Larry Summers And Orthodoxy In Its Death Throes

I doubt the utility of dedicating additional space and energy to Larry Summers’s wildly quixotic efforts to leverage economic orthodoxy in the service of entertaining the masses with Zoom videos maligning Joe Biden’s stimulus plan.

It’s unfortunate that Bloomberg pays him to engage in this faux crusade every couple of weeks. Summers has a reserved slot on Bloomberg Television’s “Wall Street Week.” The network’s recaps include a reference to his “paid contributor” status.

Summers is, in essence, a paid entertainer. And while Bloomberg TV is vastly superior to, for example, CNBC, when it comes to respecting viewers’ brain cells, it’s still just entertainment. I sincerely hope folks understand that. The media is an entertainment business. It’s not there to educate or to inform. If you believe otherwise, read a good nonfiction book. You’ll be astounded at the juxtaposition between real information and entertainment masquerading as such. As Denzel Washington put it in his Oscar-winning role as Alonzo in Training Day, “this is a newspaper. It’s 90% bulls–t, but it’s entertaining. That’s why I read it, because it entertains me.”

As far as I can tell, “Wall Street Week” only airs on Friday evenings. While I suppose the ratings could be decent, it’s difficult for me to imagine that weary traders and market participants who, by Friday afternoon, just want to dive into the nearest scotch bottle, are particularly keen on watching the mannequin-esque David Westin interview Summers, whose visage isn’t exactly flattered by the “fishbowl” effect from video conferencing software.

Alas, anyone inclined to tune in is subjected to that spectacle and this week it manifested in Summers deriding current US macro policy as the “least responsible” in four decades. Both parties, he said, are creating “enormous” risks.

“I think these are the least responsible fiscal macroeconomic policies we’ve had for the last 40 years,” he told Westin. “I think it’s fundamentally driven by intransigence on the Democratic left and intransigence and the completely irresponsible behavior in the whole of the Republican Party.”


“The Fed has stuck to its guns on no rate hikes for years and years and continuing to grow its balance sheet,” Summers went on to say. “So it seems to me what was kindling is now igniting.”

Summers is now assigning subjective probabilities to America’s economic future. The odds of stagflation are about the same as the odds of a recession caused by the Fed slamming on the brakes to arrest price pressures, he reckoned. It’s also possible that Jerome Powell and Janet Yellen manage to thread the needle and engineer robust growth with subdued inflation. All three of those possibilities have about a 33% chance of playing out, according to Summers.

You might fairly ask what the point was. After all, enumerating every possible outcome and assigning an equal probability to each really doesn’t tell us much. Granted, it acknowledges that the odds of a dire situation are no greater than the odds of a favorable outcome, but ultimately, Summers appeared to be saying that he simply doesn’t know, which is odd for someone who thinks he knows everything.

Summers is now the poster child for orthodoxy in its death throes. “Set aside the specific subject matter, and Summers might have been teleported in from almost any point during the past three decades, when he led so many institutions of the neoliberal establishment that he just about defines it,” Benjamin Wallace-Wells wrote, for The New Yorker this week. “The difference this time—one measure, though not the only one, of the quiet transformations of the Biden Administration—is that now Summers is an outsider,” Wallace-Wells added, before quoting Summers, who told him this:

I think [the Biden administration] should be heavily investing in infrastructure, they should be heavily investing in science, in education, in green things. But there’s not going to be unlimited money for that stuff.

Although Paul Krugman is held up as Summers’s “sparring partner,” the reality is that both of their brands, to the extent everyday people can distinguish between the two, are passé. No one cares what they have to say anymore, even when one of them (Krugman) is playing devil’s advocate for the stimulus bill Summers has made a show of demonizing.

Bloomberg also spoke to Stephanie Kelton this week. “Well, the type of inflation that Larry Summers has worried about openly — he’s talking about generalized increases in prices. Where essentially you have too much money in people’s hands and they run out into the economy and try to spend all of that money and the productive capacity of the economy to meet all of that demand just isn’t there,” she said. “That’s very different from localized instances where we have issues with supply chains and bottlenecks.”


Asked about the deficit and inflation, Kelton said “what we have is fiscal [policy] that’s mostly about supporting incomes, helping workers who lost their jobs continue to spend what they were spending — pay their rent, buy food, helping small businesses keep people on payrolls, keep essential workers paid. So much of the spending being supported by these deficits is just a continuation of the spending people were already doing,” she continued.

Kelton acknowledged that some of the spending catalyzed by the latest round of stimulus checks wouldn’t otherwise have happened, but she noted the obvious. “To the extent they want to buy goods and services, that gives a little boost to the economy,” she told Bloomberg.

