Mercury Rising 鳯女

Politics, life, and other things that matter

Larry Summers gets Pinked

Posted by Charles II on April 10, 2009

Via Calculated Risk

Couldn’t happen to a nicer guy.

15 Responses to “Larry Summers gets Pinked”

  1. omen said

    remember, summers is krugman’s favorite.

  2. Charles II said

    PK has long been a moderate neoliberal. He was hired by Martin Feldstein and worked with Larry Summers in the Reagan Treasury. The wider circle of Summers associates includes people like Brad DeLong and Nouriel Roubini. This group of people see themselves as the genuine liberals: hardheaded, practical people who understand how to deal with the far right and produce workable policies. I see them as well-intentioned, but in many ways captured by the ideology of the right.

    I see the woes that we are going through in a much larger historical context, with the key factor driving it being productivity. Productivity is good in that it allows us to raise living standards and broaden prosperity without using more raw materials. It is bad in that it diminishes the need for human labor, putting downward pressure on wages and thereby weakening the middle class. The middle class is the fundamental force that fights corruption and enforces meritocracy.

    Real unemployment now is around 15%, and much of that is work that would better not be done: processing medical claims, for example, or guarding petty drug users. Within a generation or two, if things don’t change, we could find unemployment of 40% or 50% or more to be the norm.

    How should we shape policies to adapt our society, and prevent the decline of the middle class? The moderate liberals have no answers. Like Larry Summers, they are focused on technical fixes, like deregulation and free trade, which economic theory predicts will increase productivity. They assume that the wealthy, through their benevolence, will divide the gains fairly. With the sole exception of Nouriel Roubini, not one has argued forcefully for helping the people being driven from their homes by the mortgage shenanigans.

    The other acolytes of Larry Summers, as well as the man himself, would all benefit immeasurably from a year living in a homeless shelter.

  3. omen said

    the other guy is david rubenstein, co-founder of the carlyle group. what do you read into that?

    roubini warned about subprime lending as early as 2006. geithner warned about credit default swaps as early as 2004, and tried to reign them in. yet geithner doesn’t get any credit for it. i’ve never heard summers issue warnings about derivatives.

  4. omen said

    the source for the rubenstein id:

    http://www.daylife.com/photo/0axu8DX7vq8Ut?q=obama

  5. omen said

    oh, i remember now what i wanted to ask you. at the forum, summers said there is a risk of both inflation and deflation occurring. have you ever heard of both of those things happening at the same time?

    Robert Wenzel, Economics Policy Journal, April 9th

    When specifically asked about inflation and deflation threats, Summers said there was the risk of both. Deflation now and inflation down the road. For a government official to bring up the inflation threat at all is highly unusual. I took this to mean he knows there is an great inflation threat down the road. In fact, he said that the danger with inflation is that “you don’t realize that inflation is a problem until it is already out of control.”

    (thanks for freeing up comments)

    [Charles says: my pleasure. Edited the URL for appearance.]

  6. Charles II said

    OK, I sorted out the comments, Omen. Sorry about that. Akismet sometimes gets trigger happy.

    I don’t read much into the fact that David Rubenstein was the interviewer. These guys– everyone who is at the top of the financial/economic system– all know one another socially. Since they’re all in the same general socioeconomic stratum and interested in the same general issues, it does produce groupthink.

    I’ve never heard of Geithner warning about CDS. This account says he was focused on the technical issues of trading efficiency, and never pressed on the issues of risk. As the NY Fed chief, he was the regulator who had the power to call a halt to trading in writing unlimited CDS. When someone insures a $100,000 house for $1,000,000, it’s pretty fishy. The money quote: The New York Fed led a broader review of the large banks’ risk management in early 2007, just months before the credit crisis began. Unlike the 2006 study, the review, titled “Large Financial Institutions’ Perspectives on Risk,” gave an upbeat assessment of their ability to handle potential vulnerabilities. Relying on bank assurances that the quality of their loans and investments remained “strong,” the Fed concluded that there were “no substantial issues of supervisory concern.” Just like the peanut inspectors who found no substantial issues of regulatory concern in the rat-infested factories of Peanut Corporation of America.

    Summers was even worse. He recently wrote some articles in The Economist (which I haven’t read) allegedly recanting his free market extremism. I get the impression this was a ritual, like paying back taxes, that Obama nominees had to go through to get the job, whatever their private feelings on the matter.

