The Incoherence of Larry Summers, a Serious Economist

Yves here. Larry Summers, like Hillary Clinton, does not seem willing to get the message that it would behoove him to retreat from public life.

By J. D. Alt, author of The Architect Who Couldn’t Sing, available at Amazon.com or iBooks. Originally published at www.realprogressivesusa.com

Lawrence Summers, according to Lawrence Summers, is a “serious economist.” He has just written an op-ed in the Washington Post in which he seriously explains why Modern Money Theory—as proposed by “fringe economists,” as he calls them—is a recipe for disaster. I am going to leave it to the “fringe economists” to rebut Mr. Summers; (I’m confident that professors Wray, Kelton, Tcherneva, Tymoigne, and Fullwiler can take care of that job quite easily). What I want to consider is something even more fundamental: How is it that someone who presents himself as a “serious economist” can get away with speaking incoherently while expecting us—the everyday citizens of America—to take what he is saying as true?

Here is Summers’ first point about why MMT is a recipe for disaster: “Modern monetary theory…holds out the prospect that somehow by printing money, the government can finance its deficits at zero cost. In fact, in today’s economy, the government pays interest on any new money it creates, which takes the form of its reserves held by banks at the Federal Reserve. Yes, there is outstanding currency in circulation, but because that can always be deposited in a bank, its quantity is not controlled by the government. Even money-financed deficits cause the government to incur debt.”

Yes, that’s very clear and logical, isn’t it? The government “prints” money and then pays interest on it? The interest it pays become the “reserves” in the Federal Reserve system? And what exactly does that have to do with “outstanding currency in circulation”? And what is it exactly that happens when that “outstanding currency” gets deposited in a bank? And if “money-financed” deficits cause the government to incur debt, maybe we should think about financing our deficits with something other than money? These are all serious economic questions.

Summers’ incoherent rambling reminds me of another case of incoherent ramblings reported, coincidentally, in the same edition of the Washington Post: Donald Trump’s CPAC speech as evaluated by columnist Eugene Robinson. Here are a few instances of Trump apparently giving his best impersonation of Lawrence Summers:

“When the wind stops blowing, that’s the end of your electric. Let’s hurry up. ‘Darling—Darling, is the wind blowing today? I’d like to watch television, Darling.’ No, but it’s true…. Now Robert Mueller never received a vote, and neither did the person that appointed him. And as you know, the attorney general says, ‘I’m going to recuse myself. I’m going to recuse.’ And I said, why the hell didn’t he tell me that before I put him in? How do you recuse yourself?”

Lawrence Summers’ second point about the fallacy of MMT goes like this: “Contrary to the claims of modern monetary theorists, it is not true that governments can simply create new money to pay all liabilities coming due and avoid default. As the experience of any number of emerging markets demonstrates, past a certain point, this approach leads to hyperinflation. Indeed, in emerging markets that have practiced modern monetary theory, situations could arise where people could buy two drinks at bars at once to avoid the hourly price increases. As with any tax, there is a limit to the amount of revenue that can be raised via such an inflation tax. If this limit is exceeded, hyperinflation will result.”

Really, that all must be true, because Summers is a serious economist. Didn’t really know there were third world countries that have been practicing Modern Money Theory for a long time—but obviously it didn’t work out well for them. And, clearly, you can’t tax people more than they possess, so that proves it: hyperinflation!

Donald Trump had more to ramble about as well: “And they showed—they showed from the White House all the way down…There were people. Nobody has ever seen it. The Capitol down to the Washington Monument—people. But I saw pictures that there were no people. Those pictures were taken hours before…. They had to walk with high-heels, in many cases. They had to walk all the way down to the Washington Monument and then back. And I looked, and I made a speech, and I said, before I got on—I said to the people who were sitting next to me, ‘I’ve never seen anything like this.’”

Lawrence Summers’ third denunciation of MMT is as follows: “Modern monetary theorists typically reason in terms of a closed economy. But a policy of relying on central bank finance of government deficits, as suggested by modern monetary theorists, would likely result in a collapsing exchange rate. This would in turn lead to increased inflation, increased long-term interest rates (because of inflation), risk premiums, capital fleeing the country, and lower real wages as the exchange rate collapsed and the price of imports soared.”

But of course! That’s all obvious, isn’t it? Mr. Summers is just pointing it out. Exchange rates would collapse. It’s the most obvious thing any reader of his argument can easily grasp and understand—and that means “risk premiums” too (which clearly nobody wants).

At one point in his CPAC speech Donald Trump says this: “You know I’m totally off-script right now. And this is how I got elected, by being off-script. True. And if we don’t go off-script, our country is in big trouble, folks. Because we have to get it back.”

What strikes me is that our country is, indeed, in big trouble—but it’s because the “script” that’s being read to us by our political leaders, commentators, and “serious economists” is nothing more than an incoherent babbling.

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82 comments

  1. bruce wilder

    “somehow by printing money” is a significant tell — the stupider the clichéd metaphor, the more incoherent the economics. Summers in using that cliche is confusing currency with money, which error really ought to embarrass him, but obviously does not.

    Reply
    1. paulmeli

      Summers’ Op-Ed is bafflegab of the highest order. It’s sad that that’s what passes for informed commentary these days, but I think for monetary issues that’s always been the case. Any school that dares to teach monetary economics is defunded, exiled to 2nd or 3rd tier status.

      There has been a lot of pushback on this Op-Ed and Krugman’s from unexpected sources (Forbes, Bloomberg).

