Lawrence Summers

You are currently browsing articles tagged Lawrence Summers.

One troubling aspect of globalization is that those not adversely affected by the flow of international trade and actually helped by it (most Americans) are often opposed to a smaller world because of prejudice or some other irrational fear.

While financial concerns in the Rust Belt may have put Trump over the top (along with Russian hacking and FBI machinations), the bigoted President’s voters enjoy an overall higher household income than the average U.S. resident. Many were turning the lever for something else, and that was nationalism, which is sadly something most dear to many among us.

In an excellent Five Questions interview, Lawrence Summers discusses the strictly economic repercussions of globalization. He acknowledges that while he thinks the process still works in the big picture, our bumpy ride is just beginning, meaning we’ll need to strengthen “systems of social insurance,” something which seems to not be on the horizon in the U.S. Sooner or later, though, people will tire of bread and Kardashians.

An excerpt:


Finally, a title from last year. Richard Baldwin’s The Great Convergence (2016). Please give us a precis.

Lawrence Summers:

It’s the newest of the books and it’s a very powerful description of the newest phase of globalization. Two ideas about this newest phase of globalization that Baldwin emphasizes are hugely important.

The first is that we used to think very much in terms of trade in goods—some country exports washing machines, some other country exports dryers. Increasingly, goods are produced with global supply chains. Part of a good is produced in one country, part of a good is produced in another country and assembly takes place in a third country. So trade is part of the production process, whether it takes place within a multi-national corporation or between companies. Trade is part of production through supply chains.

The other idea that is emphasized is the role of trade and globalization in sharing knowledge. Baldwin uses a very powerful analogy. He says it’s one thing for a soccer team in one country to play against a soccer team in another country. It’s a very different thing if the coach in one country starts to coach teams in many countries and therefore promotes convergence. Baldwin argues that the second type of openness may be more problematic than the first. And, increasingly, trade is taking that form.


Please explain the challenges to politics and economic policy presented by this “great convergence” he describes.

Lawrence Summers:

The challenge is that there are likely to be more winners associated with global convergence, but there are also likely to be more losers and more potential volatility. In this latest stage of globalization, ideas can be traded and support production elsewhere, leading to less identification of entrepreneurship with location. The example I like to give is when George Eastman invented the instamatic camera, he got rich and Rochester, New York, where he founded his company, had a strong middle class for several generations. When Steve Jobs made equally powerful innovations, involving the iPhone and the iPad, the result was that he got very, very rich and there was an increase in the demand for labor globally, primarily in Asia, with no similarly broad increase in local wealth.


In recent years, you have been sounding an alarm about the role of globalization in contributing to local dislocations and inequality. What caused your worries and what are your solutions for globalization going forward.

Lawrence Summers:

I’ve said, for some years, that global integration won’t work if it means local disintegration. Unfortunately, that proved prescient.•

Tags: ,


While Nero twitters, Rome burns.

There are varyng levels of exasperation about what became possible with the election of Donald Trump, an orange supremacist who waves his penis around like a masturbating Mussolini and exchanges compliments with the murderous kleptocrat Vladimir Putin, making it feel like America has retroactively lost WWII as well as the Cold War. 

Even if we avoid a descent into autocracy and the future doesn’t play out like an infomercial for internment camps (both possibilities), we’re still headed for trouble. Three quick excerpts about the personality, economics and politics of the wholly unqualified hatemonger 62+ million Americans deemed worthy of their vote.

From Garrison Keillor:

He will never be my president because he doesn’t read books, can’t write more than a sentence or two at a time, has no strong loyalties beyond himself, is more insular than any New Yorker I ever knew, and because I don’t see anything admirable or honorable about him. This sets him apart from other politicians. The disaffected white blue-collar workers elected a Fifth Avenue tycoon to rescue them from the elitists — fine, I get that — but they could’ve chosen a better tycoon. One who served in the military or attends church or reads history, loves opera, sails a boat — something — anything — raises llamas, plays the oboe, runs a 5K race now and then, has close friends from childhood. I look at him and there’s nothing there.•

From Lawrence Summers on the Carrier deal:

It seems to me what we have just witnessed is an act of ad hoc deal capitalism and, worse yet, its celebration as a model. As with the air traffic controllers, only a negligible sliver of the economy is involved, but there is huge symbolic value. A principle is being established: It is good for the president to try to figure out what people want and lean on companies to give it to them. Predictability and procedure are less important than getting the right result at the right time. Like Hong Kong, as mainland China increasingly imposes its will, we may have taken a first step toward a kind of reverse transition from rule of law capitalism to ad hoc deal-based capitalism.

