The truth can be ugly, can’t it? Here are, courtesy of frequent good guy yet employed by the American Enterprise Institute James Pethokoukis, a number of cogent (I think) charts to illustrate a recent cogent (I think) talk by Larry at the Peterson Institute for International Economics titled “What Should the 2023 Washington Consensus Be?”, focusing on six “misconceptions” (Larry’s word) that currently plague economic thinking among the chattering classes these days.
I find this all a bit shocking because, over the years, I’ve had little good to say about Larry and much to say that is bad—most notably in the post from a few years back titled Larry Summers is a big fat liar, but, well, there have been others. Anyway, the point is, every sinner can reform, and Larry has his act together on this occasion, and so does Jim, both in his charts and his commentary. So what I’m going to do is just quote Larry on his six “misconceptions” in bold, followed by my own commentary, and suggest you check out Jim’s site for the full visual experience. So here goes:
“First, it is supposed that the idea of economic policy is to maximize the creation of jobs rather than to maximize the availability of goods at low cost to consumers and firms.” No, Larry and I agree, this is totally wrong. As both Larry and Jim point out, this is essentially Luddite thinking, the “innocent” conviction that the “astounding” (as it has been) increases in economic efficiency over the past century achieved a “sweet spot” several decades ago, and we need to go back a few decades and just stay there forever. Sorry, America, you can’t step in the same economy twice. The world is going to change whether you want it to or not.
“The second misconception is that these have not been good decades for the American economy in international perspective.” According to Jim’s charts (he has a lot of them), U.S. GDP per person increased from around $23,000 in 1990 to about $78,000 in 2022, compared to about $60,000 for Europe, about $50,000 for Japan, and a little over $20,000 for China (2022 figures, adjusting for purchasing power parity). Furthermore, over the past 20 years, wages for the average American worker have increased from around $20 an hour to about $26, or more than 20%.
“Third, the world has fared very well.” Okay, this is a “truth”, not a “misconception”, but, anyway, Larry continues: “Relative to the time when I [Larry Summers] was chief economist of the World Bank at the beginning of the 1990s, child mortality rates are less than half of what they were then. Literacy rates are more than twice what they were then. Poverty rates, in terms of extreme poverty, are less than 40% of what they were then. And in some ways most fundamental and important, this month, we celebrate the 78th anniversary of a situation where there has been no direct war between major powers. You cannot find a period of 78 years since Christ was born when that was the case. So, the idea that we've been doing it all wrong is, I would suggest, a substantial misconception.”
“Fourth, the problems that we have are not due to trade liberalization. The single most misleading idea that has moved from academic economic research into the popular domain is the concept of the China shock associated with China's accession to the WTO.” I agree!
“The fifth misconception is that domestic industrialization and some kind of renaissance of manufacturing is somehow the central issue for US prosperity going forward. This is simply not a realistic idea.” Agreed!
“Finally, I would suggest that substantial and accumulating deficits and debts are a substantial threat to national security and national power, contrary to what is often believed in what sometimes seems like a post-budget constraint era of economic thinking.”
Obviously, Larry has a point, and a good one, one that he’s been stressing since the get-go—though more, I think, since Joe Biden got in the White House than he did when it was El Trumpo. Since Larry was “right” about inflation while others, like Paul Krugman and Brad DeLong, were “wrong”—though, recently, he has been getting some backlash—Larry’s been feeling a little smug, it seems to me. Clearly, he likes being the only “adult” in the room, which kind of makes me wish that he would go “whole hog” on this adulthood thing, and stop talking like a
What does all this mean for the United States? No one should conclude that we can be complacent about the Chinese geopolitical challenge. Indeed, as Russia’s behavior in Berlin, Cuba and Eastern Europe during the 1960s illustrates, nations that see the economic route to glory foreclosed can become irrational and dangerous.
Well, Larry, if you could, you know, read a chart—though, it seems, you have a hard time making one, you might see that, according to the CIA, economic growth in the USSR averaged about 5% a year during the 1960s, not too shabby, and “even” the revised figures developed by Russian economist Grigorii Khanin show an increase of around 4.5%, before declining sharply in the 1970s. Furthermore, in the 1950s, when the two estimates were 5% and over 7% respectively, the Soviets also violently intervened in Europe, suppressing rebellions in East Germany in 1953 and Hungary in 1956. Soviet and later Russian military interventions were prompted by political developments rather than economic ones, and the Russian invasion of first Crimea and later Ukraine would not have occurred if the U.S. had respected Russia’s, yes, sphere of influence in eastern Europe.