      This response is especially good:

      https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/#489e306c5852

      Also, demonstrating what a careerist Krugman is:

      Paul Krugman to Bernard Lietaer: “Never touch the money system”

      https://www.youtube.com/watch?v=Q6nL9elK0EY. (short – 44 sec.)

      Reply
      1. Susan the Other

        Well of course Krug, “never look at money” because if you do you’ll be blinded by reality.

        Reply
      2. sgt_doom

        Krugman has been a member of the lobbyist group for the central bankers, the Group of Thirty (www.group30.org) ever since it was founded by the Rockefeller Foundation back in 1978.

        Reply
      3. Carla

        I read the John T Harvey piece this a.m. because Yves had it in Links. It was so good I sent him a fan letter.

        Reply
        1. Tomonthebeach

          I read it 2 days ago and felt no compulsion to praise. Harvey includes some Summersian bullshit of his own. For example: “Just as the President’s daughter said days ago, people like to work. Quite right.”

          Harvey clearly does not live on the beach where the slacker-surfer lifestyle dominates. Likewise, it seems likely that he has never had to manage human resources in a large organization where more than just a few workers are obviously not liking what they are doing.

          The biggest barrier to full-employment is that not everybody wants to work or at least work very hard. That causes co-worker resentment, an unproductive workplace climate, and if ignored long enough, it can impair productivity to the extent that everybody becomes out of work.

          Reply
          1. Grebo

            So, you don’t consider surfing work? Perhaps you’re right, but I don’t consider lack of enthusiasm for bullshit jobs evidence that people don’t want to work.

            Reply
          2. paulmeli

            The biggest barrier to full-employment is that not everybody wants to work or at least work very hard.

            Thank God for those people, it makes my life so much easier. You wouldn’t like working in a world where everyone and anyone could replace you.

            I’ve never worked in an environment where everyone pulled their own weight, but it’s also true that we tend to hold others to a higher standard than we hold ourselves.

            At any rate, I still don’t want them to starve.

            Reply
          3. tegnost

            I’m not sure where you’re surfing but in my experience it’s doctors, lawyers, mba, engineers, and their kids. This link tells the story of the modern day surfer vs the stereotypical slacker surfer…
            http://www.surfparkcentral.com/surfer-statistics-infographic-the-common-us-surfer/

            wetsuits cost hundreds of dollars, my cheapest new board was an ellington for $400 like 15 years ago (no, it can’t really be that long ago?) My brothers quiver is easily worth $10,000, which is lucky for me because he can’t ride them all at once. Not to say there isn’t a large transient population, beaches have bathrooms and showers, but the surfer/slacker may not be a real thing?

            Reply
          4. tegnost

            also…
            https://brandongaille.com/22-surfing-industry-statistics-trends/
            FTL…
            #12. In a survey about surfing in the United Kingdom, surfers were disproportionally represented in managerial, professional, or business-owning employment classes. Nearly 80% of surfers fit into these employment categories, compared to just 54% of the general population. (Surfers Against Sewage)

            #13. Surfers also have a higher level of education attainment compared to the general population. In the UK, 64% of surfers reported having a higher education, compared to just 27% of the general population. (Surfers Against Sewage)

            Reply
        2. Carey

          I thought it was notably good too, and clearly written. Agree or not, what he was saying was not in question, unlike Summers’s/ Krugman’s slippery stuff.

          Reply
    2. WheresOurTeddy

      Larry Summers is on a list of people I’ve created where if I read or hear something they write or say and agree with it, I go back and check my premise on said topic.

      Have never had to do so with Summers. This entire editorial reeks of Upton Sinclair’s famous quote “it’s impossible to get someone to understand something when his paycheck depends on him not understanding it.”

      John Harvey in Forbes takes Summers, Rogoff, and clown prince Krugman down point by point as well.

      Reply
  2. Phil in KC

    Because I have only a single college course in Macro (taken 40 years ago), I am hardly any kind of economist, certainly not a serious one. But I do have some ability to parse a sentence and figure out the meaning–usually. Thanks for pointing out that the garble I can make no sense of is just garble. I thought I was just one of the uninitiated and ignorant masses.

    I am curious about the audience Summers had in mind when he wrote or uttered this. Who are they?

    Reply
    1. voteforno6

      I think the important information is conveyed to his intended audience via the title – the rest of it is filler, to justify printing it.

      You’re not alone in your interpretation of his column. I have enough confidence in my reading comprehension abilities to state affirmatively that his column is full of Thomas Friedman-like gibberish.

      Reply
    2. WheresOurTeddy

      this effort by Summers is the editorial equivalent of spinning wheels furiously in a pit of mud

      Reply
  3. Colonel Smithers

    Thank you, Yves.

    In the UK, we have a what you may call reverse Churchill problem, i.e. Churchill provokes mixed emotions in the UK, but is revered in the US. In the US, Summers provokes mixed emotions, but is revered in the UK, at least by the usual neo-liberal suspects. God Forbid. The family blogger has even been floated as a potential successor to Carney, probably a ploy by his vermin acolytes at the FT.

    You will be delighted to hear that Summers’ vicar on earth, or at least in the UK, New Labour family blogger Ed Balls was ousted from the Commons and some of public life by Andrea Jenkins. Jenkins is an Ultra Brexiteer, but History will be kind to her for sparing the long-suffering UK public from more of Balls. Oh, yes, she will be elevated to the Pantheon for that ouster alone.

