Posts Tagged ‘Larry Summers’

Larry Summers on NAFTA

Saturday, March 25th, 2017

Harvard University economist Larry Summers (born 1954) writes that the greatest gift the United States could give China is exit from the North American Free Trade Agreement (NAFTA).

I was in Mexico Thursday seeing the Mexican president, foreign minister and finance minister and addressing a convention of bankers. The only subjects anyone is interested is the future of NAFTA and U.S. Mexican relations.

I came to Mexico from Beijing, and so I was able to report that there was no greater strategic gift the United States could give China than to abrogate NAFTA and rupture the North American community.

In narrow commercial terms right now, Mexican goods enter the United States on a preferred basis relative to Asian goods. This preference would disappear with NAFTA suspension. Furthermore about 70 percent of Mexican exports are of goods that are not finished but are inputs to further U.S. production. Anything that hurts Mexico therefore hurts us in global economic competition with China. ….

Larry Summers, “Why scrapping NAFTA would be Trump’s big gift to China“, Larry Summers Blog, 24 March 2017.

Kenneth Arrow: a gentle genius

Sunday, February 26th, 2017

Kenneth Arrow, one of the greatest economists of the past century, died last week. His nephew, Larry Summers, wrote a eulogy that was published in the Wall Street Journal. Here is an excerpt from it, followed by an ungated link to the full eulogy. (more…)

Trump’s tax plans favour the rich

Monday, December 5th, 2016

Harvard economist Larry Summers explains that Trump’s proposed tax cuts will benefit high-income taxpayers, at the expense of those with lower incomes. He predicts that this is likely to retard rather than stimulate economic growth, in part because after-tax income is shifted “towards those most likely to save it”.

Just as Ronald Reagan’s landmark 1986 bipartisan tax reform increased simplicity, fairness and economic efficiency by broadening the tax base and reducing rates, today reform of the system has the potential to help American families and the economy. ….

A core principle agreed to by all in 1986 was that reform would not reduce the tax burden on high-income taxpayers. Reagan achieved this objective while reducing top marginal rates because he raised capital gains rates, scaled back investment incentives, increased corporate tax collection, curtailed shelters and left estate and gift taxes alone. Unfortunately, neither the Trump plan, nor the one put forward by Paul Ryan, speaker of the House of Representatives, provides for nearly enough base-broadening to finance all the high-end tax cutting they include.

Steven Mnuchin, Treasury secretary-designate, asserts there will be no absolute tax cut for the upper class because deductions would be scaled back. The rub is that totally eliminating all deductions for those with incomes over $1m would not even raise enough revenue to cover reducing their marginal tax rates from 39 to 33 per cent, let alone offset their benefit from huge rate reductions on business and corporate income, and the elimination of estate and gift taxes.

Lawrence Summers, “Trump’s tax plans favour the rich and will hamper economic growth“, Financial Times, 5 December 2016 (metered paywall).

See also this post from February 2014 on Professor Summers’ concern with increasing inequality in the distribution of after-tax income.

Trump’s infrastructure investment plans

Monday, November 14th, 2016

Harvard economist Larry Summers gives low marks to Trump’s plan for infrastructure investment.

I have long been a strong advocate of debt-financed public investment in the context of low interest rates and a decaying US infrastructure, so I was glad to see Mr Trump emphasise it. Unfortunately, the plan presented by his advisers, Peter Navarro and Wilbur Ross, suggests an approach based on tax credits for equity investment and total private sector participation that will not cover the most important projects, not reach many of the most important investors, and involve substantial mis-targeting of public resources.

Many of the highest return infrastructure investments — such as improving roads, repairing 60,000 structurally deficient bridges, upgrading schools or modernising the air traffic control system — do not generate a commercial return and so are excluded from his plan. Nor can the non-taxable pension funds, endowments and sovereign wealth funds that are the most promising sources of capital for infrastructure take advantage of the program.

Lawrence Summers, “A badly designed US stimulus will only hurt the working class“, Financial Times, 14 November 2016 (metered paywall)

Lawrence Summers (born 1954) was President Bill Clinton’s Treasury Secretary.