Naturally, Larry wants to extend his false moral to the present day Pacific, to wit:
It is not Xi’s intention to wish us well; he does not seek to be slotted into the global order on our terms or desire to maintain current balances of power. Our buildup of alliances needs to be complemented by increased national security spending and firm signals that aggression will not be tolerated.
Excuse me, but why is it incumbent on China’s leadership to “seek to be slotted into the global order on our terms”? To Chinese ears, this might sound like little more than an updated version of the white man’s burden, to set the “terms” of behavior for others to follow, whether they like it or not, because whatever benefits white people is “civilization”. As for “balances of power,” well, balances change, don’t they? In fact, isn’t change the only constant, Larry?
For someone who wants to the responsible one, the one who worries about, you know, the national debt, Larry takes an awfully cavalier attitude to the biggest money waster in DC, the Pentagon. If Larry really fancies himself as a green eyeshade feller, he ought to have a couple of his smart grad students run a cost benefit analysis on say, Iraq, or Afghanistan, or (one of my personal hobby horses), the B-1, B-2, and B-21 bombers. Our defense budget has been growing exponentially ever since 2001, containing, surely, more fat than muscle, despite the fact that we have no enemy. And yet Larry is happy to play a Pentagon yes man, saying we need to tell China that “aggression will not be tolerated”—which is to say, of course, that the U.S. should respond to an invasion of Taiwan exactly as we have responded to the Russian invasion of Ukraine, despite the vastly different geo-political realities between the two situations. It’s very unlikely that China would invade Taiwan, but if it did it would surely blockade the island, which would make it impossible for the U.S. to supply aid without triggering a war, which would be idiocy, pure and simple. You’re not an idiot, are you, Larry?
Afterwords I
I was never one to think that China would be ultimately “driven” to accept a democratic system of government. Rather, I expected the Communist Party to seek to run China like a corporation, with a “strong” board of directors selecting a COO but not a CEO, who would only serve a limited term. I thought the great “lesson” they had learned was that one man rule didn’t work. Well, I was wrong. I don’t think that China is necessarily destined to stall out in the manner of the Soviet Union—their economic and political situation is far superior to the Soviets—but there is certainly good reason for outsiders not to trust a government that ultimately claims arbitrary power to change the rules whenever it feels like it. It’s quite possible that China will get away with this for the foreseeable future—look at Saudi Arabia. But I wouldn’t want to live there.
Afterwords II—If we’re so rich, why aren’t we happy?
Good question. In a long piece on the Republican Party, I chronicled the many grievances of the “Right”, angered by the civil rights revolution, the sexual revolution, immigration, and the relative economic decline of both rural and industrial America, particularly in the Midwest. The disastrous “War on Terror” was embraced by both Republicans and Democrats as an excuse for a massively interventionist foreign policy, obsessed with “regime change”, that has failed, over and over again, yet the only response from the foreign policy establishment is to beg for more, specifically, a sort of “show down” with China, which would be a disaster surpassing that of World War I. The Great Recession hammered almost everyone, and, on the Left, embittered young college grads, who, I think, feel they have been robbed of their youth. Many black people had very high expectations for Obama’s presidency, that he really would be a “rock star” president who would somehow turn all of life into a music video. When that didn’t work, they were infuriated as well. Then the COVID came and made everything worse, though it might have saved us from a second Trump term, which could have “normalized” the gangster state. And even when Biden was in, yet another highly upsetting surprise, surging inflation, which few Americans had ever experienced, further disrupted the country.
Neither the Left nor the Right have been able to win consistent majorities. Rather than seek the fault in themselves, they search for scapegoats, most notably the “messenger”, which allows them to vent their rage without confronting their own failures. This is not constructive. I have offered my own “solutions”, which of course are not quick, not easy, do not come without costs, and leave a great deal unresolved, in the course of a very long piece on the genesis of critical race theory.
