Larry Summers denies blame for financial crisis
Larry Summers is one of the most renowned economists in the world and the man who ran the US economic policy for Barack Obama and Bill Clinton. He was over in Britain giving evidence to the London School of Economics about how to stimulate growth in the UK economy.
He suggests the Chancellor should change course and spend more on a stimulus package. But a memo he wrote to Barack Obama in 2008 has just been published in the United States and is causing quite a stir. It reveals he urged caution against the idea of a one trillion dollar stimulus package and the Nobel Prize winning economist Paul Krugman has been fierce in his criticism of this in the New York Times.
Summers has spent his career moving between the World Bank (for which he is currently being tipped as the man Obama will nominate for the top job), the government, academia and financial services. He was briefly portrayed in the Facebook film The Social Network giving the Winklevoss twins short shrift when they wanted him to take action against Mark Zuckerberg who they claimed had stolen their idea. He has joked about his appearance in the movie and not denied the general idea of what happened. However he is much more prickly about the more recent feature documentary about the financial crisis Inside Job, narrated by Matt Damon, in which Summers comes in for some severe criticism. He is often portrayed – he believes unfairly – as a sort of godfather of deregulation, for arguing against the regulation of complex financial products such as derivatives. He also paved the way for the creation of huge banks that were then regarded as too big to fail.
As well as asking in the first few minutes about his thoughts on the British economy when we met I put some of the criticism about both Larry Summers periods in office to him. If you are more interested in the American answers skip to about seven minutes in!
There are 11 comments on this post
Krish,
Larry Summers?
Hahahahahahahahahahaha!
Pass the sick bag, Alice.
Even Greenspan and Friedman admitted they were wrong.
Good try Krishnan, but I think you’d need explosive to get through Summers carpace.
Amazing how little some people learn from events
Pretty much the poorest, most inarticulate defense from a guest I’ve ever seen on C4. Larry pales in contrast to the current Head of the World bank, save us all if he ever ends up there- embarrassing! Do better Obama, we want you to stay in office!
Total denial… The whole reason why we are in this mess.
It’s getting to the point where some of the key players need a total re- think on credible and responcible capitalism.
[...] I was very happy to see that Krishnan Guru-Murthy at least tried to ask Summers these questions earlier this week. Krishnan starts off with standard [...]
Deregulation IS the way to stimulate an economy, it has been proven many times from pre-war Hong Kong to 1980s China.
The problem is not deregulation, it is who you deregulate. Removing controls and oversight from vast monopolistic enterprises that can rock the state if they fail – is close to insanity.
Applying onerous controls, tight bureaucratic oversight and high taxation to small and medium enterprises is equally insane – and a key cause of economic stagnation.
I wrote to David Cameron suggesting he take a look at freeing up SMEs. You can read our little chat on my website.
“Deregulation IS the way to stimulate an economy, it has been proven many times from pre-war Hong Kong to 1980s China.”
It has proven that it can, and will lead to one financial crisis after another. It “works” because governments come to the rescue with out tax dollars to socialize financial capital’s losses. The Latin American Debt Crisis, the S & L Crisis, the Mexican Peso Crisis, the East Asia Financial Crisis and now the 13 trillion (at least) we’ve handed over to Wall Street to cover their asses. It “works” for a handful of peopel and it “works” for a short period of time, then it crashes and we bail out who it works for.
China has massive ecological and environmental destruction. It has seen the biggest increase in wealth and income inequality in human history since the market reforms. There are huge differences in wealth between rural and urban areas, as well as coastal and inner China. The Chinese government admitted that there were over 100,000 “mass incidents” in the past year. These were protests, riots and outbreaks of violence. The government admits that the three biggest reasons are environmental destruction, inequality and corruption. I lived in China for a year and a half, saw a lot of this with my own eyes. There have been some benefits to the market reforms of course, but to pretend that they were anything close to a slam dunk is nonsense. I don’t see how they are sustainable in any way. Do some research on the environmental destruction in China. Soil erosion, the collapse in biological diversity, the massive water shortages, air and water pollution, water acidification, eutrophication, amongst other things. There is no logical way you can solve these problems with deregulation and market measures. None. As David Harvey pointed out, if you truly internalized all the externalities that the capitalist system creates the system would collapse.
By the way, there was this pesky little economic collapse that was caused by the increasingly financialized capitalist system just a few years ago. In case you haven’t noticed, the situation has not improved, it has gotten even worse in some countries, in recent years. Finance has proven that it can’t regulate itself and the government has been taken over by finance. Time for what the late, great economist Joan Robinson called for in economics, a “spring cleaning”.
I fail to grasp your point, and you have failed to grasp mine.
If you had read more than the first line of my comment, you might have noticed I did not call for the deregulation of financial institutions or very large companies. And it is they that cause all the problems you have recited.
There are huge differences in wealth between rural and urban communities in China. But that is because urban communities have got richer, and the rural poor are still in the same position as the whole of China was before market reforms. Progress is never even and it never has been.
I agree the Banking Crisis was a failure of capitalism. But free enterprise will always recover. Like water it is infinitely flexible and will simply adopt the shape of whatever environment contains it. Central planning is not flexible – it does not bend, it breaks.
Your critique of capitalism (I prefer free enterprise) fails to offer any kind of solution. Are you seriously suggesting a return to communism of some kind?
‘…free enterprise will always recover. Like water it is infinitely flexible and will simply adopt the shape of whatever environment contains it.’
This makes discussion impossible because whatever is you can claim is free enterprise.
However, I would not define a system that contains a variety of forms of ownership (state, mutual cooperative, owner-worker and some very limited and controlled joint stock) as capitalist. organisations) as capitalist
The system you describe almost defines our existing system.
All those forms of businesses exist. Even in Britain the State owns several companies, and spends almost half of everything we earn.
The key difference is the mega-enterprise and the super rich, neither of which I am comfortable with.
I have even suggested a solution – it’s on my website under the title Welcome to Fantasy Island (which is a little clue to how likely I think it is to happen!)
As the old saying goes, if you take all the economists in the world and lay them down head-to-toe, they still wouldn’t reach a conclusion.