Larry Summers on Donald Trump

Wednesday, March 2nd, 2016

Donald Trump now seems to worry nearly everyone. Most recently, Harvard economist Larry Summers penned some very harsh words on the possibility of Trump’s election as president, which he describes as “the greatest present threat to the prosperity and security of the US”.

The problem is not with Mr Trump’s policies …. It is that he is running as modern-day man on horseback — demagogically offering the power of his personality as a magic solution to all problems — and making clear that he is prepared to run roughshod over anything or anyone who stands in his way. ….

To be sure there are precedents for Mr Trump in American politics — such as Joe McCarthy, George Wallace, and Huey Long. Just as Mr Trump does, each mined the all-too rich veins of prejudice, paranoia and excess populism that lie beneath American soil. Yet even at their highest points of popularity, none of these figures looked like plausible future presidents. ….

The US has always been governed by the authority of ideas, rather than the idea of authority. …. The sooner Donald Trump is relegated to the margins of our national life, the better off we and the world will be.

Lawrence Summers, “Trump’s rise shows how democratic processes can lose their way“, Larry Summers blog,, 1 March 2016, unmetered access (free registration required).

There is much more at the link above, including a remark that comparing Trump to William Jennings Bryan is “unfair to Bryan who was a progressive populist but not a thug”.

In Latin America, politicians like Donald Trump are frequently in power and are known as caudillos (authoritarian leaders).

secular stagnation?

Monday, April 13th, 2015

There has been a lot of talk lately – on blogs, and in the financial press – on whether we are suffering from “secular stagnation”. Disagreement is especially intense between two prominent American economists: Harvard professor Lawrence Summers (born 1954) and former Federal Reserve chairman Ben Bernanke (born 1953). Mr Summers argues that we have entered a period of “secular stagnation” whereas Mr Bernanke argues we have not. The debate is confusing because Professor Summers uses the term with reference to short-term economic growth, whereas most economists in the “secular stagnation” camp have long-term growth in mind.

FT columnist Alan Beattie explains.

Mr Summers uses secular stagnation to mean the difficulty of getting the economy to run at full capacity when factors such as weak investment demand have pushed down the equilibrium real interest rate — that needed to keep output at full steam. The response should be to reduce the actual real rate of interest by loosening monetary policy further or, better, to boost demand by increasing public investment.

By contrast, a variety of technology pessimists use the term to mean that the supply capacity of the economy is growing more slowly because, after inventing the internet (or maybe just before) the human race ran out of good ideas. (Slower technological progress can play a walk-on role in Mr Summers’ thesis, but his analysis is mainly about demand, not supply.) As for Mr Bernanke, he doubts secular stagnation is a big issue at all, arguing the slow recovery of the US economy can be explained by temporary headwinds including a battered financial system and weakness in the housing market. The implication is that America is recovering, aided by the Fed’s monetary stimulus, and that normal service will soon be resumed.

With the world economy depressed, how should policy makers respond? Mr Beattie is uncertain what is causing slow growth but, echoing the pleas of Mr Summers, calls for governments to respond with increased spending on infrastructure:

A substantial programme of public investment … means adding to already high sovereign debt burdens. But with long-term interest rates so low, the balance of risk and reward strongly favours more infrastructure. If secular stagnation is a false alarm, not much harm will have been done. If not, public investment may help save the world economy from a persistent and damaging blight.

Alan Beattie, “An agonising way to abolish boom and bust“, Financial Times, 11 April 2015.

publication alert: secular stagnation

Tuesday, August 19th, 2014

Vox, in collaboration with CEPR Press, has launched a free eBook, with chapters written by some of the world’s best-known macroeconomists and economic historians. The full text can be downloaded without charge, so there is no excuse for not reading it.

Economic growth is still anaemic despite years of zero interest rates. Is ‘secular stagnation’ to blame? What does secular stagnation really mean? And if it’s for real, what must be done?

Today, launches an eBook that gathers the views of leading economists including Summers, Krugman, Gordon, Blanchard, Koo, Eichengreen, Caballero, Glaeser and a dozen others (edited by Coen Teulings and me). Collectively, the chapters suggest that something historic is afoot.

