Larry Summers sounds pretty pessimistic here

by on January 27, 2016 at 6:08 am in Current Affairs, Economics, Political Science | Permalink

…whoever you think the four most likely Americans to be the next president of the United States—who are probably Ted Cruz, Donald Trump, Bernie Sanders, and Hillary Clinton—none of them are in favor of TPP. That has to say something about the political—the political environment.

And this:

The Economist had a remarkable statistic. The IMF makes forecasts for every country every April. There have been 220 instances across several decades and some number of countries where growth was positive in year T and negative in year T+1. Of those 220 instances, the IMF predicted it in April in precisely zero of those 220 instances. So the fact that there’s a sense of complacency and relative comfort should give very little comfort.

The dialogue, with Richard N. Haass, is interesting throughout.  Haass seems to be too negative about India and Pakistan.

1 Skeptik January 27, 2016 at 6:11 am

We need a zero growth economy if we are going to survive ecosystem collapse. Better start today and ween off the ultrarich from their exponentially growing ill-gotten gains.

2 msgkings January 27, 2016 at 12:02 pm

My god, it’s the ghost of Malthus!

3 Tenured E. Conomist, PhD January 27, 2016 at 12:13 pm

Precisely, this ridiculous garbage was rejected in the 19th century. Modern thinkers realize that if anything we need to dedicate more resources to the ultra-rich. What’s a couple hundred thousand unemployed peons in exchange? I’m not necessarily *happy* about it, but to make an omelette you gotta break an egg

4 msgkings January 27, 2016 at 12:31 pm

Welcome back, JAMRC. Why the name change? Do you think the Commodore could drop by again?

5 Skeptik January 27, 2016 at 12:42 pm

Malthus was right. It’s basic mathematics. He just got the timing wrong.

Unless you want to count inflation-based NGDP growth, there’s only so much economic activity you can sustain on the surface of earth.

Even if you allow for speculative space colonization scenarios, the speed of light limit and the hostility of space put a hard cap on growth. And this would be growth that doesn’t benefit the billions left behind on earth.

6 Lord Action January 27, 2016 at 12:45 pm

You assume a limit on the physical density of GDP. There is speculative physics that suggests that might be the case (i.e., that there’s some minimum size for a bit), but it’s far from established fact.

7 Skeptik January 27, 2016 at 4:01 pm

https://en.wikipedia.org/wiki/Bekenstein_bound

Of course, some of us want to stay human and have actual hot showers and so on.

8 JWatts January 27, 2016 at 5:06 pm

“…there’s only so much economic activity you can sustain on the surface of earth. …”

Yes. It seems unlikely that the Earth could hold more than 20 billion people at our current level of technology. Oh wait….

9 JWatts January 27, 2016 at 12:08 pm

There isn’t going to be an “ecosystem collapse”. If there was, a zero growth economy, would have a much harder time handling it than our current slow growth economy. It’s hard for me to believe that Bill Gates, Warren Buffet, Larry Ellison, Sam Walton, Michael Bloomberg, Charles Koch, etc all got their money from ill-gotten gains. Can you point out which members of the ultra-rich got their money through criminal activity?

10 Skeptik January 27, 2016 at 12:17 pm

The entire system of crony capitalism is criminal. The law itself is bought. That makes all gains ill-gotten.

11 JWatts January 27, 2016 at 5:07 pm

That answer seems more evasive than substantive.

12 Brian Donohue January 27, 2016 at 5:11 pm

Nice shoes you got there. Where’d you steal ’em from?

13 Art Deco January 27, 2016 at 1:16 pm

The American Lawyer used to have period cover stories about one or another amongst them who’d been receiving a massive payout.

Executive compensation at some point is not an arms length transaction (or is calculated in a matrix in which competitors’ are not arms length transactions). The phenomenon grew immense after 1980. Ca. 1980, the CEO’s of the major automakers were paid about $900,000 per year. Between 1980 and 2009, nominal compensation per employee increased 3.14x. The CEOs of at least two automakers appeared before Congress regarding the inclusion of their companies in the TARP program. At the time, one was asked about his compensation package, which was not $2.8 million per annum, as it would have been had the compensations paid Thomas Murphy and Henry Ford II been indexed to the annual increase in compensation per employee in this country. Their successors were paid (IIRC) about 5x that (while employing fewer workers). The highest paid executive in the United States in 1980 was a man named Robert Charpie, who was CEO of the Cabot Corporation, an energy concern. Mr. Charpie received about $3.3 million in 1980. Indexing, a contextually similar sum in 2009 would have been $10.4 million. The auto executives were receiving more than that (while asking for cheap credit, courtesy the Treasury). Keep in mind that the ultimate marginal rate for federal income taxes was a great deal higher in 1980 (approx 70%) than it was in 2009 (35%).

