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Larry Summers as Fearless Truth Teller?
Larry Summers is a very good economist who has written many important articles, but a fearless truth teller? That's what David Leonhardt calls him in the NYT today.
I have yet to hear Summers advocate any policies that would cause serious pain to Wall Street.There are few more blatant problems in the U.S. economy than its bloated financial sector. Taking on the financial industry is something that would take real courage, given the industry's influence in the Democratic party.The fearless truth teller might want to examine a very good piece written twenty year ago that outlined the case for a securities transaction tax. Yes, that article was written by an economist named Larry Summers.
Leonhardt also finds it very impressive that Summers recognized that the economy was facing a serious downturn last December. I suppose that puts him ahead of Senator McCain telling us that the economy's fundamentals are sound back in September, but recognizing the imbalances created by the housing bubble in December of 2007 hardly makes one a visionary.
--Dean Baker
COMMENTS (12)
10 Billion. Chump change.
How about a floating margin requirement based on the time rate of change of prices, the smoking gun of speculative froth. Commodity prices would never have reached their "peak oil" performance and subsequent crash without speculation.
If I remember correctly, margin requirements on futures were inexplicably reduced to 15 % about a year and a half ago, followed by lift-off of across the board bubbles. The speculators were the very scum that are currently sucking up tax payer funds to cover their bad debts.
Posted by: Anonymous | November 26, 2008 5:40 AM
I was a Harvard student under Larry Summers' tenure as President, and when I raised the tobin tax in my economic classes, it was dismissed outright - not even a discussion.
One hopes the orthodoxy is changing, or that Summers is willing to break with it.
Posted by: marquez | November 26, 2008 9:56 AM
Nancy Pelosi's part in all of this needs more attention.
Breathtaking in its implications, "Impeachment off the table" is in large part responsible for the destruction of our financial system.
A get-out-of-jail card the announcement forgave the administration for its war on American principles while signaling that they, the Democratic party, would stand by for its continuation.
We now have the results.
Posted by: LeeAnne | November 26, 2008 12:01 PM
Feh. Leonhardt is not a reporter who sweats the details or wants to look and see what's hiding under the rocks. Leonhardt didn't see the problems last December, either.
Posted by: Moopheus | November 26, 2008 12:03 PM
Dean, I'm very interested to know what you think about this article in the FT.
Posted by: Anonymous | November 26, 2008 2:14 PM
The Leonhardt piece was an incredible suck-up, bid for access to the new White House economic expert. The way Leonhardt brushed by the failure to regulate derivatives in the mid-90s, and Summers' aggressive leadership in fighting that regulation, was embarassing to read. Summers wasn't the only one to get regulation of derivatives wrong, but he got it wrong, and it shouldn't be papered over like Leonhardt does.
Posted by: macheath | November 26, 2008 6:09 PM
marquez: I was a Harvard student under Larry Summers' tenure as President, and when I raised the tobin tax in my economic classes, it was dismissed outright - not even a discussion.
Of course they wouldn't discuss it - Tobin was at Yale.
Seriously, my formal economics education consists of one semester of "Intro to Econ" many years ago. Nevertheless stories like yours convince me that contemporary economics education emphasizes indoctrination over education. Fortunately you seem like one of those miscreants that refused to be brainwashed.
Posted by: alex | November 26, 2008 7:01 PM
Dean,the fundamentals of the economy is in the most dangerous sitution.Professionals like Larry should be encouraged and allowed to participate in the central government.I've read and heard alot about him.There's no doubt that he's a great economist.However,do you think that this economy will be up and running in the nearest future?
Posted by: ugo ubili | November 27, 2008 12:36 AM
Dean,
I always thought your financial securities tax idea was a good vice tax, but didn't see any externality that would justify it on pigouvian grounds. I think we now have ample evidence of the externality that volatility in the financial industry causes. But we're on our way to a new, lower equilibrium size for that industry, and much like our path to a lower equilibrium of home prices, a smoother transition is better.
In the same vein, we should also repeal the mortgage tax deduction, but probably not right now.
Posted by: ao | November 27, 2008 10:59 AM
"There are few more blatant problems in the U.S. economy than its bloated financial sector."
Uh, the Ag bill? The war on drugs? The welfare state? The warfare state (colonialism)? The incentives in the tax code?
Posted by: Jay | November 27, 2008 3:05 PM
"Nevertheless stories like yours convince me that contemporary economics education emphasizes indoctrination over education"
Alex, do the stories in the bible convince you that Dog exists? You sound like you'd make a good sheeple.
Posted by: Jay | November 27, 2008 3:41 PM
Thank you for reminding everyone of the Summers & Summers STT article. The fact that these guys (Greenspan, Summers, Rubin etc) are able to essentially get away with what they did (or did not do) shows that the dismal science is only the former.
What are the chances that a a fearless truth teller and a very good economist gets into the administration? and who would they be?
Posted by: osfp | November 28, 2008 11:46 AM