Jul 29 • 1HR 25M

Larry Summers On Inflation And Mistakes

The famed economist and longtime insider is now the outsider. Biden should have listened to him.

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Unafraid conversations about anything

He’s in the news again this week — after persuading Joe Manchin that the climate and healthcare bill he’s pushing isn’t inflationary. Larry Summers has had a storied career, as the chief economist of the World Bank, the treasury secretary under Clinton, and the director of the National Economic Council under Obama. He also was the president of Harvard University from 2001 to 2006 and remains there as the Charles W. Eliot University Professor.

You can listen to the episode right away in the audio player above (or on the right side of the player, click “Listen On” to add the Dishcast feed to your favorite podcast app). For two clips of our convo — on how the US government spent way too little during the Great Recession and way too much during the pandemic, and how we can help the working class cope — pop over to our YouTube page.

The episode has a lot of thematic overlap with our recent discussion with David Goodhart, author of Head, Hand, Heart: Why Intelligence Is Over-Rewarded, Manual Workers Matter, and Caregivers Deserve More Respect. Here’s a new transcript. And below is a clip from that episode on how our economy overvalues white-collar brain power:

Back to inflation talk, here’s a dissent:

I’ve been reading your blog for a little over a year now, and listening to Dishcast, which is great. I’ve noticed a few things, however, that I would like you to perhaps respond to, or at least consider. First, what you refer to as “wokeness” on the left is, I agree, an obnoxious problem that has been exacerbated by social media. But I think your recent guest Francis Fukuyama has it mostly correct in his new book, Liberalism and Its Discontents, when he identifies illiberal trends on the political left as being more of an annoyance, or at the very least, far less of a threat to the republic than illiberal trends on the right.

Second, I completely disagree with this rather lazy salvo from you: “Biden’s legacy — an abandonment of his mandate for moderation, soaring inflation, an imminent recession, yet another new war, and woker-than-woke extremism — has only deepened it.” It simply is not the case that Biden has not, especially when forced to, hewed towards moderation. Yes, he is attempting to respond to a leftward shift in the Democratic Party by trying to govern more from the left, but this is simply a reflection of political reality. In addition, much of his agenda has been batted down, but more on that in a moment. 

Next, inflation and an imminent recession have a lot more to do with what the Fed has done over the last four decades — and definitely since the financial crisis of 2008 — than with Joe Biden. On this theme of a highly financialized economy nearing the end of the neoliberal era, I recommend Rana Foroohar on Ezra Klein’s latest podcast, where she talks about the popping of the “Everything Bubble.” Asset-value inflation, deindustrialization, a perverse focus on shareholder value rather than investing in Main Street or even R&D, and an utter lack of policy solutions, have caused this.

In addition, as Foroohar herself says, the changes we need to make in our economy are going to be, in the short-to-medium term, inflationary. This means policymakers have to start making policy that actually helps both people and infrastructure, which means spending money. Unfortunately, the garden has gone untended for so long that we’re teetering on the brink of becoming a really shitty country if we don’t take more aggressive action. 

In addition, with regard to an upcoming recession, Noah Smith wrote on his Substack recently that Keynesian economics would suggest that a quick recession now in order to stomp out inflation would be better in the long run than milquetoast attempts to curb it by raising interest rates too slowly. The idea is that recessions — especially fast and somewhat shallow ones — can be weathered, but inflation that goes on for too long leaves lasting scars on the economy. (Smith identifies the Volker recessions as probably permanently damaging the Rust Belt.) 

Personally, what I worry about more on the left is not “woke-ism,” but the trendy socialist/ironic/weird outlets like Jacobin or Chapo Trap House, which seem to be doing their damndest to convince younger, more impressionable and less educated people that the whole country is fucked; it’s designed to be fucked because capitalism is fucked; and only its imminent collapse will allow for problems to be solved through revolution/redistribution. Believe me, that sentiment is becoming a real problem, and the people who buy into it are every bit as ideologically rigid, illiberal, and closed to inquiry as those on the rabid right.

Next up, listeners sound off on last week’s episode with Fraser Nelson, the British journalist who sized up the prime minister race. The first comment comes from “a long-time libertarian in Massachusetts”:

I’ve been reading the Dish for about a year and finally subscribed thanks to your fascinating interview with Fraser Nelson. I was particularly glad to be alerted to Kemi Badenoch.