The commentary on the president-elect’s actions has emphasized its novelty, has emphasized the difficulties of scaling, and in the case of Sen. Bernie Sanders (I-Vt.), has argued that the actions taken were insufficiently forceful because some workers will still be relocated to Mexico. All of this misses the point. Presidents have enormous latent power, and it is the custom of restraint in its use that is one of the important differences between us and banana republics. If its ad hoc use is licensed, the possibilities are endless.•

From Alan Feuer and Andrew Higgins of the NYT:

As the founder of the Traditionalist Worker Party, an American group that aims to preserve the privileged place of whiteness in Western civilization and fight “anti-Christian degeneracy,” Matthew Heimbachknows whom he envisions as the ideal ruler: the Russian president, Vladimir V. Putin.

“Russia is our biggest inspiration,” Mr. Heimbach said. “I see President Putin as the leader of the free world.”

Throughout the presidential campaign, Donald J. Trump mystified many on the left and in the foreign policy establishment with his praise for Mr. Putin and his criticism of the Obama administration’s efforts to isolate and punish Russia for its actions in Crimea and eastern Ukraine. But what seemed inexplicable when Mr. Trump first expressed his admiration for the Russian leader seems, in retrospect, to have been a shrewd dog whistle to a small but highly motivated part of his base.

For Mr. Heimbach is far from alone in his esteem for Mr. Putin. Throughout the collection of white ethnocentrists, nationalists, populists and neo-Nazis that has taken root on both sides of the Atlantic, Mr. Putin is widely revered as a kind of white knight: a symbol of strength, racial purity and traditional Christian values in a world under threat from Islam, immigrants and rootless cosmopolitan elites.•

Tags: , , , ,


Shaping a turd into a circle and poking a hole in the center does not make a donut. Some who otherwise abhor Donald Trump are still enamored with his pledge to rebuild infrastructure, a very necessary priority, but they’re neglecting to notice the details of his plan reveal a cruller made of crap.

President Obama noted recently in a Carnegie Mellon address that the government is here to do the hard, unglamorous, unprofitable work that private enterprise wants no part of, “dealing with problems that nobody else wants to deal with.” The Trump plan, however, will neglect the tough jobs that could pay off long-term dividends (e.g., repairing highways, modernizing schools, etc.), instead being a windfall for a few without a return for the many.

From Lawrence Summers at the Financial Times:

I have long been a strong advocate of debt-financed public investment in the context of low interest rates and a decaying US infrastructure, so I was glad to see Mr Trump emphasise it. Unfortunately, the plan presented by his advisers, Peter Navarro and Wilbur Ross, suggests an approach based on tax credits for equity investment and total private sector participation that will not cover the most important projects, not reach many of the most important investors, and involve substantial mis-targeting of public resources.

Many of the highest return infrastructure investments — such as improving roads, repairing 60,000 structurally deficient bridges, upgrading schools or modernising the air traffic control system — do not generate a commercial return and so are excluded from his plan. Nor can the non-taxable pension funds, endowments and sovereign wealth funds that are the most promising sources of capital for infrastructure take advantage of the program.

I am optimistic regarding the efficacy of fiscal expansion. But any responsible economist has to recognise that, past a point, it can lead to some combination of excessive foreign borrowing, inflation and even financial crisis. As Dornbusch showed, in emerging markets this can happen quite quickly. In the US the process would take longer.

Even without taking account of the likely costs of the infrastructure plan (which the Trump team badly underestimates) or the proposed defence build-up, the Trump tax reform proposals are too expensive. Many, like the proposed abolition of the estate tax, will only benefit the high-saving wealthy.•

Tags: ,


Extrapolating current economic trends into the future is a tricky business. Things change.

The American middle class, besieged for decades by tax codes, globalization, automation, Silicon Valley creative destruction, Washington gridlock and the Great Recession, seems more like a dinosaur each day. Men in the U.S. have particularly watched their opportunities crater, with millions more jobs poised to vanish as soon as driverless vehicles take the wheel in trucking, the taxi industry and delivery. (The last of those occupations will also be emptied out by air and ground drones.)

Nicholas Eberstadt’s Men Without Work suggests this story has been seriously under-reported, the subtitle being “America’s Invisible Crisis.” Like Charles Murray, whom I’m not fond of, the author believes misguided social safety nets have played a large role in creating this unintended consequence. I call bullshit on that theory, which seems more driven by ideology than reality.