    Reply
    1. diptherio

      Larry Summers, famous for stating that there is a “good economic case” to be made for exporting all our toxic waste to Africa. Larry Summers, famous for claiming that there aren’t more women in STEM fields because “girls are bad at math.” Larry Summers, beloved of neo-liberals everywhere.

      Reply
        1. allan

          Fiscal space and the aftermath of financial crises: How it matters and why [Christina Romer
          and David Romer]

          Abstract: In OECD countries over the period 1980–2017, countries with lower debt-to-GDP ratios responded to financial distress with much more expansionary fiscal policy and suffered much less severe aftermaths. Two lines of evidence together suggest that the relationship between the debt ratio and the policy response is driven partly by problems with sovereign market access, but even more so by the choices of domestic and international policymakers. First, although there is some relationship between more direct measures of market access and the fiscal response to distress, incorporating the direct measures attenuates the link between the debt ratio and the policy response only slightly. Second, contemporaneous accounts of the policymaking process in episodes of major financial distress show a number of cases where shifts to austerity were driven by problems with market access, but at least as many where the shifts resulted from policymakers’ choices despite an absence of difficulties with market access. These results point to a twofold message: conducting policy in normal times to maintain fiscal space provides valuable insurance in the event of financial crises, and domestic and international policymakers should not let debt ratios determine the response to crises unnecessarily. [emphasis added]

          If only one of the authors had been in a position to shape the administration’s response in early 2009 …

          La vendetta è un piatto che va servito freddo.

          Reply
      1. JCC

        Not to mention the article published here on NC back in 2013:

        The very thing that the former endowment chiefs had worried about and warned of for so long then came to pass. Amid plunging global markets, Harvard would lose not only 27 percent of its $37 billion endowment in 2008, but $1.8 billion of the general operating cash – or 27 percent of some $6 billion invested. Harvard also would pay $500 million to get out of the interest-rate swaps Summers had entered into, which imploded when rates fell instead of rising. The university would have to issue $1.5 billion in bonds to shore up its cash position, on top of another $1 billion debt sale. And there were layoffs, pay freezes, and deep, university-wide budget cuts.

        https://www.nakedcapitalism.com/2013/07/why-larry-summers-should-not-be-permitted-to-run-anything-more-important-than-a-dog-pound.html

        Reply
        1. shinola

          From that article:

          “Summers is your man if you are a banker, looter, or plutocrat.”

          ’nuff said.

          Reply
    2. WheresOurTeddy

      Churchill is revered in America by people whose memory only goes back to 1941 and even then, only plays the highlights.

      This American thinks he was a war criminal many times over and in a just world would have died in a prison cell, but I recognize I’m the minority in my country

      Reply
    3. RBHoughton

      I don’t believe anyone is completely useless. Al Gore made a follow-up film “An Inconvenient Sequel” which mentioned, inter alia, the likely failure of COP21 because India needed hundreds of gigawatts of new energy and the banks would dun them 13% on loans plus 2% for the exchange if they opted for green energy. Gore got onto Summers and a deal was thrashed out that was satisfactory to India. The country then signed the agreement along with the rest of the world. A man with that kind of clout with the hooligans in banking as valuable.

      Reply
  4. Nina

    I have considered Larry’s presence in any political campaign the kiss of death, since Obama first ran for president. Fair warning, contenders for 2020! You do not want to be seen so much as shaking Larry’s hand in public!

    Reply
  5. Matt Young

    MMT is what we do. We cycle like MMT says we should, we tax and sequester like MMT says we should, we devalue once a generation as MMT says we should. We are MMT, Larry SUmmers is simply faking it to protect the Keynesian form of MMT. The difference between Keynes and MMT? MMTers have no assumption about smooth trajectories.

    This is all the most useless debate among economists I have seen, and I have watched a ton of useless debates in the ten years of the last ‘MMT’ cycle. So, let us get on with the next MMT cycle, starting with a period of extraordinary means, followed by Tax and sequester, then if we are lucky, we get a devaluation, in proper MMT order.

    Reply
    1. bushtheidiot

      Bingo this guy gets it, we already print off a bunch of money to finance spending, lower interest rates to prop up spending and decrease debt costs, etc. Except the way we do it now benefits the rich by forcing the rest of us to spend spend spend because our money does nothing in the savings account. Meantime, the money gets pushed into stocks and bonds which benefits only a certain class.

      This essentially paves the way for MMT, which is just to reallocate who gets the benefit of this money printing from the rich to the rest of us.

      The current system clearly doesn’t work, however, and the idea that we can just spend money we make up out of thin air as a stable plan is nonsense. Just like it was in 2008, and just like it is now with a 23 trilliion national debt.

      We want medicare for all, increase the payroll tax and a small income tax, and that will do it. Charge everyone a “premium” for health coverage in their pay check that is far cheaper than what it is now, or let employers pay for it and get a tax deduction.

      No need to print monopoly money for anyone–rich or poor. We are wealthy enough to afford this stuff.

      Reply
      1. WheresOurTeddy

        the rich have had socialism for decades. it has worked so well for them, now the rest of us want a bite.

        Reply
      2. Oh

        I agree regarding Medicare for all but it should be free. If money’s needed, let’s tax the banksters to pay for it. After all the owe us $23 trillion.

        Reply
    2. jsn

      This is really no different from the dust big tobacco kicked up for 30 years to deny cancer, or big oil and climate denialism: there are a bunch of greedy b******s out there who have been making a killing off of looting, asset stripping and environmental and social market externalities doing all they can to milk the last dollar from a completely rotten system.