It’s taken awhile to pull the trigger on subscribing to the Dish because of your Trump bashing, since you sound more like Hillary Clinton than William Buckley. I’m perfectly fine with bashing Trump, but I prefer to see it paired with an acknowledgment of the forces that created him, i.e. the abandonment of the middle class by the two major parties, particularly the Democrats. I do think half the country would lose its mind if Trump runs again, so in that sense I sympathize with your sentiments. But the larger context is essential.

Some episodes our listener might appreciate — ones sympathetic to the concerns of middle-class Trump voters — include Michael Anton, Mickey Kaus, Ann Coulter and David French. More on the Fraser Nelson pod:

Thank you for an outstanding episode. Nelson has almost persuaded me to take out a Spectator subscription! I thought he summed up eloquently and fairly the state of the Conservative Party, Johnson, Sunak and Truss, and the challenges that lie ahead.

Like many Brexiteers — and Nelson half-acknowledges this — the Tories have not grappled with the realities of Brexit. The most obvious lacuna in your discussion was the economy. You cannot leave the EU and not increase the size of the state. You have to have more customs arrangements (as we have recently seen at Dover), more vets, more checks and so on, ad nauseam. It’s all very well for conservatives to argue for a smaller state, but they haven’t defined what that will look like and how the services people use now (education, transport, local government, the legal system etc) will be improved, i.e. funded to a better extent than now. Underfunding is obvious and no amount of arguing “we can do it more efficiently” will cut it — the Tories have had 12 years to fix this.

Moreover, picking fights with the EU has meant less investment, reduced business confidence and increased uncertainty — except of course in Northern Ireland, which has access to the single market and where business is booming. Listen to NFU President Minette Batters talk about the issues surrounding Truss’s free trade deals with Australia and New Zealand, or fishermen now dealing with the consequences of Brexit. They were once fans. Not so much now.

James Carville once said, “It’s the economy, stupid.” Promising tax cuts now when much of the Western world is likely to enter a recession is ridiculously irresponsible, but hey ho, it’s a political campaign and reality will bite once we have a new prime minister, whoever she is.

Also, I look forward to hearing Marina Hyde on the Dishcast!

This next listener takes issue with some of my phrasing:

I enjoyed the Nelson episode overall! But I have to take issue with a rare faux pas from you, where you said that Rishi Sunak is “himself obviously a globalist, just by his very career and nature.” I can’t really understand how you came to this conclusion. Is anyone who worked overseas for some time a “globalist”? Are you a “globalist” because your moved to America? What about Sunak’s “nature” makes him so?

Back in 2016, Sunak supported Brexit, which was seen as the losing bet, despite much pressure from David Cameron. And he has set out very clearly in his leadership campaign that he thinks, for example, we need to be tougher on border control. Neither of these things strike me as globalist, nor a return to the Cameron era.

On the other hand, I agree with your characterisation of Truss — who voted Remain before undergoing a miraculous and instantaneous change of heart the day after her side lost — as a “dime-store Thatcher.”

Speaking of border control, here’s David Goodhart — also from a British perspective — on why elites favor open borders:

One more listener on Fraser pod:

As a Spectator subscriber (and Glasgow Uni man), I very much enjoyed Fraser Nelson. Mishearing (I think) at around the 37 minute mark when he seemed to refer to Boris getting a first at Oxford, I was reminded of this fine bitchy exchange with David Cameron in the Sunday Times back in the day:

Surely Boris has been the man Cameron had to beat, ever since they were at school together. 'This is one of the great myths of politics', says the PM [Cameron]. 'These things grow up and it's so long ago no one challenges them, but I don't think we really knew each other at school, he was a couple of years ahead of me. He was very clever.'

Then Cameron explodes into a beaming grin. 'But', he says exultantly. 'Boris didn't get a First! I only discovered that on the Panorama programme the other night... I didn't know that'. He is suddenly lit up, almost punching the air with joy.

And in that outburst of public-schoolboy competitiveness — Cameron, of course, did get a First — he reveals everything we've always thought about him.

Also, when Boris was described as believing the untrue things he said at the time he said them, I’m reminded of George Costanza’s credo that “it’s not a lie if you believe it!” (which, for a fairly left liberal Tory, you’d perhaps take over a Trump analogy).

Lastly, a listener looks to a potential guest:

If you wish to continue to mine the vein of the global power landscape, its recent evolution this century, and its implications: Condoleezza Rice. She has an interesting perspective from one whose expertise is Russia and is a past practitioner of American statecraft with Russia and China.

Thanks, as always, for the suggestion.