When Senator Jeff Bingaman was working diligently in the mid-1990s to get not only the White House but also Republican and Democratic Senators and House Members to focus on the large scale, structural deficits that were building between the United States on one hand and Japan and China on the other, he tasked his team with smartening up on what leading economists of the day were saying about global imbalances but also about the dynamics of a turbo-charged, stock churning equities market. Not only were policy makers on the whole not paying attention to trade and current account deficits, they were also ignoring the impact of hot, impatient money on the domestic sector.
Bingaman, via his staff including yours truly and his then chief of staff Patrick von Bargen, began quoting economists Joseph Stiglitz and Lawrence Summers on their groundbreaking, compelling work on financial equities transaction taxes — minor taxes on major equities churning that could both help promote longer term decisions in the equities markets but which also could generate revenue to fund portable educational benefits for workers and investments in high tech R&D. Stiglitz and Summers both felt that such taxes would not only not hurt markets but could help prevent excesses.
I remember getting a phone call from an Assistant Secretary of Treasury on some of Jeff Bingaman’s quotes of then Deputy Secretary of the Treasury Lawrence Summers and was told “Dr. Summers changed his mind on those excise taxes when he joined the Treasury Department.”
Lawrence Summers has largely been a Wall Street-tilting force ever since.
And today in the Washington Post, Summers is again referenced as now opposing taxes on various financial transactions as a way to possibly generate revenue to work on global climate change challenges. One friend wrote to me and said “once bought by the financial industry, always bought.”
A new dispute could flare up at the end of the week, when an international task force charged with showing how rich nations can mobilize $100 billion by 2020 for climate assistance will outline options for generating that money. Lawrence H. Summers, who chairs the White House National Economic Council, has served in the group and questioned some of the proposals, including imposing a new fee on some financial transactions.
Perhaps there is more to this story than we are getting — and perhaps the particular framework for taxation in this case is a bad one.
But what we aren’t getting to see much of is the Lawrence Summers who recognizes that reforms and change are needed in an economy that over-kowtows to the financial sector.
Summers, no matter what some critics say, is a formidable intellectual heavyweight on economics policy — and will continue to be, long after he leaves the White House.
However, he needs to retool.
Films like Charles Ferguson’s Inside Job and important chronicles of DC-NY financial sector structural corruption with Summers as a lead protagonist like Michael Hirsh’s Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street are going to define him if he doesn’t begin to recognize what George Soros, Joseph Stiglitz, Nouriel Roubini, and others have long understood — that this country will be ruined by further obsequiousness to “market fundamentalism.”
Summers needs to get on the side where he can get back to what he believed ‘before’ he joined the Department of Treasury.
— Steve Clemons