I can’t help commenting when an economist of Larry Summers’ stature (as former head of Obama’s economic team) prescribes a fix for some aspect of the economy. I suspect that others’ immediate reaction to this is much the same as my own. What credibility does he have when he was actually in a position to effect such changes, yet was cast aside by Obama (along with the rest of his economic team) in response to the failure of their economic policies?
Having said that, let’s take a look at some things he’s said in this Reuters op-ed piece. Though at times it doesn’t seem like it, I’m always looking for glimmers of hope that a new awakening among economists may be on the horizon. (I know, I know. Stop chuckling.) Summers begins with this:
The principal problem facing the United States and Europe for the next few years is an output shortfall caused by lack of demand.
A lack of demand? I’m sure that Summers would acknowledge that total aggregate demand, along with total global output, has never been greater. So the real problem is a failure of per capita demand to keep pace with the growing population.
Then there’s this:
… it is no longer true that the overall growth rate of the economy is the principal determinant of middle class income growth—how the growth pie is sliced is at least equally important.
What Summers is talking about here is how the pie is sliced inequitably between the top 1% and the rest of us. But it’s encouraging to hear an economist begin to think in per capita terms instead of a single-minded focus on macroeconomic growth. Once they begin to think about how the pie is sliced, it’s not such a stretch to wonder what happens if the crowd at the dinner table grows faster than the size of the pie. But perhaps I’m grasping at straws.
Summers then closes with his 3-step prescription for fixing income inequality, which can be summarized (no pun intended) as follows:
- Government shouldn’t make matters worse by rewarding the rich even more.
- Keep the estate tax.
- Keep college affordable for the middle class.
In other words, rearrange the deck chairs of our tax policy. Come on, does anyone believe such timid measures are going to make one bit of difference in our economy or in income inequality? Minor changes in how revenue is collected and redistributed offers no hope of putting nearly 20 million people back to work when the net effect of revenue vs. spending remains the same or, as it must, actually results in more money being taken out of our economy. Our economic problems go way, way past the point of being solvable by such minute tinkering.
The real problem is a failure of the field of economics itself, devoted since its founding two centuries ago to the always-impossible concept of never-ending growth in a finite world. Summers speaks in this piece about a transformation to a “knowledge-based economy” while, at the same time, peddling us economic ignorance and fantasies. Has Larry Summers or any of his colleagues spent even one minute pondering the economic effects of crowding people ever more closely together? Have any of them ever considered, in light of the obvious failure of their field, that perhaps they should collectively back-pedal and try to figure out where they went wrong?
Larry Summers’ time (and that of his colleagues) would be far better spent thinking about such things as population density and per capita consumption instead of writing op-ed pieces designed to propagate and perpetuate their economic folly.