introducing other lenses, especially political lenses, into the conversation. They would force Clausing to reckon with the real-world effects of her policy preferences that occur outside of the strict theoretical frameworks of an economics textbook. They would require acknowledging that economics does not have a monopoly on social analysis.
Finally, it’s worth noting Matthews’ own philosophical priors here. The interview ran in his “Future Perfect” vertical at Vox, which is all about effective altruism, the philosophy of improving the world through individual acts of utilitarian cost-benefit analysis. Matthews is an effective altruist himself, and Future Perfect is partly funded by the movement’s big philanthropies. (Sam Bankman-Fried bankrolled it before his fraud conviction.)
Effective altruism begins from the premise that if one has a fixed amount of money to donate, and one can save 1000 lives halfway around the world for the same amount of money it takes to save 1 life in one’s own neighborhood, one is morally obligated to save the 1000 lives over the 1.
If one accepts this worldview, it makes sense to view green trade issues the same way: if a government can buy 1000 solar panels abroad for the price of 1 solar panel domestically, the government is morally obligated to buy the 1000 panels. Utilitarian thinking like this jibes well with neoclassical economic theory. Both aim to quantify units of good and bad, then maximize the good and minimize the bad.
Matthews’ predisposition to this sort of quantified ethics might have unconsciously biased him against asking more qualitative questions. Who made the solar panels, under what conditions? Will it ultimately help expand the total solar panel supply if I buy the 1 instead? Does buying the 1000 solar panels fuel violent resentment from the manufacturer of the 1? This also echoes a common criticism of effective altruism: that its strictly mathematical understanding of “doing good” leads one to absurd ethical conclusions, such as an environmentalist taking a job at an oil company so they can donate their salary to climate protection (an actual thought experiment which EA leaders have endorsed.)
Being a good journalist means being aware of and questioning your own ideological priors. Matthews should have been extra careful to question and criticize a source offering a story that fits neatly into how he prefers to view the world. Failing to do so means we get a stifled, incurious exploration of an important issue.