In a Financial Times review of the book, Lawrence Summers also disagrees with Eberstadt on how we got into this mess, but  he sees a potentially even bleaker future for American males than the author does. Maybe that won’t come to pass, but this is exactly the type of possible outcome we should be discussing right now.

An excerpt:

Now comes Nicholas Eberstadt’s persuasive and important monograph Men Without Work, demonstrating that these issues are not just matters of futurology. Eberstadt, a political economist based at the American Enterprise Institute, marshals a vast amount of data to highlight trends that have been noticed but not adequately emphasised before in the work experience of men in the US. The share of the male population who are neither working, looking for work, in school or old enough to retire has more than doubled over the past 50 years, even though the population has become much healthier and more educated. Today, even with a low overall unemployment rate, roughly one in six men between the ages of 25 and 54 is out of work.

Eberstadt goes on to show that, as one might expect, non-work is a larger issue for those with less education, without spouses or dependent children, for African-Americans and for those who have been convicted of crimes. He finds little redeeming in what those without work are doing, noting that the primary contrast in time use between those in and out of work is in time spent watching TV.

Finally, he highlights that men in the US are doing considerably worse than men in the rest of the industrial world, where even countries with notoriously sclerotic labour markets and bloated welfare systems such as France, and even Greece, enjoy higher rates of prime age male labour force participation.

One can cavil with Eberstadt’s emphasis on labour force withdrawal as distinct from unemployment in looking at the data, particularly when it comes to international comparisons, but overall the evidence he marshals that non-work is currently a crisis is entirely persuasive. As he notes, the impact of non-work on economic growth is the least of it. A society where large numbers of adults in the prime of life are without vocation is unlikely to provide opportunity for all its children, to maintain strong communities or have happy, cohesive families. As we are seeing this fall, such a society is prone to embrace toxic populist politics.

Indeed, Eberstadt understates the significance of what he studies by not highlighting the fact that, if current trends continue, a quarter of men between 25 and 54 will be out of work by mid-century. I would expect Eberstadt’s sorry trends to accelerate as IT accelerates job destruction on the one hand, and developments such as virtual reality make non-work more attractive and addictive on the other, so I can imagine scenarios in which a third or more of men in this cohort are out of work in the US by 2050.

Why is this happening?•

Tags: ,


At Gizmodo, Matt Novak poses an interesting question: “Has Donald Trump Ever Used a Computer?” 

My best guess would be “yes,” that he Googles himself in the wee hours of the morning when too bloated on bacon cheeseburgers too sleep, growing furious at blogs that mock him. And is it really possible this man is unfamiliar with Internet porn?

I think the better query might be this one: “Has Donald Trump Ever Read a Book?” I’m more worried about his ignorance in regard to this much earlier tool. He certainly doesn’t have any in his home, and he’s paid other people to write ones published under his name. I feel fairly certain that this man has no paper cuts on his freakishly stubby fingers. 

Two excerpts follow, the first from Novak’s post and the second from Lawrence Summers’ essay about the specter of a Trump Presidency.


From Novak:

There is no technological test for the presidency in the United States. A hypothetical President Trump would not be required to use a computer nor a smartphone. But it’s 2016. The future president of the United States will confront myriad issues involving the average American’s use of technology. And if you’ve never touched a computer in your life, it seems hard to imagine how Trump might relate to things as trivial as “information overload” or as important as mass government surveillance.

We have documentary evidence of Bernie Sanders, Ted Cruz, Hillary Clinton, and Marco Rubio all using tablets, smartphones, and PCs. Somehow Trump has mastered the high-tech demands of running a 21st century presidential campaign without ever using those technologies first-hand. He’s on Facebook, Instagram, and Twitter—all set up for him and controlled by his lackeys. Frankly, I’m not sure whether to be impressed or horrified.

I guess, of all the things to be horrified over regarding our future president, his technological prowess might be the least of our worries.•


From Summers:

The possible election of Donald Trump as President is the greatest present threat to the prosperity and security of the United States.  I have had a strong point of view on each of the last ten presidential elections, but never before had I feared that what I regarded as the wrong outcome would in the long sweep of history risk grave damage to the American project.

The problem is not with Trump’s policies, though they are wacky in the few areas where they are not indecipherable. It is that he is running as modern day man on a horseback—demagogically offering the power of his personality as a magic solution to all problems—and making clear that he is prepared to run roughshod over anything or anyone who stands in his way.

