Larry Summers is Not in Charge

So why is he trying to stifle Modern Monetary Theory?

White House National Economic Council Director Larry Summers at an important meeting in 2009. (Chip Somodevilla/Getty Images)

On Sunday, The New York Times profiled Stephanie Kelton, an economist at Stony Brook University and a leading advocate of Modern Monetary Theory (commonly known as MMT). According to the newspaper,  MMT “posits that if a government controls its own currency and needs money—to make sure its citizens have food and places to live when, say, a global pandemic pushes many out of work—it can just print it, as long as its economy has the ability to churn out the needed goods and services.” The article situates MMT as a heterodox idea within the field of economics, but one that is gaining traction in politics.

Former US Treasury Secretary Larry Summers, himself a very public economist and subject to many political controversies in his years of public service, had an allergic reaction to the article. He tweeted out a long response that boiled down to saying that MMT was a crackpot idea unworthy of being treated seriously by the Times.

Lawrence H. Summers @LHSummers

I am sorry to see the @nytimes taking MMT seriously as an intellectual movement. It is the equivalent of publicizing fad diets, quack cancer cures or creationist theories.

nytimes.comIs This What Winning Looks Like?Modern Monetary Theory, the buzziest economic idea in decades, got a pandemic tryout of sorts. Now inflation is testing its limits.

In his Twitter thread, he compared MMT to creationism and contrasted it to other forms of heterodoxy (Marxist and post Keynesian scholarship) that did deserve an airing. Quick to establish his intellectual large-mindedness, Summers claimed, “I am all for intellectual diversity and wish that the NYT would give more attention to Marxist scholars like Steve Marglin, whose book Raising Keynes deserves extensive debate, or other left scholars like Tom Palley, Dean Baker or Jamie [James] Galbraith.”

There are many problems with Summers arguments. For one thing, some of the economists he cites as examples of probity worthy of having their ideas aired (notably Dean Baker and James Galbraith) take a very favorable view of MMT, which they see as belonging on the continuum of Keynesian analysis. On June 9, 2020, Baker praised for an op-ed Kelton wrote in The New York Times. “Great piece laying out the basic Modern Monetary Theory account ( I would say also Keynesian),” Baker wrote in a tweet. “It would be great if we could get the 60 Reps who want to crash the economy to read it.” In a 2020 column, Galbraith praised MMT as “an example of good economics made popular, accessible, and democratic.”

In short, if Summers is saying that Baker and Galbraith are serious scholars who deserve being debated and Baker and Galbraith say MMT has validity, then there is no ground to summarily dismiss MMT as crackpottery unworthy of attention.

As it happens, Summers’ call to deplatform MMT falls into a pattern: Summers has a long history of haughtily rejecting voices who deserve hearing. Binyamin Appelbaum, in his fine book The Economists’ Hour (2015), documents how in 1998 while serving as Deputy Treasury Secretary, Summers shut down efforts to regulate the banking industries abuse of credit derivatives, a root cause of the 2008 global economic collapse. The efforts were led by Brooksley Born, the head of the Commodity Futures Trading Commission (CFTC). Summers called Born into his office and screamed “I have 13 bankers in my office who tell me you're going to cause the worst financial crisis since the end of World War II.” In fact, the scuttling of this reform insured that banking abuses continued, leading to a collapse that did end up being the worst financial crisis since, well, the end of World War II.

In a 2005 conference celebrating Federal Reserve head Alan Greenspan—a man who shared all of Summers’ illusions—University of Chicago economist Raghuram Rajan suggested that financial innovations (such as the de-regulated credit default swap market) were increasing risk. Summers dismissed Rajan as “slightly Luddite.” As Applebaum notes, “Summer, echoing his attack on Born a few years earlier, added that even talking about these things was disruptive.” 

Larry Summers has rarely, if ever, been upheld as an exemplar of intellectual humility. One could, in fact, make a much longer list of Summers displaying belligerent arrogance. There was 1991 memo he signed claiming, “the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable.” Summers later claimed that the memo was drafted by an underling and used “inflammatory” language to make a theoretical point rather than advance a policy agenda. 

There’s also the many controversies around Summer’s tumultuous tenure as president of Harvard from 2001 to 2006, which ended with a faculty revolt that forced Summers to resign. 

As I noted in a 2020 Nation column:

Summers’s stormy tenure as president of Harvard University from 2001 to 2006 was cut short by a faculty revolt, motivated by his browbeating of African American professors such as Cornel West, his claim that women weren’t doing well in the sciences because of innate cognitive inferiority in their math skills, and his support of a protégé who had run roughshod over conflict-of-interest regulations while running an economic reform program in Russia. (In recent years, a fresh controversy has emerged from Summers’s tenure as Harvard president involving donations from the notorious child molester Jeffrey Epstein).

All these controversies have led Summers to lose status. It’s unlikely that he’ll ever hold a high government post again, not least because any hearings would lead to the resurfacing of these sordid matters.

But despite his diminished reputation, Summers still thinks he deserves to decide which economic theories deserve to be publicly debated. He retains easy access to many journalistic venues and has used his prominence to make comments undermining Joe Biden’s Build Back Better agenda and any other expansive attempt at economic reform.

Is Summers right that MMT is crackpottery? That’s an issue for economists and policymakers to debate rather than something for Summers to arbitrate. But it’s worth thinking about the role of heterodox thinking in economics. 

In the 1930s all sorts of heterodox panaceas flourished with the promise of solving economic distress: social credit, the Townsend Plan, and technocracy. Many of these ideas are fairly described as crank remedies. But their popularity forced the political elites of many countries to come to terms with the fact that there was a system wide economic problem, one not amenable to traditional solutions. This agitation opened the path for genuine solutions: greater social democracy and Keynesian management of the business cycle. 

Whatever the merits or demerits of MMT, it is serving the same role of agitating for new solutions and expanding policy debate. Someone with a pronounced bias towards the status quo, such as Summers, is naturally hostile to this expansion of the intellectual horizon. But there’s no reason to listen to Larry Summers on this.

(Edited by Emily M. Keeler)

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