On November 12, 1999 Treasury Secretary Larry Summers joined President Bill Clinton to proclaim a bright new future for the American economy. The occasion was the signing ceremony for the Gramm-Leach-Bliley Act, best known for its partial repeal of 1933’s Glass-Steagall legislation — until then a critical firewall separating commercial and investment banking. Gramm-Leach-Bliley having passed with strong bipartisan support, Summers was in an effusive mood:
Let me welcome you all here today for the signing of this historic legislation. With this bill, the American financial system takes a major step forward towards the 21st century, one that will benefit American consumers, business, and the national economy for many years to come…. I believe we have all found the right framework for America’s future financial system.
Despite the general atmosphere of consensus, Gramm-Leach-Bliley passed the House 362-57-15 — not everyone was convinced of the bill’s merits. One independent Congressman from Vermont had demurred rather forcefully during the House debate preceding its passage:
I believe this legislation, in its current form, will do more harm than good. It will lead to fewer banks and financial service providers; increased charges and fees for individual consumers and small businesses; diminished credit for rural America; and taxpayer exposure to potential losses should a financial conglomerate fail. It will lead to more mega-mergers; a small number of corporations dominating the financial service industry; and further concentration of economic power in our country.
As progressive bloggers Pam Martens and Russ Martens rightly point out, much of what Bernie Sanders had argued would soon be proven correct. Barely a decade later, consolidation among big banks and financial institutions would remain in overdrive and the bright new economic future predicted by Summers and Clinton would come crashing down as the American public was called upon to bail out failing financial institutions. The chain of events spanning the repeal of Glass-Steagall to the 2009 crash prompted no less than the New York Times editorial board to admit it had been wrong to endorse the zeitgeist of deregulation.
Being wrong, even catastrophically so, has of course never been much of an impediment in American politics provided that the mistakes benefit the right people. Summers would soon find himself back at the commanding heights of government courtesy of Barack Obama (ironically enough during the meltdown of the very consensus he had helped to inaugurate). He also reportedly served in an advisory capacity for President-elect Joe Biden (who, incidentally, voted for Gramm-Leach-Bliley back in 1999) as recently as last May.
With Congress debating the prospect of $2,000 direct payments to Americans, and Sanders now threatening to halt a major defense bill until the Senate votes on the relief checks, the former Treasury Secretary has thus, predictably, emerged as a leading critic. “I don’t think the $2,000 checks make much sense,” Summers told Bloomberg News on Christmas Eve, adding:
In a way that’s quite unprecedented, we have stimulus already, much more than filling out the hole. And given that lots of the hole is from the fact not that people don’t want to spend but that 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. So I’m not even sure that I’m so enthusiastic about the $600 checks and I think taking them to $2,000 would actually be a pretty serious mistake that would risk a temporary overheat.
True to form, Summers couldn’t resist topping off his observations with a partisan snipe: “I have to say that when you see the two extremes agreeing, you can almost be certain that something crazy is in the air.”
The former Treasury Secretary is right, of course, that many Americans can’t spend. But for an unthinkable number the cause of the restraint has less to do with travel moratoriums or restaurant closures than it does with having no money. Most haven’t received direct cash aid from the federal government since a round of $1,200 checks went out last spring, and according to one recent analysis, as many as twenty-six million adults are now so low on cash and behind on their rent that they’re quite literally beginning to starve. This is to say nothing of a probable eviction wave, the possibility of widespread utility shutoffs, or the positively paltry benefits currently going to the unemployed.
No analysis of the present situation which takes a pass on these realities is worth a damn and (again true to form) Summers made a series of cold and technocratic arguments instead. Met with justified backlash, he took to the op-ed pages this weekend and, in a moment of accidental lucidity, managed to pepper his observations with some pretty fair questions:
Some argue that while $2,000 checks may not be optimal support for the post-Covid economy, taking stimulus from $600 to $2,000 is better than nothing. They need to ask themselves whether they would favor $5,000, or $10,000 — or more. There must be a limiting principle…. Perhaps bringing them somewhat above benchmark levels makes sense. But further adding to earnings when losses are being replaced seven times over seems hard to justify — especially at a time when pent-up savings totals $1.6 trillion and is rising. If writing universal checks is a good idea, why not do it after household incomes have reverted to normal?
Putting aside Summers’s baffling implication that there is already too much economic relief going out to households, some of these are good questions. $2,000 definitely won’t be enough money for millions of Americans and there are plenty of worse ideas than the federal government topping up incomes that have been stagnant for decades once the pandemic is over.
Nonetheless, these are not the issues at hand or the dynamics currently on the table. As New York Magazine’s Eric Levitz quite succinctly put it: “Donald Trump is not about to force Republican senators to support federalizing unemployment insurance. It’s $2,000 checks for almost all, or inadequate aid to the poor.” This is the choice at hand — which means that, as has been the case in almost every economic policy debate for the past thirty years, Bernie Sanders is right and Larry Summers is wrong.