Peter Drucker, not a populist sentimentalist, favored legislative controls on executive compensation, suggesting the CEO’s pay not exceed a certain multiple of the least compensated employee. Simply limiting it to 200x compensation per employee in the economy as a whole (call that the Charpie Standard) would cut into the income of some Masters of the Universe. An accounting professor once told me that treasury stock is unlawful in Israel, where she’d worked in the banking business. Putting an end by law to stock options might also be considered.

14 Floccina January 27, 2016 at 2:36 pm

So how would you do that impose a 100% tax above some level of income?

15 chuck martel January 27, 2016 at 7:14 pm
16 Art Deco January 27, 2016 at 1:19 pm

I think the compensation to those named includes proprietors’ income, &c., not merely executive compensation.

17 Jos. S. Laughon January 27, 2016 at 2:37 pm

Predicting ecosystem collapse of modern, secular form of Millerites. The big difference is this cult allows one to feel urbane and sophisticated unlike those dumb, religious bumpkins.

18 mulp January 27, 2016 at 2:31 pm

God, do I hate conservatives.

To have a sustainable economy we need massive capital investments funded with higher gdp. The single policy I would advocate to accomplish that would be an amendment to the US Constitution placing a carbon tax on burning carbon buried in the ground for longer than the has US existed based on the fibinoci series per ton. Ie, in year one the carbon tax would be $1 per ton, but you would know that in year ten the tax would be $55. In year two the tax would be $1 but in nine years $89. In year three, the tax would be $2 but $144 in nine years.

True capitalists would see huge profits in tax dodging by paying labor wages based on cheap fossil fuels to build wind and solar harvesting and storage, factories making electric batteries for cars and the related supply chain, factories to turn out modular molten salt nuclear reactors that completely burn uranium, plutonium, thorium fuel.

The rent seekers and monopolists in Wall Street will be frantically trying to monopolize fossil fuels to drive prices up by $50-100 a ton to collect the $55, $89,… future tax as rents today before fossil fuels in the ground become worthless.

As millions of workers get jobs building factories and working in factories build tax dodges, they will have more income to spend driving gdp higher buying houses and cars and their own tax dodges. Wages will be driven higher by the building of tax dodges leading to more income driving gdp higher, driving more buying of tax dodges. Overall consumption will increase rapidly as competition to build tax dodges increases total labor costs invested in tax dodging capital assets.

Nearly everything in a carbon tax dodging economy is recycled as the metals are not oxidized in use but only degraded at the molecular scale which is easily reversed by melting or chemically processing and reforming into tax dodges. Paying people to build tax dodges means higher consumption, not less consumption, higher production, not less production.

Rent seekers will ultimately buy tax dodges and extract rents from those who failed to build and buy tax dodges, but the rents will fall to just the minimum required to pay for building the tax dodges and convincing workers to not consume or invest by buying tax dodges all their income, but instead save part of it.

19 Jos. S. Laughon January 27, 2016 at 2:36 pm

“God do I hate conservatives”

Ah the gatekeepers of civility that we hear so much about.

20 tokarev January 29, 2016 at 8:28 pm

We need a (roughly) zero population growth economy just to temporarily avoid environmental collapse. Realistically we need to have a negative rate of population growth for a while to return to a sustainable level. I estimated in 2010 that a population of 75 million could be long-term sustainable for the US while still allowing a good standard of living. While I support this fully, I find it hard to imagine any political party supporting it.

21 Paul January 30, 2016 at 7:00 am

Even North Korea’s economy expands, but maybe Greece, Venezuela or Zimbabwean can shed some ideas.

22 rayward January 27, 2016 at 6:45 am

Of course, public opposition to TPP (such as it is) is likely attributable to public confusion about TPP, namely, that it would shift even more jobs to China – that “giant sucking sound” according to a former (populist) presidential candidate. The public’s confusion is understandable: how does one explain a trade agreement that is designed to both facilitate trade and punish the largest trader.

23 foosion January 27, 2016 at 7:18 am

The serious opposition to TPP seems to be that it does little to reduce barriers to trade, while increasing intellectual property protections (protectionism seems the opposite of free trade) and allowing businesses to sue countries in private special purpose courts against some government policies which hurt profits.

24 rayward January 27, 2016 at 7:30 am

Yes, TPP suffers from inconsistency; on the other hand, a foolish consistency is the hobgoblin of little minds. As for the IP provisions, the free trade argument is that TPP will encourage firms to shift their production to lower cost (more efficient) markets by protecting the firms’ IP in those markets. What sane politician in the U.S. would support that!