      Summers is pitching in to obscure perceptions of the rot that serves him so well.

      Reply
    3. WheresOurTeddy

      Stop any significant % of the war machine spending $1T+ per year and spend it at home in the US on crushing the price of housing and providing a jobs guarantee; you wouldn’t be able to run from the economic boom anywhere

      Reply
  6. shinola

    How dare anyone question Mr. Summers proclamations!

    He has the credentials, the experience, the insights of a world class economist!

    Just look at what Mr. Summers & his crew did for the Russian economy after the collapse of the USSR.
    [sarc off]

    Summers is the pet economist of the ultra neoliberal crowd.

    Reply
    1. WheresOurTeddy

      the word for people like Summers is “gatekeeper”. He’s doing his best to keep things within “the acceptable parameters of debate.”

      His is failing, will ultimately fail completely, and be discredited. I just hope he lives long enough to see it all happen.

      Reply
      1. Joey

        Harvard students got hot breakfasts? I only ate last night’s pizza crust, and my alma mamma didn’t provide. Helluva endowment.

        Reply
  7. John Wright

    Disclaimer: I’m no economist as my degree is in electrical engineering.

    I prefer to look at MMT as somewhat similar to a company issuing additional common and preferred stock.

    The company, in this case is a government.

    In this view, common stock issuance (that pays no dividend) is new currency issued and preferred stock issuance = US treasury certificates that pay interest ( similar to a preferred stock dividend ).

    One can argue that “the market” will not penalize a company (or government) when it raises funds via new stock issuance, IF the proceeds are perceived will be invested wisely.

    But if the new stock issuance proceeds are perceived to be used foolishly than one would expect the issuing “company” will see the value of their preferred and common stock drop (as inflation decreases the value of its currency).

    For example, if MMT minded US government issues new monetary “common/preferred stock” (creates new currency and issues treasury securities) and uses this purchasing power to improve US infrastructure, improve the bloated USA healthcare/financial industries or educates its people more cost effectively, then the global market could be completely happy with this use of the world’s resources.

    And the relative value of the US currency might be stable or even increase.

    On the other hand, if the MMT minded US government issues more currency/securities and funds a destructive war, one might expect the existing global holders of the USA’s currency and securities to be disappointed and push the relative value down.

    Just as a corporation has to have some sort of resources (IP, customer list, inventories, market dominance, new products in development) that are valued for it to issue stock, a MMT minded government must be viewed as having resources and power.

    For example, Haiti is a sovereign nation with its own currency, the Haitian gourde.

    But I suspect Haiti will have a very difficult time using MMT (issuing gourde denominated securities) to improve its economy as it is perceived has having few resources and a prior history of resource squandering corruption (Papa/Baby Doc Duvalier) .

    Reply
    1. Tomonthebeach

      I betcha that Haiti’s debts are not in Gourdes but in Euros, Pounds, and Dollars. Most US debit to itself and foreign countries in our own currency. As Mosler points out, inflation often hurts our trading partners worse than it does us.

      Reply
    2. jsn

      A great analogy! And the value of a nations currency is a statement of market perception of the quality and effectiveness of its institutions.

      Reply
    3. charles 2

      I share your analogy 100% and I think this is the right way to present monetary theory (I don’t want to say “modern” because it is more than a century that it works like this already). Although, I would add a twist : the government also distributes dividends in non monetary terms, by providing, say, free roads, free education or free healthcare ( In the preceding century, there were actually railroads issuing bonds that paid interest with free tickets !)
      Of course, the amount of “paid in kind” dividend is similar whether one holds one dollar in the pocket or a million, so it is not popular with the wealthy class.
      I think it is an important component to point out because one frequently encounters people who frequently complain that a dollar today is worth less than a dollar yesterday, but forget that between yesterday and today, the government provided services to the dollar holder regardless of him/her earning an income and paying taxes.

      Reply
  8. PlutoniumKun

    I was going to ask the serious question ‘how did Larry Summers get to his esteemed position in the first place?’ Nothing I’ve ever read by or about him over the years has indicated that he is anything but a second rate bluffer with a talent for impressing other bluffers, and yet in many quarters he seems to be held in significant awe.

    But mindful of the rules here about ‘setting homework’ I looked up his career in Wikipedia. It seems he was quite influential in developmental economics, which no doubt led to his gig in the World Bank. So someone who is considered a Harvard expert in development economics writes:

    Lawrence Summers’ second point about the fallacy of MMT goes like this: “Contrary to the claims of modern monetary theorists, it is not true that governments can simply create new money to pay all liabilities coming due and avoid default. As the experience of any number of emerging markets demonstrates, past a certain point, this approach leads to hyperinflation. Indeed, in emerging markets that have practiced modern monetary theory, situations could arise where people could buy two drinks at bars at once to avoid the hourly price increases. As with any tax, there is a limit to the amount of revenue that can be raised via such an inflation tax. If this limit is exceeded, hyperinflation will result.”

    If someone talking in a bar said that, you’d consider him an idiot, or at best, someone who just hasn’t read very much. And yet a Harvard professor can, without embarrassment, write such nonsense. And still be taken seriously. It really is unbelievable.

