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Okay, that is not exactly what he said, but if Chrystia Freeland’s account of Summers’ comments at Davos is to be believed Summers is badly misinformed about the state of the U.S. economy in 1993, when he was one of the top advisers in the Clinton administration. According to Freeland Summers said:
In 1993, here’s what the situation was: Capital costs were really high, the trade deficit was really big, and if you looked at a graph of average wages and the productivity of American workers, those two graphs lay on top of each other. So, bringing down the deficit, reducing capital costs, raising investment, spurring productivity growth, was the right and natural central strategy for spurring growth. That was what Bob Rubin advised Bill Clinton, that was the advice Bill Clinton followed, and they were right.
This is not what the data say. Here’s the story on real wages and productivity.
Source: Bureau of Labor Statistics.
There are some measurement issues that would reduce the gap somewhat, but anyone who could see these two as laying “on top of each other” needs some new glasses. The sharp divergence between productivity and wages began in the 1980s. It would be really scary if Larry Summers, Robert Rubin and the rest did not know this in 1993.
The other parts of Summers’ story are also wrong. The trade deficit was less than 1.0 percent of GDP in 1993. By comparison it was almost 4.0 percent of GDP when Clinton left office in 2000. The interest rate on ten-year Treasury bonds was 6.6 percent in January of 1993. Coupled with an inflation rate of around 3.0-3.5 percent, this gave a real interest rate in the neighborhood of 3.1-3.6 percent. This is perhaps a bit higher than desirable, but actually not much different than what we saw through most of the Clinton years.
In short, Summers is describing a history that does not exist. He either has a very poor memory or is just making things up.
Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.
15 Comments
“In short, Summers is describing a history that does not exist. He either has a very poor memory or is just making things up.”
Ah, ’tis revision, DB.
If a big enough lie is told about history, and it is told loudly and often enough … then it becomes … “history” … it is “believed”.
Summers is the advance man, the point man, of the “Official History”.
Too much of the “history” of the US is of that “official” sort.
People WANT to forget the bad stuff, people want to “believe” that their “leaders” would not lie to them, would not lie them into wars, or depressions, or excuse criminal fraud …
Summers accommodates. His blinkered backwards glance is the stuff of placation, the burnishing of reputation, the accepted means of denial.
The catch phrase is, ” …they were right”.
Voila!
The elite are protected, hoi paloi are mollified, and “looking forward” is ever and always the motto.
Who coulda known?
DW
Maybe Larry should have checked the math with some women.
touche.
Fixed. :)
They say that the military is always fighting the last war. Larry Summer’s description was accurate for circa 1980. This was when the policy levers were all fixed to support free markets and undermine the place of labor in the economy. Inflation, not wages or unemployment, were defined as the major problems of monetary policy right through the crash of 2008, even though inflation had not been a problem since the experts were young men earning their degrees in economics and cutting their teeth in the banking system.
Summers is a creature of Wall Street. He did exactly what he was supposed to do: he lied to serve their interests.
Well, like they say, how do you know if an economic adviser is lying? If their lips are moving.
What is so sad about all of this is how often people like Summers hold down positions inside major universities, where they get to teach a whole new generation of economic advisers how to lie and steal.
I think that’s a good take. Like a lot of economists at that level, Summers’ mind was made up before he went into government, and no amount of data short of the crash of 2008 would have made him change his mind, and even that crash only half changed hi mind. A good bell-wether here is Brad Delong, whom Larry brought into the Treasury. Brad was andremains a conventional good macroeconomist whose vision was set in the 1980s, just like Bernanke. Summers is abit older than Bernanke and should have known better, but he cut his teeth on studies of how changes in the composition of the labour force had raised the natural rate of unemployment, so his apparent lack of concern with the divergence of labour productivity and real wages isn’t that surprising.
Ironcomments January 26th, 2013 at 11:46 pm 17
Economist= pseudo-scientist/intellectuals. These are the high priest of the status quo. Baker et al are snake oil salesmen of the nth degree.
Book Salon up with Donald Tomaskovic-Devey’s Documenting Desegregation: Racial and Gender Segregation in Private-Sector Employment Since the Civil Rights Act hosted by June Carbone
From Freeland’s article, it doesn’t seem as if anyone challenged Summers’ faulty assertion.
This is one of the best arguments against the profound secrecy we’re seeing in this administration, along with its dearth of philosophical and intellectual diversity. Do we trust that a president is getting the very best counsel and advice in order to achieve the People’s goals and objectives? If everyone around a president is a Rubin disciple or devotee and is spinning an economic policy based on inaccurate information, and it’s all done in secret, they can do anything, get away with anything, and it enables a president to claim later that he relied on his experts as it wasn’t his field.
In all of my decades observing politics, I’ve never seen an administration rely on the media to translate its policies to the public instead of relying on the president himself and his cabinet to appear before the cameras to answer questions.
Maybe it’s beginning to be realized by the ultra rich that they live on the same planet with the rest of us. Still to an astonishing degree, their reality is starkly different than the rest of us, the 99% will be living in a world turned into a garbage heap, the 1% will be wondering why they cannot find a better neighborhood than the one so close to the garbage heap.
Mr. Summer’s still works by and for the 0.001% and as far as he’s concerned, we can all rot in hell. The problem is that when you wreck the whole world, you cannot get far enough away from your own handiwork.
” . . . In short, Summers is describing a history that does not exist. He either has a very poor memory or is just making things up.” –0–
Clueless dip-shits are always pulling shit out of their asses. They make it up as they go to suit whatever bullshit narrative they’ve concocted. And the Village Idiots in the media lap it up like dogs lap up puke.
In “Waltz, $treet! Perish, People!
SOCIETY DETERIORATING, PLUTOCRACY THRIVING
Abstract: According to The Economist, by the most important measure, money laundering and hiding profits, through shell companies, the USA is the world’s most corrupt country.”
Patrice Ayme says
“RICH PEOPLE EVERYWHERE BUT THE POOR HAVE ONLY HILLARY!
Six years ago, I supported Obama, for personal reasons, but also because I detested what I viewed as Bill Clinton’s hypocritical and disastrous record, the fruit of putting Robert Rubin of Goldman Sachs in command, and his henchmen, such as Summers, Larry. I was afraid Hillary would put them back in power. Obama though, did exactly that, in most part because the intelligentsia of the democratic party is roughly as efficient as the French High Command in May 1940.
It may have been unfair to paint faithful and wise Hillary with the same big brush as dishonorable, “I-don’t-know-that-woman” Bill (who is now doing his best to make amends from the top of his financial wealth)
However, here is Hillary now:
“There are rich people all over the world, in every country. And you know what? They don’t contribute to the growth of their own countries. “
What might have been?”
at https://patriceayme.wordpress.com/2012/09/26/waltz-treet-perish-people/
I forgot to add.