    Roubini seems to be one of the good guys. Like I say, he did call for forceful action to protect mortgage holders in danger of foreclosure. That happens also to be the cheapest way to fix the problem. Cost is an important consideration, because we are reaching the limits of public will for deficit spending.

  7. Charles II said

    It’s possible for inflation and deflation to occur simultaneously, in different parts of the economy, Omen. To give a tangible example, if there were a huge discovery of iron, the price of that might drop at the same time that a scarcity of copper drove up the price. All things being equal, when there is inflation in one part of the economy and deflation in another, the net effect is price stability. However, all things never being equal, some people will experience inflation and others deflation. We had that problem in 2007-8. People with low incomes, who spend a disproportionate amount on housing, food, and transportation, were experiencing inflation. People with high incomes were experiencing asset deflation.

    Summers is talking about something else. If we print huge amounts of money now to combat deflation, then in a few years, inflation could be a problem. The Fed thinks it has that under control because it can (it thinks) mop up all the excess liquidity on a dime. The way it does that is to swap back the mortgages/mortgage derivatives it accepted in exchange for T-bills, then put that paper on the market.

    By contrast, fiscal stimulus by the Congress is more difficult to mop up. You can raise taxes, but that takes time and it’s hard to get it exactly right. Raise taxes too much and you end up back in recession. Fail to raise them enough and you get inflation.

  8. omen said

    i was pretty hostile to geithner till i read this:

    http://www.businessmirror.com.ph/home/bloomberg-specials/6927-in-geithner-we-trust-.html

    even a hesitant reformer instinct is better than none at all.

    another article which showed geithner acting earlier than others in recognizing problems and willingness to buck the status quo:

    http://www.time.com/time/politics/article/0,8599,1871665,00.html

    if only the administration would point to instances like this instead of allowing the narrative to harden that geithner is a tool for wallstreet.

  9. During the civil rights movement, African-Americans who took part in marches, sit-ins, or any sort of public action, knew that they had to appear in their best Sunday churchgoing clothes. (As Maha of the Mahablog notes, this was done at Dr. King’s express request: http://www.mahablog.com/2007/01/16/augment-the-objections/#comments)

    This was the ultimate job interview, and their goal was to impress the people reading about them in the newspapers or watching them on TV with how sober-minded, serious and responsible they were. Even the signs they carried came from professional print shops.

    It worked: Their fellow Americans saw the marchers and were impressed by their responsible demeanor. LBJ was able to push through the Voting and Civil Rights Acts in large part because of the sober-minded and adult demeanor of the marchers.

    Then came the hippies. The “levitate the Pentagon” types. The trust-fund babies who rebelled against their parent by going around with long stringy hair and beards and an aroma of pot and unwashed body. They did a very good job — of turning off Middle America. They helped elect and then re-elect Richard Nixon, who then proceeded to keep America in the very war the Pentagon-levitators protested. Eric Alterman notes: (http://www.msnbc.msn.com/id/14134971/#060808)

    The first serious historical research I ever did was when I was researching my honors thesis as an undergraduate. I wanted to study the origins of neoconservatism, the Six Day War, and Vietnam—this was back in 1981—and my adviser, Walter LaFeber—insisted that I learn a little context first by examining the attitudes of the entire country to the war and the antiwar movement. I poured over the polling data and found to my surprise, that in many ways, the antiwar movement was counterproductive. Many Americans didn’t like the war but they really hated the counterculture. If supporting Nixon was a way to get back at the hippies and protesters and rioters, they were willing to do it, even if it meant extending a war they thought to be already lost.

    This is borne out by a study done in the immediate aftermath of the Kent State shootings. It may be shocking to some of us today to realize that a non-trivial portion of Americans had no problems with students and protesters being shot to death by the National Guard, but the study shows exactly that (http://www.eric.ed.gov/ERICDocs/data/ericdocs2sql/content_storage_01/0000019b/80/36/83/e5.pdf). This was in large part because many Americans feared that — in the wake of the assassinations of JFK, Malcolm X, MLK, RFK, and other prominent figures — the country was falling apart, and order had to be restored somehow.