    Reply
    1. Mel

      The argument, shorn of the beebling and handwaving, does make some sense. A Haitian government, say, that tries to issue more gourdes (HTG) to pay off a US$ (or ECU, or anything foreign) debt is going to find out that no number of gourdes will be enough. It will have to be US$, and they will only be acquired on the terms the US$ creditor specifies. This has been true ever since independence, when the whole world insisted that the Haitians buy themselves back from France.
      They can used gourdes to mobilize their own efforts and their own resources, and hope to achieve something with those.

      Reply
      1. Grant

        “A Haitian government, say, that tries to issue more gourdes (HTG) to pay off a US$”

        That is a government creating its own currency, which it then has to exchange for another currency. That is roughly what Germany was forced to do with after the massive WWI debts were forced on it and it went through hyperinflation. The issue is owing money in another currency. MMT economists have said again and again that countries should try to avoid, if they can, owing money in a foreign currency. Obviously, many poor countries have no option. Different than a government issuing bonds in its own currency. If the Haitian government injected its own currency into the economy, then issued bonds in its own currency as a means of reaching its central bank’s targeted interest rate, and Haiti owed money in its own currency, that would be a good comparison to our situation. Summers doesn’t understand (or pretends not to) the problem of bringing up hyperinflation in places like Peru and Venezuela, or the problems poor countries face in regards to external debt, versus what the situation is in the US. We are in no way comparable to those countries or situations. It’s absurd, and he knows better, or he should.

        In regards to the debt of developing and underdeveloped countries; the big issue is the need for a massive debt write down (among a host of other things). On that, Éric Toussaint’s work is hugely important.

        Reply
        1. a different chris

          >The issue is owing money in another currency.

          Even in this case — the point is how much of your own currency can you create? The runaway debt inflation is just getting the information the hard way. And it is irreversible, unless you can send out assassins to kill your off-shore debt holders.

          If you can come up with a good idea of how much you can safely print, why borrow it? If there was just some academic profession that could come up with useful answers to that question…

          Reply
          1. Grant

            “Even in this case — the point is how much of your own currency can you create? ”

            This has been discussed many times. The broad limit is the productive capacity of the economy. Are we at full employment, are we at full productive capacity? If the change in the money stock is proportionally larger than the value of the goods and services created with that money, then you could have inflation. Could, because inflation is more complex than that. If the government were to create a bunch of money (forget private credit creation for a second since we can’t control that much right now), but that money went to rich people that hoarded it, if it was used by companies to buy up their own shares, if it was used to buy goods from other countries, if it was put in a tax shelter, among countless other things, that money wouldn’t circulate around the economy and wouldn’t cause much inflation. It is possible for the government to create lots of money and for deflation to set it. Happened after the crash in 1929, that was Friedman’s argument as to why the Great Depression happened. He said that even though the Fed was creating lots of money, the economy was contracting at a greater rate and so in real terms the money supply was shrinking. Steve Keen responded to that and showed the problems with that argument, but this dynamic is well known. Private banks creating credit money are a part of this and the crash in 1929 too. After the crash in 2007/2008, it is pretty well established that while the government did create a lot of money, it didn’t create enough and it didn’t channel to the parts of the economy that could have led to a recovery for working people. So, not only how much money is created, but where that money goes in the economy, whether or not more stuff can be produced, expectations of the future, among other things, will determine inflation.

            “If you can come up with a good idea of how much you can safely print, why borrow it? If there was just some academic profession that could come up with useful answers to that question…”

            Not trying to be rude, but have you actually read MMT literature? Cause all this stuff is addressed. We don’t borrow money in the way you think. The government, the US government, doesn’t need to borrow or tax in order to spend. The particular way we have chosen to create money was developed decades ago, when we were on the gold standard and had either the value of dollars fixed to an ounce of gold, or later all currencies fixed to the dollar which could be exchanged in a given amount for gold. We aren’t on gold anymore. We could just have the government spend the money into the economy and use taxes to manage inflation. We don’t have to issue bonds, and Wray I believe has said that states that have control over their own currencies shouldn’t issue bonds in this way anymore. But those bonds come with no risk at all (the government will not default on the bonds unless forced to by politicians) and they accrue interest, so investors like them, especially when there is uncertainty. But we don’t have to issue bonds AFTER the government spends to manage inflation. My understanding is that the Fed is the buyer of last resort on the secondary market for bonds, and those that take part in bond auctions are required to actually bid. I don’t see why investors would all of a sudden not like US bonds (it would have to be something with geopolitical implications) but even if they did, the situations could be dealt with, and again, we don’t need to even issue bonds in order to spend anyway. That is a radically different situation than Haiti owing money in another currency and being massively in debt to other countries in other currencies, with little ability to export value added goods that have strong terms of trade. Read up on the amount of debt owed by Haiti to France since the Haitian revolution, and the amount of debt paid but still owed by developing and underdeveloped countries in the post-WWII era. You think Summers cares? How in the world is that comparable to the US in 2019? It is ridiculous, and Summers knows it.

            Reply
      2. ChrisPacific

        That is true and it’s one of the key factors that can lead to hyperinflation. However, Summers isn’t talking about that scenario. Nothing in his argument mentions foreign currency denominated debt. He’s simply claiming that there is some upper limit on deficit spending beyond which the economy will automatically tip over into hyperinflation. I’d love to see him point out one instance in history where that’s happened without external factors like foreign currency debt playing a role. The closest thing I can think of is credit bubbles, but those are self-correcting in the long run and can’t spiral out of control like hyperinflation.

        Reply
    2. urblintz

      He was brought into politics by… wait for it…

      Ronald Reagan.

