On Christmas Day, Lawrence Summers, one of the chief economists of U.S. capitalism and an adviser to Joe Biden during the current presidential transition, decided it was time to chime in on the question of whether people in the United States ought to get some of their own money back from the government as part of a “stimulus” package. It was a “which side are you on?” moment, and he didn’t falter.
For Summers — former Treasury Secretary under Bill Clinton, director of Obama’s National Economic Council, World Bank chief economist, former president of and current economics professor at Harvard University — the question is all about “consumer spending.”
“The real issue’s going to be sustaining this expansion. … We have stimulus already, much more than filling out the hole,” he told Bloomberg in an interview. “And given that lots of the hole is not from the fact that people don’t want to spend, but because they can’t spend — they can’t take a flight or go to a restaurant — I don’t necessarily think that the priority should be on promoting consumer spending beyond where we are now.”
Expressing a lack of enthusiasm even for the $600 checks that are part of the stimulus package Trump has threatened to veto, Summers continued, “I think taking them to $2,000 would actually be a pretty serious mistake that would risk a temporary overheat.”
There’s a bunch to unpack here. Let’s begin with the simple fact that any money the U.S. government sends to people for “stimulus” is already ours — in other words, governments have no money of their own. Government funds come from taxes, and so checks that the government sends are the equivalent of sending the people our money back.
Then there’s the issue of consumer spending, which is what economists call the total money individuals and households spend on finished goods and services, whether they are for personal use or enjoyment (discretionary spending, meaning spending on things that you don’t need to survive). Consumer spending is the demand side of supply and demand.
And finally, there’s “overheating” — economist-speak for a particular kind of supply-demand problem in the economy. Sometimes, an economy’s productive capacity, the supply of goods and services in the economy that firms plan on selling during some period, cannot keep up with the aggregate demand. This overheating, in turn, leads to inflation because of increased “consumer wealth,” and the rise in prices causes an inefficient allocation of supply because producers are compelled to increase production so they can capitalize on this new “wealth” — that is, capture the spending for themselves in the form of profit from the sale of their goods and services. So, they over-employ resources to do so. Those resources include workers, who may be asked to work extra shifts, or production machinery, which may get used more than they typically would (taxing them mechanically and potentially shortening their lifespans).
The fear is that the entire effort — which leads to excess production capacity — is unsustainable. Such overuse of resources cannot go on forever.
The capitalists hate overheating and its byproducts for all the reasons you should hate capitalism. While most of us suffer from inflation because it limits our ability to buy what we need to live, they hate inflation because it diminishes the overall value of the huge amounts of money they have squirreled away. It creates uncertainties for their businesses, which makes investments riskier. And for those of them that produce goods for export, inflation — if it’s higher than in other countries — reduces their competitiveness.
They also hate overheating because the over-employment of resources tends to reduce the unemployment rate. This has two downsides for capitalism, which is decidedly against the very notion of full employment. One is the vicious circle of higher production leading to higher levels of employment leading to higher inflation because there’s more money out there to spend. The other is that it diminishes the reserve army of labor — the unemployed — that capitalism counts on, as Karl Marx explained, to keep wages low, break strikes, and so on.
Consumer Spending … or Survival?
Summers wants to avoid an increase in “consumer wealth” that could lead to “overheating.” Is he genuinely worried that $2,000 stimulus checks are going to overheat restaurants and airlines? After all, that’s the type of consumer spending he mentioned. He didn’t say a word about basic needs such as food on the table, a roof over a family’s head, prescription medicines, transportation to work for essential workers and those who still have jobs to go to.
Larry Summers is a self-acknowledged Keynesian. By that measure, he should be all about sending stimulus checks.
In the 1930s, in an effort to figure out the Depression, British economist John Maynard Keynes developed a macroeconomic theory of total spending in a national economy and how it affects employment, output, and inflation. In doing so, he had a massive influence on economists with his advocacy for increased government expenditures and lower taxes as a way to stimulate demand and help pull the world’s economy out of the Depression. Ever since, “Keynesian” economics has meant intervening in a national economy to optimize economic performance and prevent downturns by targeting aggregate demand. The approach has two main thrusts: stabilization and stimulation of demand, the latter in the form of the government injecting money into the economy.
Referring to sending out checks, Summers acknowledged that “many of my fellow Keynesians who believe in fiscal stimulus will likely be in favor of this, but sometimes there can be too much, too poorly designed, of basically a good idea.” Why is Keynesian Summers breaking with this paradigm?
One answer likely has to do with how the stimulus money — be it $600 or $2,000 — would likely be spent. It’s not going to fuel any sort of economic growth that will benefit the capitalists beyond the immediate capturing of some small profits. That money is going to go into the pockets of landlords for back rent. It’s going to show up in the cash registers of neighborhood grocery stores that have themselves taken a hit during the pandemic, while the big chains that can deliver through Instacart continue to thrive. It’s going to be used to fill prescriptions that have been sitting in the hoppers at pharmacies. But it’s not going to circulate through the economy in the ways Keynesians hope, returning to the capitalists so they can use it for productive investments. Capitalism itself, by allowing poverty in this country to deepen over the course of the pandemic, by failing early on to keep people from falling further into despair, has seen to that.
Larry Summers is a prisoner of the illogic of an economic system predicated on the notion that success is not an objective for society but for one small class of people, and that it comes not from planning to meet people’s needs, but rather from the exploitation of people’s labor. Remember, he is the same man who in 1991, as the chief economist at the World Bank, signed a memorandum arguing that “encouraging MORE migration of the dirty industries” to the world’s least-developed countries was the way to propel the impoverished people of Africa, in particular, to higher levels of economic success.
People in this country need our money back. A one-time payment of $2,000 is a pittance; $600 isn’t even close to a month’s rent for most people. Meanwhile, billions of dollars of our money continue to flow into the coffers of the military, the defense contractors who feed at its trough, the giant corporations that enjoy direct subsidies and indirect ones in the form of massive tax loopholes that keep them from paying a cent, and the billionaires who are making money hand over fist during the pandemic.
Capitalism’s economists accept every bit of the illogic of capitalism, including that massive unemployment is acceptable even while we have so much work to do to make our society better, and that economic activity that alleviates material scarcity is of no value if it doesn’t create profits.
Larry Summers is against the stimulus because it represents a tiny bit of survival for people he cannot even relate to, whose interests he nevertheless insists on representing, and about whom he and his minions — all in the service of a brutal, murderous capitalist class — do not care one whit.