    And yet we have, four decades later, the same people doing the same schtick with the same utter lack of awareness at how (or worse, utter indifference as to how) the rest of the country sees them. Dale Carnegie they’re not.

    If you’re going to do protest-as-theater, as opposed to protests that might actually have a chance at changing hearts and minds, at least do it intelligently. The Yes Men are the experts at this sort of thing, and they don’t do it with ten-foot-tall puppets, but with Armani suits and planning on the order of the Normandy invasion.

  10. Charles II said

    PW, the Code Pink protestors are dressed nicely. That’s how they got in the door. The sign is clearly lettered.

    But it’s also different times. A suit in the 1960s was a statement, “I belong to the mainstream.” Nowadays, it just as often means, “I’m a Jehovah’s Witness.” There is no counterculture now, and therefore nothing to hate. Almost every American lives in fear of losing his/her job and, with it, health benefits. The anger at the bank bailouts is almost universal.

    If I had advised them, I would have told them to stand silently with their banner. They wouldn’t have gotten thrown out as fast. But people have to make the judgment themselves. It’s difficult for an outsider to second-guess a situation.

    A thought which I commend to you.

  11. Charles II said

    Omen, I’m not sure the Bloomberg article says anything much different than the Propublica article I linked.

    There are two narratives. In one, Geithner recognizes the risk problem with CDS and acts, but not forcefully enough. In the second, Geithner fails to see the actual problem (risk), but does see that the antiquated record-keeping of the investment banks is bad for business, so he makes them computerize everything. This, of course, will have no effect at all on the financial crisis, except to make going back through the rubble easier after the financial structure collapses.

    So the question is not what Geithner did. On that, there’s agreement between the two narratives. Instead, we are asked to make a judgment on his state of mind (too cautious vs. oblivious). I base my judgment on the report of the New York Fed, which asserts that there is no problem with risk– right before the bottom falls out.

    Can you see my point of view? I don’t think he’s a reformer who has been too cautious. I think he has misused his regulatory power to make cosmetic changes that, to the extent they accomplish anything, are primarily in the interest of the investment banks.

    I hope he succeeds at stabilizing the banks. I am not calling for him to be removed. But I think he needs to be watched very, very carefully to make sure he does what needs to be done.

  12. Dale Carnegie they’re not.

    The pink ones, though I’m sure their hearts may be in the right place, lost me forever when they forced me to watch them cavorting in the background of Valerie Plame’s testimony before Henry Waxman’s committee. I had waited months, no – years, for something like that hearing, and then had to watch Plame testify with that ridiculous backdrop.

    Since then I resent every disruptive appearance they make even though I support what I believe are their ultimate goals. You only get one chance to make a first impression.

    Speaking of which, I don’t recall many if any pink protests back when the Rs controlled both Houses.

    Fight smarter, folks.

  13. Charles II said

    Well, memory does fade as we get older, Quentin.

    The name CodePink originated from Tom Ridge’s color coded alerts.

    From a right-wing blog, a partial list of Medea Benjamin’s actions, dating back to 2002. Here’s a photo of Code Pink crashing the RNC.

    What is true is that as the Democrats failed, again and again, to rein in Republican abuses, Code Pink grew in membership. If they screw it up this time, we could see this country become extremely radicalized. I heard a poll to the effect that support for socialism has grown to 20%, with another 27% saying they don’t know whether socialism or capitalism is better. Maybe that’s because the Republicans have desperately labeled all sorts of things Americans want, like guaranteed health care, “socialism.” But I think it reflects a broader sense that America may be failing.

    I, of course, hope that that’s not true. But I recognize that Code Pink reflects a legitimate strand of public opinion, just as legitimate as the Catholic League or the Free Republic or NOW or the Cincinnati Women’s Political Caucus.

  14. Reflecting a strand of public opinion is one thing, like the freepers.

    Accomplishing something productive that advances a good cause and outweighs its negative effects is altogether another thing which, imho, these Stupid Code Pink Tricks do not do.

    http://tinyurl.com/c5k74l

  15. Charles II said

    We all have to judge when protests are effective. I happen to think you’re right about the Plame protests. But back in 2002, the Code Pink people were one of the very few protestors against the war. And they were, according to Marie Cocco, polite as pie. Their tactics escalated only after a very long period of patience and forbearance.

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