Dan Froomkin notes:
Asked about new Census data showing that the income gap between the richest and poorest Americans grew last year to its widest amount on record, Summers said one factor is that “we have a more ruthless economy. There’s breaking down in social norms by people in a position to take.”
Skyrocketing income disparity is something I’ve repeatedly written about.
But increasing income disparity hasn’t just happened like some unforeseen natural disaster which is difficult to forecast, such as an earthquake. It has been the result of certain efforts by the wealthy and their lackeys in government.
As Warren Buffet said in 2006:
There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.
Indeed, as I pointed out last year, Summers is more responsible for our economic problems than just about anyone else (Greenspan and Rubin also played their parts):
Summers is the guy responsible for:
- Allowing the banks to carry extraordinary levels of debt, thirty-to-one fractional reserve banking margins
- Repealing New Deal era legislation which separated investment banks from commercial banks, insurers and stock brokers, and which kept companies from becoming “too big to fail”
As a 1999 New York Times article entitled “Congress Passes Wide-Ranging Bill Easing Bank Laws” quotes Summers as saying:
”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”
As I pointed out in April:
On Friday, Summers basically said we should continue to do the exact same things which got us into this mess because:
All crises must end. The “self-equilibrating” nature of the economy will ultimately prevail, although that may take massive one-off government actions. Such a crisis happens only ”three or four times” per century, so taking on huge amounts of government debt is fine; implicitly, we will grow out of that debt burden.
Um . . . sorry to break it to you there Larry, but a group of economics professors has recently demolished the “self-equilibrating economy” theory:
If one browses through the academic macroeconomics and finance literature, “systemic crisis” appears like an otherworldly event that is absent from economic models. Most models, by design, offer no immediate handle on how to think about or deal with this recurring phenomenon. In our hour of greatest need, societies around the world are left to grope in the dark without a theory. …
The implicit view behind standard models is that markets and economies are inherently stable and that they only temporarily get off track. The majority of economists thus failed to warn policy makers about the threatening system crisis and ignored the work of those who did. …
The confinement of macroeconomics to models of stable states that are perturbed by limited external shocks and that neglect the intrinsic recurrent boom-and-bust dynamics of our economic system is remarkable. After all, worldwide financial and economic crises are hardly new and they have had a tremendous impact beyond the immediate economic consequences of mass unemployment and hyper inflation. This is even more surprising, given the long academic legacy of earlier economists’ study of crisis phenomena … This tradition, however, has been neglected …
And when economist James Galbraith spoke at a recent panel on the causes of the financial crisis, the first thing he listed as the main cause of the crisis was “The idea that capitalism … is inherently self-stabilizing” …
Summers [is] like a guy swearing that the Sun really does revolve around the Earth and that the current orbit is just a temporary aberration . . . and that if we just wait a little while, “everything will return to normal”.
As I pointed out in September, Summers has totally misunderstood the multiplier effect.
Indeed, Summers has admitted that too big to fail banks are a huge roadblock to economic recovery, yet he has blocked all attempts to break them up or meaningfully rein them in.
Summers said in 2000 “a healthy financial system cannot be built on the Expectation of bailouts”, and then has built much of his recovery strategy on the expectation of bailouts.
A lot of his strategy has also been built on artificially propping up asset prices for things like toxic derivatives, and that strategy has failed miserably.
And it’s not just that Summers has blown it. He has actively promoted a “more ruthless economy” and the “breaking down in social norms by people in a position to take” which he is now whining about.
As I wrote in March 2009:
Does a single independent economist buy the Geithner-Summers-Bernanke approach?
On the left, you have:
- Nobel economist Joseph Stiglitz saying that they have failed to address the structural and regulatory flaws at the heart of the financial crisis that stand in the way of economic recovery, and that they have confused saving the banks with saving the bankers
- Nobel economist Paul Krugman saying their plan to prop up asset prices “isn’t going to fly”. He also said:
At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached. This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers.
- Prominent economists like Nouriel Roubini, James Galbraith, Robert Kuttner, Dean Baker, Michael Hudson and many others slamming their approach (and Paulson’s as well)
On the right, you have:
- Leading monetary economist Anna Schwartz saying that they are fighting the last war and doing it all wrong
- Former Assistant Secretary of the Treasury and former editor of the Wall Street Journal Paul Craig Roberts lambasting their approach
- Economist John Williams saying “the federal government is bankrupt … If the federal government were a corporation … the president and senior treasury officers would be in federal penitentiary.”
- Prominent economist Marc Faber and many others tearing their approach to shreds.
Sure, the economists for the banks and other financial giants which are receiving billions at the government trough think that the Geithner-Summers-Bernanke approach is swell.
And perhaps a couple of economists for investment funds which use their giant interventions into the free market to make some quick money.
But other than them, no one seems to be buying it.
As I noted last year:
Economist Dean Baker said the true purpose of the bank rescue plan is “a massive redistribution of wealth to the bank shareholders and their top executives”.
And Nobel economist Joe Stiglitz says the Geithner plan will rob US taxpayers.
And congressman Grayson puts it succinctly when he demands “Stop stealing our money!”
And as I pointed out this summer:
The bailout money didn’t actually go to any productive economic uses:
The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:
- Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
- A lot of the bailout money is going to the failing companies’ shareholders
- Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”
- The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
And as the New York Times notes, “Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners”.
In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG’s credit default swaps and is not even really stabilizing AIG.
The super-wealthy have been bailed out, and life is great for them. For everyone else, things are not so good.