      “Summers was on the staff of the Council of Economic Advisers under President Reagan in 1982–1983.” https://en.wikipedia.org/wiki/Lawrence_Summers#Public_official

      And most people still don’t know how he helped plunder post-Soviet Russia and the real scandal he survived at Harvard.

      https://directeconomicdemocracy.wordpress.com/2013/09/03/larry-summers-the-shleifer-russia-fiasco-and-kleptocracy-as-a-guiding-ethos/

      Reply
      1. PlutoniumKun

        Wow, I’d no idea of that. Whatever about Samuelson (yes, I suffered through his textbook), Arrow did some very interesting and incisive work. I guess Summers was, as the Vietnamese would say ‘second rice crop’.

        Reply
    3. charles 2

      ‘how did Larry Summers get to his esteemed position in the first place?’

      Larry Summers became a famous economist like Donald Trump became a famous property developer : through family

      From his own website :
      “I remember the fall night in 1972, after Kenneth was awarded the Nobel Prize. The other American Nobel Prize winner at that moment, Paul Samuelson, also my uncle, hosted a party for Kenneth and the Cambridge economics community. I was a sophomore economics major at MIT, so I was hardly appropriate company for such an august gathering, but I was a little unique in being related to both the host and the honoree, so I was invited and I participated as best I could in the conversation.”

      Reply
  9. timbers

    Reminds me a scene in John Carpenter’s Christine:

    “There’s no smoking in this garage!” the owner says having gotten up from a card game where all his buddies are sitting around a table waiting for him to rejoin them, as they all smoke.

    “Sir, those men over there are smoking. You better them them to stop.”

    Reply
  10. Jerry B

    Here is an article discussing the recent dust up on MMT:

    https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/

    From the article a quote from Keynes:

    “The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”

    And this from the author of the article:

    “Those prominent economists aren’t even so much rejecting MMT as holding tight to their own orthodox views. This is not necessarily on purpose, but it’s extremely difficult for anyone to make a paradigm shift. MMT, aka macroeconomics done properly, is, as Keynes says, “extremely simple and should be obvious.” The problem we have here is the difficulty in escaping from antiquated notions of macro modeling (Krugman), inflation (Summers), and debt financing (Rogoff).”

    I think one of the problems we have in this country and the world is that what we think of as the mainstream educational model is actually socialization, indoctrination, brainwashing, and or ideological training. And then “jobs” are based on how well you bought in to that brainwashing.

    Various education reformers over the past decades such as Ivan Illich and John Taylor Gatto have mentioned similar critiques of education in the US and the world in that our educational system does not foster problem solving and critical thinking.

    It is my belief that our educational system creates a type of false self in people. In order to get the “right” answers and do well on tests, etc, you have to compromise your truth, your experience, and your true self and allow yourself to be programmed in the particular models of your profession.

    Maybe in Summers, Hillary, and Trump’s case, as they have gotten older that “programming memory/false self” is starting to become fractured due to cognitive decline, physical issues, stress, fatigue, etc. and as they desperately try to regurgitate their brainwashing it is coming out in an incoherent mess.

    As Summers is only 64, before Yves jumps on me for equating cognitive decline with being older or in one’s 60’s I think it is specific to each individual. I just turned 60 and my brain is as sharp as ever, it is my body that is slowing the train down!!

    To illustrate my point, a while back I read Anthony Atkinson’s book, Inequality: What Can Be Done? He mentions in the book that Greg Mankiw’s Principle of Micro/Macro economics textbooks have very little on the subject of inequality. How could a mainstream textbook on economics not have a significant portion on inequality?? IMO because in Mankiw’s case inequality does not fit his ideology.

    NC has a way of posting articles the same day that can be connected. I think this post can be related to the ” Is a Harvard MBA Bad for You?” post. The MBA becomes brainwashing. Instead of trying to solve a problem MBA’ers and other professions try to fit the ideology of what they were taught in school to the problem.

    To use an analogy: there are usually multiple routes to get from one town to the other. It does not always have to be the “main road”. Sometimes the main road is not always the fastest, shortest, etc. And sometimes by taking the same road all the time, one’s perspective becomes narrow and hinders thinking outside of the box.

    To borrow Henry Ford’s quote:

    “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

    After decades of allowing ourselves to be brainwashed, I think we are starting to, as J.D. Alt mentions above, “question the scripts” and are finding them to be a house of cards.

    Reply
    1. Susan the Other

      Well you are just a kid. I’m 72 and I think I’m a family blogging genius… but it could be just the first symptom. Whatever… I’m going to tell you guys what I think about this stuff until I get politely censored. I never studied economics – but I studied languages until words were falling out of my ears. And in my lexicon Larry doesn’t even have the integrity of an idiot. Sometimes an idiot is spot on. Larry is a deceptive, self-serving power tripper dedicated to a time gone by and never to return. Too bad.

      Reply
      1. Jerry B

        Thanks Susan! Recently I went to my doctor and he asked me how I was feeling. I said physiological (my term for non-skeletal) I am 40. Structurally (arthritis, herniated discs, etc. etc.) I feel like I am 70!

        ===but I studied languages until words were falling out of my ears===

        I have always had an intuitive sense for language. Verbal and non verbal language. The words used, tone, inflections, etc. Andrew Carnegie once said that the older he became the less he paid attention to what people said and the more he paid attention to their behavior. And I think that is partly true but language is important.

        And as you mention language can be used to convey power. Pierre Bourdieu wrote Language and Symbolic Power which I have been wanting to read. I have also skimmed through some of Michel Foucault’s work on discourse analysis.