Pressed on rising costs for things like education, Kelton reiterated points I’ve made here on innumerable occasions. The cost of, for example, college, has been spiraling higher for years. The same goes for healthcare. Those are policy failures that have little, if anything, to do with any deficits and have no relation whatsoever to pandemic spending.

Whereas both Summers and Krugman come across as two old ivory tower “wisemen” (who may not be very wise) engaging in a painfully belabored academic debate about whether textbooks and models do or don’t permit Congress to save lives and livelihoods, Kelton presents as a realist with both feet planted firmly on Main Street.

And how ironic is that? Prior to the pandemic, the good doctor was generally seen as the face of fantastical thinking.


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15 thoughts on “Larry Summers And Orthodoxy In Its Death Throes

  1. I was waiting for you to comment on Summers. He’s bright and I respect him but is past his due date. I am always surprised that the economics and investment professions are clueless about this. The Fed and US Treasury, ie the government is trying it’s best to help many people in distress from a catastrophic event. No blame to assign unless you want to criticize the us government public health response prior to 2021. Keynes put it best. In the long run we are all dead. Summers may also be trying to justify the insufficient response he was part of in 2008-2011. Fortunately Biden learned from those errors and also learned to tout the help he and the Democrats are delivering. Nothing like political and economic competence.

  2. Seems to me the distinction Kelton makes between her view of inflation and Summers’s view is pretty thin and more of matter of degree. Summers sees the ignition of the kindling and she downplays the fire by attributing changes as isolated supply problems and bottlenecks. That looks like kindling to me. Many firms didn’t believe in the recovery and held back investing in capacity during the downturn. That’s obviously why there are shortages and if people want stuff they will try to get it. Whoops up go the prices; that pesky supply and demand thing rearing its ugly head. Some stuff at the grocery store smacks of profiteering. As businesses reload stuff will start coming out and prices will go down — but only if they have to. I’ve been trying to buy a whole house standby generator since last Sept. I finally lucked into one a couple weeks ago and even got a 10% rebate. So maybe we are off to the races. How much inflation and how long no one can tell. Truthfully, I’ve never been too happy about the Fed setting targets to achieve higher prices. Like, it’s really not their job. Too political.

  3. Larry is immune to irony. The most “irresponsible” macro policy of the past four decades was the inflation of the largest debt bubble in the history the world, handmaiden to poor fiscal and legislative public policy, which has morphed into a too big to fail-moral hazard vortex that has essentially devoured capitalism itself. Larry is one of its chief architects.

  4. Re: “Summers deriding current US macro policy as the “least responsible” in four decades.” He almost has that right, except for the part about a hundred year pandemic and the destruction of global GDP. The war we’re in is also not over …

    One debate that needs to be placed into perspective, is if we’re still in a recession, I don’t think that’s clear, but the V-shaped recovery remains a work in-progress, with an ending point highly unlikely.

    Within that uncertainty, the on-going disconnect in everything economic can be seen with lumber futures and prices screaming higher, while GDP declines, while home prices and stocks race upward. In my mind, I see new home starts slowing because of lumber costs, but apparently, we’ve sort of been there before, if you don’t factor in weak GDP. During the GFC, it sorta made sense that as home values decreased, there was increased demand for lumber, to build new homes. This time, home prices rocket right along with lumber, which doesn’t seem sustainable … maybe lumber futures going higher helps GDP growth?

  5. 33% probability of stagflation, 33% recession, 33% rapid growth. With so many different outcomes, no matter what happens to the economy Summers can say he was right.

  6. I do sometimes watch Wall Street week. They play repeats all weekend long. I guess it’s better than some of the other cable news on a Saturday morning.

  7. In southern California, my standard Del Taco order is now ~50% more expensive than the price I was paying two years ago…

    1. And you reckon that’s attributable to the Fed? a straight line between your taco dinner and Jerome Powell? “If only he had kept running down the balance sheet and not cut rates, these tacos would be…”

      What gets me about comments like this is the tacit suggestion that someone’s anecdotal experience with tacos or spiraling college tuition or health care premiums is indicative of some kind of government conspiracy to understate measured inflation.

      There are plenty of great arguments for why the official gauges aren’t adequate, but the simple fact is, if inflation were truly “out of control,” then we’d all be destitute. I’d bet you one taco dinner that I can go to Walmart right now and buy ingredients for tacos at roughly the same price as they were in 2019. I bought black beans two days ago. They were 85 cents per can. Admittedly, I didn’t buy any tortillas or salsa, but I did buy shredded cheese and it was about $3.50 for the bag. Maybe that’s 30% more than it was in 2019, I don’t know, but what I do know is that when I got back home, I didn’t sit down on the couch and worry myself to tears over the prospect of spiraling black bean and cheese prices.

