Thursday, February 12, 2009

Summers: A Market Fundamentalist?

Some interesting information on Larry Summers (from Wikipedia), President Obama's primary economic advisor:

He attended Harvard University as a graduate student (Ph.D., 1982), where he studied under conservative economist Martin Feldstein.

Cutting the capital gains tax rate, Summers found, could help the economy grow. Later, while working in the Reagan and Clinton White Houses, Summers was able to lobby successfully for cuts in both corporate and capital gains tax cuts. One of Summers' prominent findings in labor economics is that unemployment insurance and welfare payments are a major contributor to unemployment, and therefore should be scaled back.

Summers was on the staff of the Council of Economic Advisers under President Reagan from 1982-1983.

Also during his stint in the Clinton administration, Summers was successful in pushing for capital gains tax cuts. During the California energy crisis of 2000, then-Treasury Secretary Summers teamed with Alan Greenspan and Enron executive Kenneth Lay to lecture California Governor Gray Davis on the causes of the crisis, explaining that the problem was excessive government regulation. Under the advice of Kenneth Lay, Summers urged Davis to relax California's environmental standards in order to reassure the markets.

Harvard and Andrei Shleifer, a close friend and protege of Summers, settled a $26M lawsuit by the U.S. government over the conflict of interest Shleifer had while advising Russia's privatisation program. Summers' continued support for Shleifer strengthened Summers' unpopularity with other professors. In an 18,000-word article in Institutional Investor (January, 2006), the magazine detailed Shleifer’s alleged efforts to use his inside knowledge of and sway over the Russian economy in order to make lucrative personal investments, all while leading a Harvard group, advising the Russian government, that was under contract with the U.S. The article suggests that Summers shielded his fellow economist from disciplinary action by the University....

Upon the death of his hero, libertarian economist Milton Friedman, Summers wrote an Op-Ed in The New York Times entitled "The Great Liberator" arguing that "any honest Democrat will admit that we are now all Friedmanites." Summers wrote that while Friedman made real contributions to monetary policy, his real contribution was "in convincing people of the importance of allowing free markets to operate."

In January 2009, as the Obama Administration tried to pass a fiscal stimulus bill, Oregon Democratic Representative Peter DeFazio attacked Summers, saying that he thought that President Obama is "ill-advised by Larry Summers. Larry Summers hates infrastructure." . DeFazio, along with many liberal economists including Paul Krugman and Joseph Stiglitz, has argued that more of the stimulus should be spent on infrastructure, while Summers has supported tax cuts.

While President of Harvard, Summers dated conservative radio talk show host Laura Ingraham.

I guess I don't understand why Summers is a Democrat; he sounds like a closet conservative Republican to me. This indicates to me Obama's very conservative economic view, much more so than most people realize. I think he will evolve, but will it happen before things really turn bad? Some people think he's going to bring Summers along with him in this direction. I sincerely doubt it myself. I think it will take Summers leaving his position in the Administration to be replaced by a more balanced economist who is not a market fundamentalist.

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