        Also I have read some of Kenneth Burke’s work such as A Grammar of Motive’s and A Rhetoric of Motives. After reading Burke’s books I became more curious about people’s motives behind their language and behavior, and also the idea of rhetoric. IMO Obama is a master at rhetoric and hence could fool a lot of people, while Trump sucks at it.

        If you have not done so already I suggest looking up the Logical Fallacies links on NC’s policies page. I believe a lot of language uses for power are in snowing the public in using arguments or propaganda that contain logical fallacies and heuristics. I have learned a lot in examining what people say and their arguments from NC.

        Reply
  11. Grant

    Yeah, I found what he said to be absolutely absurd. He seems to believe that MMT describes something we might do, as opposed to explaining how things are, at least in countries like the US. If he can’t understand, or pretends to not understand, the difference between a country owing money in a foreign currency versus issuing bonds in a country’s own currency, and the actual role of bonds in the US system or how money is actually created, then he isn’t trying. Cause, whatever we want to say about Summers and all he represents, he isn’t a stupid man. I haven’t seen a single critique of MMT from the likes of Krugman or Summers that demonstrates that they understand the thing they think they are critiquing, or that they understand how things actually work. In response to MMT, they either respond with some models that they were taught that aren’t based in reality, or they just lie about MMT. It is the economic version of people like Pelosi lying about single payer in the political sphere using ridiculous logic.

    That, to me, is frightening, given how much power he has and who he has been hired to give advice to. People like Summers seem to freak out, really when you look at it, by the fact that we are questioning a fantasy account of how things are. They want to continue to make policies on the assumption that things are in reality what they say they are in their models, and there is a huge gap between the assumptions in their models and reality. If he were to acknowledge the insights from MMT about how things work, many of the excuses those in power have for doing nothing as the country falls apart would crumble, and those doing nothing are then more directly responsible for the impact of their policies. Once you realize that they are not investing in communities being neglected by private interests, they aren’t investing in things needed to deal with the environmental crisis, they aren’t helping to fund programs to get people healthcare or things like clean water (communities like Flint say hello) because they are paid by interests to do those things, and for ideological and class reasons, they can no longer pretend that the government “can’t afford” those things. The debate switches to a place they don’t want to be in, and they are then more responsible for the decisions they make. It is no longer about circumstances forcing themselves on these worthless politicians.

    Reply
  12. skippy

    Larry Summer: We Print Our Own Money

    Published on Apr 3, 2014

    https://www.youtube.com/watch?v=vuqQ3FZuSUs

    I also think some need to observe that Keynes was not a Keynesian in the manner that mainstream use the IS-LM. One is the use of econometrics and the other is the IS-LM was a – starting point – of observation that needed more fleshing out and not some “economic law [tm] carried down the mount.

    Would additionally point out good old Ralph Musgrave over at TJN proclaiming his long support for MMT with caveats, sadly anyone with with a functional memory would know key MMT’ers stance with Musgrave does not support those claims.

    PS. great start to the day … 50kg black German Sheppard just bound up on the bed – all wet – and wanted to share his eagerness for the day ….

    Reply
    1. Gary Gray

      Keynes believed in governments planning more investment, especially during down times. This is the blunder modern day “sheep” don’t understand. It isn’t deficits that matter, but pushing the investment into usage/production. Deficits like we have now are nothing more than public debt underwriting private debt expansion via financial engineering. Of course market statists would hate the government with a bigger % of total investment, as they would lose control of the economic system and bow to the will of another.

      Its amazing how dopamine release and other “feel good” consumption based games and circuses so rules the people. All they live for is the fix. The bourgeois sells it them as “their fix”, “their ownership” of said fix while they rake in profits and destroy the environment. Truly like the Roman end times. No wonder the Christians are so worried. They see themselves replaced like the old rituals and traditions that proceeded it.

      Reply
  13. WestcoastDeplorable

    Yves, I’m not a MMT fan, but you’re spot-on about Summers. Didn’t he lose the Harvard Endowment over $1 Billion with his “sage management”? He’s an idiot.

    Reply
    1. skippy

      One would think after the Chicago boys foray with Born and its after math people would question the use of such people as PR tools – well must be running dry.

      Suggest you look into the groundings of MMT and not emotive processes – see link above. Keynes started a process to refute orthodox thinking, seems some post morte folded parts [tm] into orthodox thinking so they could own – manage that perspective. Hence when needed mainstream will utilize Keynes to say money is not a problem and then completely reverse azimuth and say Keynes said money is a problem …..

      Can’t wait till they take Marx out of context to support some elitist social views …..

      Reply
    2. Grant

      I am curious, just want to know. When you say you aren’t a fan of MMT, what is the reason? I am interested in good critiques of its insights, just hard to come by, since it does seem to describe present really pretty well.

      Reply
  14. Adam1

    As with most “serious economists” he’s really an overpaid fraud. The man professes to understand government deficits, yet he has no idea how the accounting works.

    From Warren Mosler…
    “Several years ago I had a meeting with Senator Tom Daschle and then Asst. Treasury Secretary Lawrence Summers. I had been discussing these innocent frauds with the Senator, and explaining how they were working against the well being of those who voted for him. So he set up this meeting with the Asst. Treasury Secretary who was also a former Harvard economics professor and had two uncles who had won Nobel prizes in economics, to get his response and hopefully confirm what I was saying.

    I opened with a question: “Larry, what’s wrong with the budget deficit?”

