Larry Summers’ first column for the Financial Times appears today. It’s an interesting piece of work. I wouldn’t say that Summers is a natural writer. This article feels more like a speech than a column, which is to be expected given that Summers has done far more speechifying than he has column-writing. It’s a little stentorian, a little Olympian.
The subject is the fate of the global middle class under globalization, and why that middle class is feeling economic anxiety. An interesting and worthy topic.
From the failure to complete the Doha trade round to pervasive Wal-Mart-bashing, from massive renationalisation in Russia to the success of populists in Latin America and eastern Europe, we see a degree of anxiety about the market system that is unmatched since the fall of the Berlin Wall and probably well before.
Summers attributes this anxiety to the growing recognition that the vast global middle is not sharing the benefits of the current period of economic growth.
Instead, two groups are benefitting from globalization: the very poor, who are finding new work as a result of international outsourcing and the demand for cheap labor, and those businesspeople and financiers in a position to take advantage of globalization.
I find one line particularly noteworthy:
Certainly those in the financial sector in a position to benefit from the asset revaluations associated with globalisation have prospered.
Let me extrapolate what I think Summers may be getting at here. Part of the middle class anxiety people feel, at least in this country, stems from the awareness that some Americans are getting immensely rich, richer than anyone has ever been in the scope of human history, and that this wealth is not generating opportunities for economic advancement for the middle class.
For example: David Shaw, Summers’ new employer, made $340,000,000 last year. One could say that he has “prospered.” This money is not going to build factories or create jobs. It is going into the bank of David Shaw.
While Americans may not know this specific example, they are aware that financiers such as Shaw are making obscene amounts of money, and they worry that these profits are coming at their expense. While old businesses such as Ford are closing plants and laying off thousands of workers, new ones such as the D.E. Shaw Group are making huge fortunes for a very small number of employees, with no apparent economic trickle-down whatsoever. Dollars are being sucked out of the hands of the middle glass by a great vacuum wielded by those fortunate enough to play the hedge fund gameâwho, by and large, don’t appear to have any particular sense of social responsibility. (Anyone heard much about foundations started by hedge fund billionaires? Me neither.) And they are hiring former Treasury secretaries to help them fend off federal regulation, so that their vast accumulation of wealth can continue unabated.
At least, that’s my impression. I’m not an economist, and so I would be curious to hear someone who thinks about these things on a more rigorous basis than I do analyze the issue.
Once upon a timeâperhaps when he was giving economic advice to presidential candidate Michael Dukakisâthis is exactly the sort of economic problem that liberal economist Lawrence Summers would have tackled. Would he do so now that he is nursing at the hedge fund teat? Or has his intellectual integrity been compromised by his desire to make millions?
The answer, as a Summers FT column might say, remains to be seen. Consider again that sentence. On the one hand, it’s pretty tepid, and softpedals the issue. On the other hand, at least it’s there.
Summers is always an intriguing man, and it will be interesting to watch the development of his future writings.