Lawrence Summers is a charlatan, a practicer of quackery
The comment section of the Financial Times is a worthwhile daily read even if its range of views is extremely narrow. On the far “left” we have Martin Wolf, a firm supporter of the status quo who seems, however, to honestly struggle to find Keynesian and sometimes even Abba Lerner-like solutions to systemic problems. The rest are mostly a noxious brew of tycoons, right wing economists, and lofty political figures who endlessly regurgitate the mainstream consensus at various levels of silliness. Why read such nonsense? Three reasons come to mind – first, it’s an easy place to find the conventional wisdom; second, it’s often humorous; and finally, it’s an endless source of raw material for this blog.
Lawrence Summers, in all his majesty, steps up to the plate today and gives us yet another example of his ability to mislead in service to the powerful. The article’s entitled “Current woes call for smart reinvention not destruction”. Summers offers us not a clue what he means by “smart reinvention” but is firm that the system should escape not only destruction but reformation as well. He asks a “critical” question: “Do today’s problems inhere in the present form of market capitalism”? His ultimate answer of course is a firm “no” but his argument uses an interesting form of dishonesty that’s worth reviewing. He offers us a word game.
His first word game is in using the term “market capitalism” as if it required no qualification. It’s dishonest to describe the global system as a market when it’s so clearly an oligopoly. We have just 500 massive corporations accounting for 40% of global revenues and all major industries are oligopolies having virtually complete control over pricing. Wealth and power also are tightly held with the bottom 80% of the US population controlling just 7% of financial wealth. The word “market” has a connotation of fairness and equality of power you’d see perhaps in a local farmers market. Like a clever defense lawyer, Summers uses the term to subtly sway us into thinking of capitalism that way – “fair capitalism”, so to speak.
But let’s continue, it gets worse. Many FT comment section articles contain a fairly accurate description of our woes. Here’s Summers:
The spread of stagnation and abnormal unemployment from Japan to the rest of the industrialised world does raise doubts about capitalism’s efficacy as a promoter of employment and rising living standards for a broad middle class. The problem is genuine. Few would confidently bet that the US or Europe will see a return to full employment, as previously defined, within the next five years. The economies of both are likely to be demand constrained for a long time.
(S)erious questions about the fairness of capitalism are being raised. These are driven by sharp increases in unemployment beyond the business cycle – one in six of American men between 25 and 54 is likely to be out of work even after the economy recovers – combined with dramatic rises in the share of income going to the top 1 per cent (and even the top 0.01 per cent) of the population and declining social mobility. The problem is real and profound and seems very unlikely to correct itself untended. Unlike cyclical concerns there is no obvious solution at hand. Indeed, since even Chinese manufacturing employment appears well below the level of 15 years ago it suggests that the roots of the problem lie deep within the evolution of technology.
The agricultural economy gave way to the industrial one because progress enabled demands for food to be met by only a small fraction of the population freeing large numbers of people to work elsewhere. The same process is now under way with respect to manufacturing and a range of services, reducing employment prospects for most citizens. At the same time, just as in the early days of the industrial era the combination of substantial dislocations and greater ability to produce at scale is enabling a lucky few to acquire great fortunes.
Even as market outcomes seem increasingly unsatisfactory, budget pressures have constrained the ability of the public sector to respond. How and when – not whether – basic programmes of social protection will be cut back is now back on the table. The basic solvency of too many capitalist states seems in question.
This is a reasonable, albeit incomplete, description of capitalism today. But Summers proceeds to ludicrously claim these are not flaws in the system and that “efforts to reform capitalism are more likely to divert from the (unstated) steps needed to promote demand”. To support this claim, Summers transforms himself into a three card monte con man. Capitalism doesn’t need reform, it turns out, as long as we cleverly redefine what we mean by capitalism. To Summers, capitalism becomes not the global socioeconomic system under which we all live but rather the positive side, and only the positive side, of advancing technology and automation.
Why is society going backward then? “Paradoxically, the answer lies in the very success of capitalism which has made the opportunity-cost of an individual teaching or nursing or administering that much more expensive.” Most of economics consists of “paradoxes” against widely held common sense. I’ll try to translate this bit of obnoxious econo-speak: Capitalism has successfully automated to such a high degree that ever fewer human commodities are needed to do the job. Purchasing power, tied as it is in capitalism to work, is therefore declining and so basic services are becoming ever more relatively expensive – i.e. fewer and fewer can afford to pay for them. This is, to Summers, a success of capitalism.
Technology and automation, though, are clearly just one side of a coin; a side that Summers adulates and decides to call “capitalism”. But the other side, consisting of ever squeezed purchasing power, is inseparable and it’s the height of dishonesty to exclude it within a definition of capitalism. Such intellectual sloppiness from the gleaming halls of Harvard! Summerian capitalism “has been an enormous success” he assures us but “its success cannot be matched outside the market’s natural domain.”
But again, the coin has two sides and its “natural domain” has always been all of society in every aspect. Capitalism is a success in reducing jobs through consolidation and automation but it’s clearly an abject failure when such “successes” result in ever declining living standards and security.
Lawrence Summers is a charlatan, a practicer of quackery, and he’s written a deeply dishonest article.