25 ohwilleke January 27, 2016 at 12:00 pm

Agreed. The reduction in tariffs is pretty uncontroversial, but that is only a tiny portion of the treaty and the other parts of the treaty are the unpopular ones.

26 mulp January 27, 2016 at 2:48 pm

No one should be allowed to sue anyone? Conservatives should not be able to sue Obama. Environmentalists should not be able to sue Obama?

Interestingly, Obama has been sued by both with SCOTUS handing Obama defeats in both kinds of cases. Obama has been forced to comply with the laws and not price pollution rationally, but instead issue dictates, giving conservatives a victory on the pollution trading regulation issued in 2007-8 by the EPA, a rule forced by SCOTUS in a lawsuit by environmentalists against Bush. But SCOTUS ruled Obama must regulate carbon emissions based on the science, a defeat and victory just ratified by a district court last week.

All these lawsuits against government were independent of TPP, WTO, NAFTA.

And the lawsuits pitted sovereign States representing their citizens against each other, so why should lawsuits be denied when sovereign states are seeking justice? Is war a better way to resolve differences between parties in different sovereign states? Maybe Texas should go to war with the northeastern States because lawsuits are an outrage. After all, SCOTUS denies Texas any control over the judgement of the court.

27 Bob January 27, 2016 at 8:39 am

I am sure there are many good things in TPP. The intellectual property sections though, are 100% about helping some sectors of US economy, to the detriment of others. They are the kind of legislation America is bringing in for others to sign too, as no other country wants it.

The only companies in SV that are actually OK with the IP provisions are those that are so large, and have spent so much money on lawyers, they see it as protection vs the upstarts next door. Do we really need to write big treaties that protect big companies vs small ones in the same country?

28 mulp January 27, 2016 at 2:55 pm

Yeah, like stopping the importing of Hoverboard knockoffs that are cheap and catch on fire. An Asian-American invented it but used chinese contractors to make his prototypes while he was working the US patent process. Thankfully china’s weak IP enforcement let pirates flood the US market with dangerous versions that cost American consumers and corporations.

That’s good for America and the reason to oppose the TPP!

Right??

29 Dzhaughn January 27, 2016 at 2:46 pm

Public suspicion of and confusion about TPP is a direct result of the process that created it.

30 dearieme January 27, 2016 at 6:54 am

Can one be too negative about Pakistan?

31 Roy LC January 27, 2016 at 8:23 am

Theoretically, but it has never been witnessed

32 Skeptic January 27, 2016 at 11:39 am

heh! too true

33 Brian Donohue January 27, 2016 at 8:56 am

I want to bravely go on record to predict there will be a recession sometime in the next 5 years. Don’t say you weren’t warned.

34 msgkings January 27, 2016 at 12:04 pm

Seconded, and I further predict there will be a recovery after that recession.

35 JWatts January 27, 2016 at 12:12 pm

I’ll go on record as predicting the US President at the time will be blamed for the recession, even though he or she will have little ability to prevent it.

36 msgkings January 27, 2016 at 12:33 pm

Excellent. And further I predict whomever is president during the recovery will get credit for that even though they will have very little to do with it.

37 Ray Lopez January 27, 2016 at 9:31 am

Regarding Summers “change of state” observation involving 220 instances, citing the Economist, this has an easy explanation. Studies have shown the best forecast is simply extrapolation of an existing trend, so smart forecasters simply pick last year’s growth and add (or subtract) a small amount, but don’t change the ‘state’ (from negative to positive or vice versa). Hence, since most forecasters know this rule, the anomaly cited by the Economist. Only a rare, brave forecaster will call for a ‘change of state’. That’s why TC’s calling a collapse in Chinese growth is a brave call, but, statistically, likely to be wrong. I hope he’s right, as he’s made a bold gambit move, sacrificing his reputation for long term compensation if he’s right.

38 Brian Donohue January 27, 2016 at 9:34 am

Gee Ray, you’re taking this Tyler fanboy thing to a whole new level, pulling for a Chinese collapse just for the sake of the guy’s credibility.

39 ohwilleke January 27, 2016 at 12:03 pm

Needless to say, “accuracy” accompanied by a failure to predict any of the cases that the predictions care about, is still completely unimpressive. Indeed, honestly, you could probably do better guessing randomly.

40 JWatts January 27, 2016 at 12:13 pm

“Indeed, honestly, you could probably do better guessing randomly.”

If that were true then Tyler’s predictions are indeed valuable.

41 Ray Lopez January 27, 2016 at 8:45 pm

@ohwilleke – that’s right, but precision is valued more than accuracy in group guessing games (like Keynes remarked about beauty pageants). Better to fail in a group (but also likely get the prediction right ‘most of the time’) rather than be completely random and get the ‘turning points’ right more often than the other forecasters.