Richard Baldwin, “Secular stagnation: Facts, causes, and cures – a new Vox eBook“, Vox, 15 August 2014.


The link above contains a summary of the 179-page book. The full text can be downloaded without charge as a pdf. This is the table of contents:

Coen Teulings and Richard Baldwin

1 Reflections on the ‘New Secular Stagnation Hypothesis’
Laurence H Summers

2 Secular stagnation: A review of the issues
Barry Eichengreen

3 The turtle’s progress: Secular stagnation meets the headwinds
Robert J Gordon

4 Four observations on secular stagnation
Paul Krugman

5 Secular joblessness
Edward L Glaeser

6 Secular stagnation? Not in your life
Joel Mokyr

7 Secular stagnation: US hypochondria, European disease?
Nicholas Crafts

8 A prolonged period of low real interest rates?
Olivier Blanchard, Davide Furceri and Andrea Pescatori

9 On the role of safe asset shortages in secular stagnation
Ricardo J Caballero and Emmanuel Farhi

10 A model of secular stagnation
Gauti B. Eggertsson and Neil Mehrotra

11 Balance sheet recession is the reason for secular stagnation
Richard C Koo

12 Monetary policy cannot solve secular stagnation alone
Guntram B Wolff

13 Secular stagnation: A view from the Eurozone
Juan F. Jimeno, Frank Smets and Jonathan Yiangou


House of Debt: Larry Summers on Mian and Sufi

Saturday, June 7th, 2014

[Atif Mian and Amir Sufi] argue that, rather than failing banks, the key culprits in the financial crisis were overly indebted households. Resurrecting arguments that go back at least to Irving Fisher and that were emphasised by Richard Koo in considering Japan’s stagnation, Mian and Sufi highlight how harsh leverage and debt can be – for example, when the price of a house purchased with a 10 per cent downpayment goes down by 10 per cent, all of the owner’s equity is lost. They demonstrate powerfully that spending fell much more in parts of the country where house prices fell fastest and where the most mortgage debt was attached to homes. So their story of the crisis blames excessive mortgage lending, which first inflated bubbles in the housing market and then left households with unmanageable debt burdens. These burdens in turn led to spending reductions and created an adverse economic and financial spiral that ultimately led financial institutions to the brink.

…. Households do not spend while they are still overly indebted, which precipitates slow growth even after banking is restored to health. Spending slowdowns are caused by household over-indebtedness, so of course they precede problems in the banking system. And, when consumers do not spend, businesses have less need to borrow to finance investment, inventories or receivables. ….

We all believed in 2009 what Mian and Sufi have now conclusively demonstrated – that reducing mortgage debt would spur consumer spending. And there was intense frustration with how few homeowners our programmes were reaching ….

Start where Mian and Sufi start, with … the notion that bankruptcy judges should be allowed to write down mortgage debt, and that permitting them to do so would increase the bargaining power of homeowners seeking relief. Although it is more complex than Mian and Sufi suggest, I believe on balance this would have been better public policy, and so argued vigorously in these pages in February 2008.

Why didn’t the administration push for such legislation? Simple. The judgment of the president and his advisers was that there was essentially no chance of it getting the requisite 60 votes in the Senate, where we were not even able to muster a simple majority.

Larry Summers, “Lawrence Summers on ‘House of Debt’“, Financial Times, 7 June 2014.

Harvard economist Lawrence Summers is reviewing House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again, by Atif Mian and Amir Sufi (University of Chicago Press, 2014).

Mian and Sufi are professors at Princeton and the University of Chicago, respectively.

Martin Wolf interviews Tim Geithner

Friday, May 16th, 2014

I see Geithner as quintessentially American – an optimist who wants to make things work, imbued with great belief in his country. The world is lucky that Obama turned to him. It is, however, unlikely that either man will ever get popular credit for it.

Martin Wolf, “Lunch with the FT: Tim Geithner“, Financial Times, 16 May 2014.