Trump has already flirted with the Ku Klux Klan and disparaged and demeaned the female half of our population. He vowed to kill the families of terrorists, use extreme forms of torture, and forbid Muslims from coming into our country. Time and again, he has claimed he will crush those who stand in his way; his promised rewrite of libel laws, permitting the punishment of The New York Times and Washington Post for articles he does not like, will allow him to make good on this threat.

Lyndon Johnson’s celebrated biographer, Robert Caro, has written that while “power doesn’t always corrupt…[it] always reveals.” What will a demagogue with a platform like Trump’s who ascends to the presidency do with control over the NSA, FBI and IRS?  What commitment will he manifest to the rule of law? Already Trump has proposed that protesters at his rallies “should have been roughed up.”

Nothing in the way he campaigned gave Richard Nixon a mandate for keeping an enemies list or engaging in dirty tricks.  If he is elected, Donald Trump may think he has such a mandate.  What is the basis for doubting that it will be used?•

Tags: , ,

Tulowitzkis, like tulips, are prone to the irrational exuberance of marketplaces. The father of the modern baseball card just passed away, and an Economist piece reminds that speculation for this paper-based memorabilia packaged with bubble gum has proven no more resistant to bubbles than tech stocks or real estate. An excerpt:

Through the 1970s cards appealed mostly to kids interested in finding pictures of their heroes, or in completing a collection. Yet a subtle change was under way. Older aficionados, many of whom had been building their collections for decades, began swapping cards and hunting for especially rare and valuable specimens. One such cardhound, a professor of statistics named James Beckett, began polling traders on the prices they had seen or paid for particular cards. In 1979 he put together the first edition of what would become a regular price guide. In late 1984 the Beckett guide went monthly, the better to capitalise on soaring interest. Not long after that your correspondent took up collecting cards, just as that interest was turning into a speculative fervour.

Mr Beckett may not deserve sole credit for the baseball-card bonanza, but it is hard to imagine the mania having erupted without him. In the 1970s only aficionados knew that unique cards were fetching higher prices at trade shows and auctions. Beckett Baseball Card Monthly helped create a much larger market for the cards. Readers everywhere could see how prices were moving around the country, and decide to sell old memorabilia—or fill their attics with cards in anticipation of future price rises.

Economists have wrestled with the question of whether markets are “efficient” or not for more than half a century. Eugene Fama was awarded a Nobel prize in 2013 for pioneering work demonstrating that markets quickly incorporate new information and cannot systematically be beaten. Yet others reckon markets often go haywire. Robert Shiller, for instance, showed that market returns could in fact be predicted at longer time horizons. He also reckoned people are prone to certain behavioural tics, misjudgments that depart from rationality and which can drive markets to heights of ‘irrational exuberance.’ He was also awarded the Nobel prize, jointly with Mr Fama. Other economists have investigated ways in which markets can overshoot in one direction or another. “There are idiots,” Larry Summers once wrote in a paper on the subject. “Look around.”•

Tags: , , ,

One of the more awful things about the current (and manufactured) American economic crisis is that it has nothing to do with economics. Republicans will say that they’re shutting down the government to force spending cuts to correct long-tern budget deficits. Except that there likely are no long-term budget deficits, and a little more government investment would probably make that certain. This conflict is driven rather by ideology; it’s about wanting to enact punitive measures against our most vulnerable people to teach them a lesson of some sort. The opening of “The Battle Over the US Budget Is the Wrong Fight,” a new Lawrence Summers piece in the Financial Times:

“This month Washington is consumed by the impasse over reopening the government and raising the debt limit. It seems likely that this episode, like the 1995-96 government shutdowns and the 2011 debt limit scare, will be remembered mainly by the people directly involved. But there is a chance future historians will see today’s crisis as the turning point when American democracy was to shown to be dysfunctional – an example to be avoided rather than emulated.

The tragedy is compounded by the fact that most of the substance being debated in the current crisis is only tangentially relevant to the main challenges and opportunities facing the country. This is the case with respect to the endless discussions about the precise timing of continuing resolutions and debt limit extensions, and to the proposals to change congressional staff healthcare packages and cut a medical device tax that represents only about 0.015 per cent of gross domestic product.

More fundamental is this: budget deficits are now a second-order problem relative to more pressing issues facing the US economy. Projections that there is a major deficit problem are highly uncertain. And policies that indirectly address deficit issues by focusing on growth are sounder economically and more plausible politically than the long-term budget deals with which much of the policy community is obsessed.”