    To which he replied: “It takes away savings that could be used for investment”.

    To which I replied: “No it doesn’t, all Treasury securities do is offset operating factors at the Fed. It has nothing to do with savings and investment”.

    To which he replied: “Well, I really don’t understand reserve accounting so I can’t discuss it at that level”.

    Senator Daschle was looking at all this in disbelief. The Harvard professor of economics Asst. Treasury Secretary Lawrence Summers didn’t understand reserve accounting? Sad but true.”

    Reply
  15. Susan the Other

    Note to Larry, please follow this logic: Money is Fiat; Fiat is cooperation; Cooperation is fiscal control; and fiscal control is civilization. Nowhere in this chain of thought does debt; interest; austerity; or any of your other little techniques even exist. Those bizarre ideas exist in more primitive thinking about power and slavery and savage exploitation. You know the routine.

    Reply
    1. Gary Gray

      Maybe, but debt expansion is debt expansion. Globally debt exhaustion looks to have been reached and we are at the top of the mountain. We are at the first stage, the next stage is what triggers the recession. The last stage, the Minsky moment.

      Summers is a cluck, but a useful one in this case. The move from a mixed economy to financial engineering is very addictive to the “people”. Moving back to a mixed economy won’t be all giggles for everybody as consumption is naturally cut.

      Like all junkies, the detox won’t be easy and in some cases, fatal.

      Reply
      1. Susan the Other

        Yes, it is what is so frightening about our current breakdown. Debt is the whole system. It was necessary to maintain that system. But there’s no reason why debt can’t be put in what banksters call a “bad bank” and just let it run off the books. It can all be done in some resolution that forgives some and allows some to linger without interfering in the economy anymore. There will always be private debt, so caveat friends and neighbors. But there’s no reason to suffer an impossible debt burden as a sovereign nation. And from here on in we should not buy anything unless it can be purchased in US dollars/treasuries. The debt to ourselves doesn’t matter. The thing that matters is how we spend our money, do we waste time on bad projects or do we create a more valuable civilization with good ones? Debt is just a monkeywrench, useful to gamblers and middlemen. We could configure a completely different economics with very little pain if we put our minds to it.

        Reply
  16. Samuel Conner

    I find it profoundly encouraging that it seems that the best that the best credentialed opponents of MMT can do is what is described here.

    They aren’t ridiculing MMT; they are embarrassing themselves.

    Reply
  17. The Rev Kev

    Not much love for Larry Summers here – and rightly so. I remember reading a conversation that he was in where he explained how things worked. I’ll see if I can summarize it-

    Larry Summers is a serious person.
    Important people listen to serious people.
    This is how serious people express power – by having important people listen to them.
    Golden rule is that serious people never criticize each other in public – ever.

    I’m sure that people here can pick out the flaw in this arrangement – as in Garbage In, Garbage Out as far as important people are concerned and the information & opinions that they receive.

    Reply
  18. charles 2

    Seriously, what would you expect from a person who writes this at the first paragraph for his biography (emphasis mine) :
    “Dr. Summers’ tenure at the U.S. Treasury coincided with the longest period of sustained economic growth in U.S. history. He is the only Treasury Secretary in the last half century to have left office with the national budget in surplus. Dr. Summers has played a key role in addressing every major financial crisis for the last two decades.”

    Change “addressing” by “participating in the genesis of”, and you are quite close to the truth…

    Reply
    1. Susan the Other

      Mmmm, and all that treasury surplus was accrued by Larry’s Austerity which exponentiated the private debt and turned into the 2008 tsunami. Heck of a job, Larry.

      Reply
  19. Stillfeelinthebern

    “Larry Summers, like Hillary Clinton, does not seem willing to get the message that it would behoove him to retreat from public life.”

    Love this sentence!

    Reply
  20. Fazal Majid

    Larry Summers is useful as a canary. The day Obama appointed him as an adviser (before his inauguration) was the day I understood Obama would do diddly squat about fixing the root causes of the Great Recession.

    The part I don’t understand is how he gained his prominence, other than literal nepotism. You’d think the fact he lost Harvard’s endowment a cool billion would have killed his career given how prominent Harvard grads are in the US’ power structure.

    Reply
  21. Sound of the Suburbs

    2008 was the wakeup call global policymakers slept through.

    “We cannot solve our problems with the same thinking we used when we created them.” Albert Einstein

    This is exactly what we’ve been trying to do since 2008.

    https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

    Our policymakers thought this was a “black swan”, and if your economics doesn’t consider debt it is.

    One question led me to the answer.
    “How does money get destroyed in the system?”

    This is what happened, how did it happen?

    It can’t happen if banks are financial intermediaries as our policymaker’s believe.

    Other people have been looking into this and so there is a lot of work that has already been done to help you get to the answer.

    The central bankers later confirmed how money gets destroyed in the system.

    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

    We were flying blind during globalisation and policymakers didn’t understand the monetary system.

    The FT revealed the Chinese were undertaking a major study of the West.

    I think they must have worked out things are fundamentally wrong as they have made all the classic mistakes everyone else has made since 2008.

    They have already worked out inflated asset prices and the private debt-to-GDP ratio are indicators of coming financial crises and these were the indicators that showed 1929 and 2008 were coming.

    By the time they understood what was going on the Minsky Moment was dead ahead, and they could no longer use the debt fuelled growth model they had used before.

    When US policymakers understand the monetary system they may be able to make some valid comments.

    Reply

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