      Clearly the discussion is different if you’re looking at global food prices and pondering the implications of a big jump (like we’ve seen over the last nine months on the UN’s gauge) for emerging market economies, but that’s not what we’re talking about. We’re talking about taco dinners in America.

      1. Fair point about the conspiracy theories regarding inflation but somewhat indelicately put. Not too long ago a comment like this might be met with a resounding “ok boomer.”

        I’m glad you’re doing well but many families in America, mine included, aren’t as able to simply laugh off a 30% increase in food prices. While my family of 4 isn’t struggling, and is doing better than many, we do feel effects of an extra 2k a year in food cost. We are fortunate enough to maintain 2 incomes which puts us over the limit for the most recent stimulus, but we are by no means wealthy.

        I anticipate that at least some of your readers also consider themselves members of the shrinking middle class. Not rich enough to benefit from republican tax cuts nor wealthy enough to have meaningful assets that appreciate with the ensuing debt monetization. Not benefitting (directly) from dem policies nor, again, being wealthy enough to have meaningful assets that appreciate with the ensuing debt monetization. All the while taking hits from crazy health insurance bills, crazy student loans, crazy house prices, oh and some “real” (if none of the rest of that counts) inflation too.

        1. You’ve been reading Heisenberg Report long enough to know that I’ve essentially dedicated my entire life to advocating for lower- and middle-income individuals and families. I spend every waking minute thinking, reading, or writing about it. And I’ve spent a fair amount of money in the service of it too.

          This is why it’s perilous for me to respond to comments on the site. Nothing I say is “right” to every reader. Somebody has a problem with every comment response, which is why I generally just avoid responding. My work speaks for itself regardless, and it always will.

          1. On balance, I appreciate the anonymity of this internet blog site- but anonymity does have its faults and limitations.

            It is apparent that you give The Heisenberg Report your all and then some. I feel like I am attending an ongoing Ivy League (when that meant something) graduate level economics class- which I am actually thrilled to attend.

            Hopefully, you do not have any thoughts about ending your professorship.

  8. His remarks that the Biden administration ‘should be heavily investing in infrastructure, they should be heavily investing in science, in education, in green things. But there’s not going to be unlimited money for that stuff.’ Is partially right. The other component required is a lot of highly educated people to make the advancements. I don’t think we have an unlimited supply of that either.

    1. It’s almost funny how Covid-19 has become a panacea, like a double edged sword, that broke everything– and then become the opportunity to fix everything -=- creative destruction.

      I just read a bit from Yardeni, about his agreement with Summers that stimulus benefits are too kind and generous — and thus, people making $8/hr will keep screwing up the economy and they need to get back to their low paying jobs to Make America Great (AGAIN).

      Regardless of ridiculous polarized opinions, one of the greatest things Biden can do, in this pandemic experiment, is to cancel federal student loans and essentially start a process to restructure the American education system, from kindergarten to community colleges and every college and university. Why not reinvent that mess and start a new plan to improve education opportunities for everyone, including the hopeless and forgotten low wage workers (who are currently helping stimulate the economy).

      In retrospect, giving stimulus to low wage workers was the fuel that helped save America during the pandemic. Why not take that stimulus example for growth and thus take away the burden from college kids that can’t repay school debts? Bottom line, those people with debt forgiveness end up stimulating the economy, because their income isn’t paying off interest on bad loans connected to obscene tuition costs — and instead, their income is used more efficiently.

      McKinsey Global Institute
      The future of work after COVID-19
      February 18, 2021 | Report

      Because of the pandemic’s impact on low-wage jobs, we now estimate that almost all growth in labor demand will occur in high-wage jobs. Going forward, more than half of displaced low-wage workers may need to shift to occupations in higher wage brackets and requiring different skills to remain employed.

      Before the pandemic, we estimated that just 6 percent of workers would need to find jobs in higher wage occupations. In our post-COVID-19 research, we find not only that a larger share of workers will likely need to transition out of the bottom two wage brackets but also that roughly half of them overall will need new, more advanced skills to move to occupations one or even two wage brackets higher.

  9. FWIW, I receive Krugman columns (or some of them at least) via email. I think he’s pretty supportive of Biden’s plans? Certainly not in the same category as Summers who’s been failing upwards since the 90s.