Martin Wolf has known Timothy Geithner, the former US Treasury secretary, “since the mid-1990s, when he was a young civil servant working for Lawrence Summers at the US Treasury department. (Summers was himself Treasury secretary, in the last year and half of the Clinton administration.)”

Geithner’s book Stress Test: Reflections on Financial Crises was published recently by Random House Business.

Thomas Piketty on rising inequality

Thursday, May 15th, 2014

The publication in English of French economist Thomas Piketty’s “Capital in the Twenty-First Century” has sparked widespread debate among economists (and others) over the causes and policy implications of rising inequality.

Project Syndicate has published reactions to Piketty’s work. These short columns are posted in English, and most are translated into other languages. Here are links to relevant columns. Without doubt, more columns will appear in the future.

The book’s message – a call to address rising inequality and a plea for stronger economic growth – has strong policy implications. But Pikettism does not require income taxes, so much as wealth taxes.

Harold James, “The Reconstruction of European Politics“, 15 May 2014.

Piketty’s book makes an invaluable contribution to our understanding of the dynamics of contemporary inequality. He has identified a serious risk to our society. Policymakers have a responsibility to implement a workable way to insure against it.

Robert J. Shiller, “Inequality Disaster Prevention“, 14 May 2014.

[Piketty] has reignited economists’ interest in the dynamics of wealth and its distribution – a topic that preoccupied classical economists such as Adam Smith, David Ricardo, and Karl Marx.

Dani Rodrik, “Piketty and the Zeitgeist“, 13 May 2014.

In accepting Piketty’s premise that inequality matters more than growth, one needs to remember that many developing-country citizens rely on rich-country growth to help them escape poverty. The first problem of the twenty-first century remains to help the dire poor in Africa and elsewhere. By all means, the elite 0.1% should pay much more in taxes, but let us not forget that when it comes to reducing global inequality, the capitalist system has had an impressive three decades.

Kenneth Rogoff, “Where Is the Inequality Problem?“, 8 May 2014.

[T]he extraordinary thing about the conservative criticism of Piketty’s book is how little of it has developed any of these arguments, and how much of it has been devoted to a furious denunciation of its author’s analytical abilities, motivation, and even nationality.

J. Bradford DeLong, “The Right’s Piketty Problem“, 30 April 2014.

In his instantly famous book, Thomas Piketty argues that fundamental economic forces are fueling a persistent rise in profits as a share of total income, with the rate of return on capital constantly higher than the rate of economic growth. Moreover, many have observed that if capital is becoming a close substitute for all but very highly skilled labor, while education systems need long adjustment times to supply the new skills in large quantities, much greater wage differentials between highly skilled and all other labor will cause inequality to worsen.

Kemal Dervis, “The Future of Economic Progress“, 15 April 2014.

In a recent book, … the economist Thomas Piketty highlights the phenomenon of “meritocratic extremism” – the culmination of a century-long passage from the old inequality, characterized by inherited wealth and discreet lifestyles, to the new inequality, with its outsize bonuses and conspicuous consumption.

Robert Skidelsky, “The Wolves of Wall Street“, 21 March 2014.

Piketty argues that our “obsession with growth” merely “serves as an excuse for not doing anything about health, about education, or about redistribution.” And it is an obsession rooted very much in the present. “We forget that for centuries growth was essentially zero,” he writes. “One percent real growth means doubling the size of your economy every 30 or 35 years.”

Alexander Stille, “The Heirs of Inequality“, 23 August 2012.

Via Mark Thoma, here is a reaction from Harvard economist Larry Summers, and Piketty’s response to critics.

Thomas Piketty’s tour de force analysis doesn’t get everything right, but it’s certainly gotten us pondering the right questions.

Lawrence H. Summers, “The Inequality Puzzle“, Democracy 32 (Spring 2014).

In conversation with Nick Pearce and Martin O’Neill, Professor Piketty discusses his acclaimed book, Capital in the Twenty-First Century, and answers his critics.

Nick Pearce and Martin O’Neill, “Juncture interview: Thomas Piketty on capital, labour, growth and inequality“, Institute for Public Policy Research, 14 May 2014.

Here are earlier TdJ posts on Piketty: