Larry Summers: An Act of Contrition?

Larry Summers Interview: Robots are hurting middle class workers

"Rapidly advancing technology — like robots — is killing jobs and hurting incomes for the middle class; because automated technology replaces the need for human labor and thus devalues it ... In the 1960s, about 1 in 20 men between the age of 25 and 54 was not working. Today, the number is more like 1 in 6 or 1 in 7 ... If the income distribution was the same as it was in 1979, the top 1 percent would have about $1 trillion less [and] the bottom 80 percent would have about $1 trillion more ... The rise of the top 1 percent is likely very tied up with technology."

From one reader at Mark Thoma's blog:

"Considering the egregious policy blunders Larry Summers committed when he had the power, why would anyone pay attention to him now? I'm only interested in hearing two things from Larry: First, a mea culpa where he admits that dismantling Glass/Steagall was a huge mistake [deregulating the banks under Bill Clinton in 1999] — as was shooting down Brooksley Born [Chair of the Commodity Futures Trading Commission] when she tried to regulate derivatives [credit default swaps, trading on risky sub-prime mortgages]. Not to mention fighting Christina Romer [Chair of the Council of Economic Advisers] on the size of ARRA [The American Recovery and Reinvestment Act of 2009 — aka "stimulus"], and the failure to stand up to [Secretary of the Treasury] Timothy Geithner's mishandling of HAMP (Home Affordable Modification Program). Second, what/who where the forces that made him, not only go along, but vigorously advocate for these horrendous policies?"

Another reader claimed that Larry Summers did much more good "behind the scenes" than he was ever given credit for, despite these other huge policy mistakes he perpetuated. One reader also suggested that Summers has only been taking a more "populist" stand to get on Hillary Clinton's cabinet, should she be elected in 2016. Is he like other Democrats? Here in this article at The Hill we meet several phony Democrats. Here's what Harry S. Truman had to say about them in 1952:

"When the Democratic candidate allows himself to be put on the defensive and starts apologizing for the New Deal and the fair Deal, and says he really doesn't believe in them, he is sure to lose. The people don't want a phony Democrat. If it's a choice between a genuine Republican, and a Republican in Democratic clothing, the people will choose the genuine article, every time; that is, they will take a Republican before they will a phony Democrat, and I don't want any phony Democratic candidates in this campaign."

Larry Summers also appeared dubious that an education policy could fix the problem of high unemployment and stagnant wages:

"It is not likely, in my view, that any feasible program of improving education will have a large impact on inequality in any relevant horizon. First, almost two-thirds of the labor force in 2030 is already out of school today. Second, most of the inequality we observe is within education group – within high school graduates or within college graduates, rather than between high school graduates and college graduates. Third, inequality within college graduates is actually somewhat greater than inequality within high school graduates. Fourth, changing patterns of education is unlikely to have much to do with a rising share of the top 1 percent, which is probably the most important inequality phenomenon. So I am all for improving education. But to suggest that improving education is the solution to inequality is, I think, an evasion."

I tend to agree. Hypothetically speaking, if 100 million prime-age workers today obtained a Ph.D. before their retirement years (and that's only if they could even afford to go to school), would there be 100 million middle-class jobs waiting for them when they graduated? Or would we just have a lot of highly educated people in the labor force working at Wal-Mart and McDonalds? Does just having a good education create a good-paying job?

Timothy Taylor (The Conversable Economist) How Higher Education Perpetuates Intergenerational Inequality:

"Part of the mythology of US higher education is that it offers a meritocracy, along with a lot of second chances, so that smart and hard-working students of all background have a genuine chance to succeed--no matter their family income. But the data certainly seems to suggest that family income has a lot to do with whether a student will attend college in the first place, and even more to do with whether a student will obtain a four-year college degree."

If you have 100 dogs and 95 bones, it doesn't matter how you train the dogs — because 5 of them are going to come back without bones. Training (education/skills) may determine which dogs come back with bones and which do not — but 5 of them are still coming back without bones.

Larry Summers says that what we really need is jobs (and ones that reward with bigger bones): "We need a commitment to running a high-pressure economy. When jobs are scarce, companies have the power. When workers are scarce, they have the power. That’s why I’ve put such emphasis in recent years on overcoming secular stagnation, by promoting demand, especially through public investment."

But other than infrastructure jobs, what's to keep more jobs from being offshored to lower-wage countries? What's to keep more H-1B visas from displacing more domestic workers for lower wages? And what's to keep ANY worker from being displaced by a robot? (My post: When Human Labor becomes Obsolete)

Employers have been doing more and more with less and less people (generating ever-increasing record profits) — and that's why capital gains should be taxed as ordinary wages — to help offset losses in tax revenues from lost/stagnant/declining wages — to help shore up Social Security and pay for a guaranteed basic income for all displaced workers. As it is now, the middle-class and poor already pay a greater percentage of their income towards taxes than the very wealthy.

Heather Boushey, Executive Director and Chief Economist, Washington Center for Equitable Growth, testifying before the U.S. Senate Committee on Finance (Chaired by Orrin Hatch) on "Fairness in Taxation" (March 3, 2015):

"As inequality has increased, the tax code has not kept pace with this change. The tax code does less to reduce inequality than it did in the late 1970s ... The story of the past four decades, when it comes to inequality, is a rapid rise in incomes and wealth for those at the top, slower growth for the middle compared to earlier time periods, and stagnation — if not outright declines — for incomes at the bottom of the ladder."

Currently the U.S. has over 92.5 million people "not in the labor force" — of those, 11.5 million just since the end of the Great Recession. If we don't repeal our bad trade agreements (rather than signing on to new ones), reform the tax code, and create many more and better-paying jobs, there will be many more people "dropping out" of the labor force — who will then be left with neither a job nor an income.

And with a GOP Congress, (and a GOP budget director working with a GOP tax committee), there will also be less social benefits for all those unemployed workers. If poor, unemployed, disabled and older voters had voted for GOP candidates in the mid-term elections last year, they didn't just shoot themselves in the foot, they took aim.

(* As an aside: Google "Larry Summers Likes the Idea of Bitcoin". John Stossel at Fox News also likes the idea of Bitcoins.)