    I was horrified at the time when Obama was apparently dead set on getting him the Fed Chair and only chose Yellen under extreme pressure. I like Obama a lot, best natural politician alive that I know of, better even than Bill Clinton (imho) and more honest and honorable too. But if he really did like Summers, that’s a serious error in judgment of character.

    My comments at the time (2013):

    Very recently, Obama, seemingly unhappy with the search for a new Federal Reserve Chairman turning into a rather nasty match between Summers and Yellen supporters (thanks in no small part to Ezra Klein’s “Larry Summers is the Front-Runner”), has mentioned a former Fed Vice Chairman, Donald Kohn as a possible, an example of someone he is considering and who was not even on the shortlist often mentioned…

    To me, though, this is starting to sound a lot like “Anyone But Yellen”… It’s not that Obama doesn’t like Yellen, as far as I know – according to Klein, he simply doesn’t know her – it’s that he seems pissed off his buddy Summers isn’t better liked and thus Yellen’s candidacy becomes an unintended victim, collateral damage.

    But, if that is what is going on, it would be extremely disappointing. The Obama presidencies certainly haven’t turned up how I’d have hoped. One thing, though, that has remained true since he was but an outside candidate at the Democratic National Convention was that Obama is smart and fair-minded.

    He may not have had the pleasure of working with a reasonable opposition. He may have had to deal with the worst crisis since the 1930s. He may have had to wind down unpopular foreign wars. None of this is easy.

    But none of this would justify indulging in nepotism. Let’s do a quick pro & cons.

    1- YELLEN

    Pros: Tons of experience; best forecaster out of the Fed’s Open Committee.

    Cons: Possibly too attached to present-day policies i.e. she’d follow Ben Bernanke’s footsteps and, if you’d like to see greater easing (or less?), she might disappoint you.


    Pros: Erm. Is “brilliant”? Friendly with lots of White House folks? Close to some big Wall Street guys (though that last one will warrant further debate). Has a penis a.k.a “gravitas”? Got Brad DeLong totally on his side (his ‘slight preference’ for his friend and colleague mutated into a cry for love: “why does the Left think Larry Summers ia a right wing hyena?”) and Tyler Cowen marginally so (pun intended).

    Cons: Where to begin?

    Daniel Khuen, in reply to Brad DeLong, thinks 4 items explains the Left’s dislike of Larry Summers: To quote “(1) female scientists, (2) Cornel West, (3) Alan Greenspan/Bob Rubin on a Time magazine cover (and they think the trio’s principal purpose was making bankers rich), and (4) pollution in Africa”.

    I think this is not too far off the mark but a bit glib. Let’s get into this a bit more…

    First, things like the dispute with Cornel West, the talk on female scientists and the supposed “joke” about pollution in Africa paint the portrait of an asshole, possibly a conservative asshole but that’s not the point. Let’s just say that Larry Summers isn’t exactly a smooth operator when it comes to people he doesn’t respect/doesn’t feel he needs to earn the respect of.

    But this is not the most important, by far. After all, who cares if the Fed Chairman is an asshole on a personal level? I don’t have to work with him and, as long as he does his job of reviving the economy, fighting unemployment and controlling inflation, I don’t care much (his work colleagues and employees under him might have a different calculus).

    What matters above all is Daniel Khuen’s point number 3 – but taken seriously. Larry Summers presided over the big 1990s deregulation fiesta. And he hasn’t shown any indication that he now considers this bit of policy making a big mistake. To quote Felix Salmon extensively:

    “The choice of Summers would also be the clearest signal yet that Obama feels that he did what needed to be done to deal with the financial crisis, and that financial reform is, for the rest of his presidency, going to be a very low priority. Summers is a deregulator in his bones; he didn’t like the consumer-friendly parts of Dodd-Frank, and his actions have nearly always erred on the side of being far too friendly to Wall Street. (….) [T]here is no chance whatsoever that he would take a robust leadership role with respect to the Fed’s other big job, which is regulation. If you want to repeat all of the Clinton-era mistakes of financial regulation, you can’t do better than appointing Clinton’s very own Treasury secretary”.

    At this point in time, the ability of any Fed Chairman to ease monetary policy further is likely to be limited. Apart from avoiding a Fed Chairman who outright would want to tighten money a.s.a.p, the last thing we need is a Fed Chairman who believes that banks can do no wrong and don’t need to be supervised much.

    We’ve already had Greenspan pathetically admitting that “he had found a flaw in the model that he perceived is the critical functioning structure that defines how the world works”…

    And, as pathetic as it might be, Greenspan , at least, admitted to being wrong. Did Larry Summers even come close to admitting as much for his role in the genesis of this crisis? I don’t think so…

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