42 Ray Lopez January 27, 2016 at 8:47 pm

@myself – further, and just to reinforce the point, most of the time the economy does not flip-flop from positive to negative, so getting these ‘turning points’ right is not that important to credibility among forecasters.

43 Bill January 27, 2016 at 2:10 pm

Oh, there are other assertions: How about the credibility risk of asserting that austerity was just what Europe needed to get it out of its recession and 11-13% unemployment.

44 Brian Donohue January 27, 2016 at 5:12 pm

Exactly. Europe was one ginormous public works project away from 5% unemployment.

45 Millian January 27, 2016 at 9:38 am

True perhaps that they oppose it now, but given that they are Ted Cruz, Donald Trump, Bernie Sanders, and Hillary Clinton, at least two and up to three are likely to be lying.

46 TallDave January 27, 2016 at 10:11 am

Actually, that probably says more about the increasingly dysfunctional nature of the political establishment: TPP took them seven years, spans 2000 pages, involved a lot of secrecy, was passed in an unusual manner, and has some very strange provisions.

Cruz is a pretty strong free-trader who initially supported TPP, but changed his position after the TiSA leaks. It’s ridiculous that a free trade agreement would affect immigration law.

47 The Original D January 27, 2016 at 2:24 pm

It’s ridiculous that a free trade agreement would affect immigration law.

Why? Should people not be able to take advantage of free trade the way companies can?

48 Art Deco January 27, 2016 at 10:48 am

You mean none of them are in favor of treaty which has a five-digit page count the contents of which were kept secret from the ratifying body? You mean none of them take much interest in hugely complicated negotiations meant to capture inconsequential residual gains from trade? You mean none of them are in favor of a ‘treaty’ whose unknown contents might just include a mess of candy for various sectoral lobbies? Dr. Summers thinks this is a bad thing? I seem to recall Dr. Summers also worked to sabotage Brooksley Born’s work and proved himself so obnoxious that Christina Romer wanted aught to do with him. You think this academic lout might be a tad over-rated?

49 chedolf January 27, 2016 at 11:36 am

You think this academic lout might be a tad over-rated?

Which one?

50 Tenured E. Conomist, PhD January 27, 2016 at 11:54 am

Once again the American people fail to understand that the only worthwhile metric by which any policy may be judged is aggregate GDP. Instead they worry about petty issues like the fact that this GDP increase will benefit only the super-rich and be a detriment to everyone else. Well duh but it’s an INCREASE. How selfish can these idiots be?

51 Brian Donohue January 27, 2016 at 12:10 pm

“GDP increase will benefit only the super-rich and be a detriment to everyone else.”

Yeah. Remember 2008-09, on the other hand, when GDP was falling and the little guy had a chance.

52 Tenured E. Conomist, PhD January 27, 2016 at 12:16 pm

Yeah, THIS guy gets it. If we’ve learned anything from that 2008 mess it’s that we’re not being deferential enough to our heroic financiers.

53 Brian Donohue January 27, 2016 at 12:45 pm

You misunderstand. Those guys all belong in jail, with their top hats and tuxes and tails and waxed mustaches and whatnot.

54 JWatts January 27, 2016 at 5:11 pm

But do they get to bring their staff to jail with them. How can you make it through a day without an orphan to polish your monocle?

55 Nathan W January 27, 2016 at 2:26 pm

GDP is over-rated as a metric. While it continues to be the most relevant metric for many many things, I think there are few things which are more widely shared in recent decades in economics than the shift to viewing that GDP is over-rated as a measure of well-being and progress.

56 The Original D January 27, 2016 at 2:26 pm

So theres no Great Stagnation in median income?

Why should someone below the median income be glad that people above it earn even more than they were earning before?

57 JWatts January 27, 2016 at 5:13 pm

“Why should someone below the median income be glad that people above it earn even more than they were earning before?”

Indeed. And why should someone below the median income be mad that people above it earn even more than they were earning before?

58 Nathan W January 27, 2016 at 2:27 pm

Doesn’t the IMF basically always predict that the current trend will continue, plus or minus a little for whatever’s in the news?

TPP includes too many things that have no business in a “free trade” deal. Very little of the deal has to do with anything that one would normally consider to be “free trade”.

59 spencer January 27, 2016 at 3:45 pm

I have a theory that the consensus can not forecast a recession.

Recessions occur when the business community over estimate demand growth and end up with excess inventories that have to be liquidated.

So for the consensus to forecast a recession the consensus would have to forecast that the consensus forecast is wrong.

Doesn’t happen.

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