It’s no secret that the economic recovery in the United States has been meager at best (and that’s assuming you believe this is not just one ongoing recession). While there is plenty of blame to go around for our current plight the buck ultimately stops with the most influential people in this economy – the leaders that help frame the regulations and policies that help to keep the U.S. economy running smoothly. I don’t think these men and women (mostly men) have been held accountable over the years. I personally believe many of these men have flawed models (Alan Greenspan has admitted as much and Ben Bernanke has essentially rehashed his flawed model) and continue to help promote and implement economic policy in the U.S. that is counterproductive, ineffective and at times downright destructive.
I’ve been highly critical of Obama’s economic team over the years because many of them were key players in helping cause the financial crisis. Tim Geithner was the head of the NY Fed when the banks were busy turning themselves into casinos. Ben Bernanke (who Obama should have never reconfirmed) failed to even acknowledge the potential existence of problems in the U.S. economy leading up to the financial crisis and then implemented his great monetarist gaffe which has now been proven to be what I called it from the very beginning – a bailout of Wall Street and a slap in the face for Main Street. He receives endless praise for helping to avoid a supposed second Great Depression. This is like the man who sees a fire in his front yard, ignores it, then when it’s finally becoming a widespread danger decides to save his own house from burning (the banks), lets all of the surroundings houses burn to the ground (Main Street) and then receives endless praise for his courage under fire.
But there have been few people in power over the last 25 years that have been more misguided and downright destructive than Larry Summers. This is a man who believes that women are intellectually inferior (I’ll tell you one thing – this economy wouldn’t be such a mess if it wasn’t run primarily by arrogant, narcissistic males) and has done more to help cause the current financial crisis than anyone.
Mr. Summers has been in the pockets of the big banks at every twist and turn. He was instrumental in helping to deregulate the financial sector. He was a harsh critic of Glass-Steagall and a proponent of Gramm-Leach-Bliley. Summers was also instrumental in ensuring that derivatives remained unregulated. Time and time again he has received generous benefits from the big banks (see here and here) and helped convince the Obama administration that the banks needed to be bailed out more than Main Street.
Perhaps his worst offense is taking credit for the booming 90’s. In retrospect, it’s clear that many of the causes of the current bust were initiated by the policies of the boom years. Warren Mosler, founder of hedge fund Illinois Income Investors (III) met with Summers when he was Assistant Treasury Secretary under Robert Rubin and highlighted his fundamental misunderstanding of the modern monetary system:
Meeting with Lawrence Summers
Several years ago I had a meeting with Senator Tom Daschle and then Asst. Treasury Secretary Lawrence Summers. I had been discussing these innocent frauds with the Senator, and explaining how they were working against the well being of those who voted for him. So he set up this meeting with the Asst. Treasury Secretary, who was also a former Harvard economics professor and had two uncles who had won Nobel prizes in economics, to get his response and hopefully confirm what I was saying.
I opened with a question:
“Larry, what’s wrong with the budget deficit?”
To which he replied:
“It takes away savings that could be used for investment.’ To which I replied:
“No it doesn’t, all Treasury securities do is offset operating factors at the Fed. It has nothing to do with savings and investment”
To which he replied:
“Well, I really don’t understand reserve accounting so I can’t discuss it at that level.”
Senator Daschle was looking at all this in disbelief. The Harvard professor of economics Asst. Treasury Secretary Lawrence Summers didn’t understand reserve accounting? Sad but true. So I spent the next twenty minutes explaining the ‘paradox of thrift’ (more detail on this innocent fraud #6 later) step by step, which he sort of got right when he finally responded
“…so we need more investment which will show up as savings?”
I responded with a friendly ‘yes’ after giving this first year economics lesson to the good Harvard professor and ended the meeting. And the next day I saw him on a podium with the Concord Coalition – a band of deficit terrorists – talking about the grave dangers of the budget deficit.”
Summers has continually cheered the budget surplus of the Clinton years as if the U.S. government is an entity that should be making a profit at the expense of the private sector. The U.S. government exists to further the prosperity of its citizenry – not to benefit at its expense. It is confounding why so many supposed “experts” believe the government should attempt to run a surplus that, BY IDENTITY, causes the private sector to run a deficit. Unfortunately, Summers is in the majority in believing that the government should run a perennial budget surplus. We have a legion of influential economists and politicians in this country who believe the government is no different than a household in terms of its finances.
We have made some serious errors in the last 20 years, but none is more egregious than this continuation of failed policies. Mr. Geithner, who is a disciple of Summers (who was a disciple of Robert Rubin) remains in power and continues to promote similarly misguided policies. The Summers departure is one step in the right direction, however, President Obama is quickly running out of time as he fails to bail out the water that continues to sink this economy.
Albert Einstein once said the definition of insanity is doing the same thing over and over again while expecting a different result. What is not insane about the current economy being run by Tim Geithner and Ben Bernanke?