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Opinion | Larry Summers Shares the Blame for Inflation

During the Carter era moves were made toward deregulation in transportation services like trucking and rail. In the Clinton years, a little-remembered law called the Ocean Shipping Reform Act of 1998 helped carry that over to ocean ships. Mr. Clinton also continued a trend toward economic concentration that began in the Reagan administration. If Mr. Summers opposed the deregulation and consolidation that occurred during his tenures with Mr. Clinton and Barack Obama, I have found no evidence that he said anything about it. In fact in 2001, he stated that “the goal is efficiency, not competition.”

U.S. financial services, which under P.N.T.R. pried open the Chinese market, grew enormously powerful in this period, too. Mr. Summers fought the regulation of derivatives and pushed Congress to eliminate the separation of investment and commercial banks. Where finance accounted for 15 percent of corporate profits in the U.S. economy before the 1970s, it grew to 43 percent by 2002, after this economic restructuring. Later, when runaway financial innovations (including the derivatives Mr. Summers did not want to regulate) collapsed the world economy, Mr. Summers, as Mr. Obama’s chief economic adviser, pushed for banks to be protected with bailouts, maintaining the status quo.

Mr. Summers was not especially novel in his preferences. He fit within an economist consensus that has largely governed the country since the late 1970s. The free trade consensus enabled corporate executives to chase cheap labor and centralize production. The just-in-time consensus pushed companies to only order what’s needed to pass on to customers, with inventories seen as unnecessary costs. The bigger-is-better consensus encouraged mergers and market dominance. The deregulatory consensus breaks worker power and greases the whole system. The Wall Street consensus lets investors dictate adherence to everything else, demanding ever-higher profits and returns that flow not into reinvestment but to them, in the forms of stock buybacks and dividends.

The gamble of such a system paid off, for a while. In 2005, Mr. Summers’s longtime collaborator Jason Furman best explained the philosophy when he pronounced retail behemoth Walmart a “progressive success story,” in part because of its ability to deliver low prices. “There is little dispute that Wal-Mart’s price reductions have benefited the 120 million American workers employed outside of the retail sector,” Mr. Furman wrote. That seemed to override everything else: low wages, competitors driven out of business, manufacturing jobs shipped overseas, communities hollowed out across America.

The trade-off was clear: sacrifice resiliency, wage security, and community for the promise of a five-dollar pack of tube socks. And the Summers-Furman side initially delivered: Prices for consumer goods, at least, did fall. Assuring these low prices became an important goal; while some liberals wanted to bring back manufacturing jobs to the United States or maintain reserves of vital goods, the threat of higher costs was enough to keep the system in place.

But the adherents of hyper-efficiency do not seem to have emphasized what might happen if there was a breakdown anywhere in the system. Economists spat out their models and assured us that very little could stop the global production engine. But their models did not adequately contemplate the physical world. And that’s why the system Mr. Summers and Mr. Furman helped build was so primed for collapse, and why the low prices, intended to be the compensation for increased inequality and left-behind regions, vanished in a matter of months.

The policies many of these economists championed during the decades leading up to the pandemic are the policies responsible for the supply chain’s fragility. When disruptions hit the center of global production in China, they spread across the entire world. Specialized facilities producing most of a particular good or component can easily produce shocks with even a small loss of output.

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