Former Clinton Treasury Secretary and Economic Advisor to the Obama Administration Larry Summers has had a change of heart. After decades of promoting deregulation of the financial system that expanded the power of Wall Street, Summers now sees the dangers of rentier capitalism.
At a discussion on technology and the workforce hosted by the Hamilton Project Summers offered a detailed explanation for why the hope of education and training in alleviating inequality is misplaced. Summers identified the role of economic rent in the economy for explaining the problems America is facing.
I think that the broad empowerment of labor in a world where an increasing part of the economy is generating income that has a kind of rent aspect to it, the question of who’s going to share in it becomes very large. One of the puzzles of our economy today is that on the one hand, we have record low real interest rates, that are expected to be record low for 30 years if you look at the index bond market. And on the other hand, we have record high profits. And you tend to think record high profits would mean record high returns to capital, would also mean really high interest rates. And what we actually have is really low real interest rates. The way to think about that is there’s a lot of rents in what we’re calling profits that don’t really represent a return to investment, but represent a rent.
The question then is who’s going to get those rents? Which goes to the minimum wage, goes to the power of unions, goes through the presence of profit sharing, goes to the length of patents and a variety of other government policies that confer rents and then when those are received, goes to the question of how progressive the tax and transfer system is. That has got to be a very, very large part of the picture.
Where has this Larry Summers been? He may have disagreements with the one who helped ensure deregulation and made millions consulting for hedge funds.
Or should this be seen less as an epiphany and more as opportunistic adjustment to a new political reality? Summers is nothing if not agile with his various convictions. Maybe the move by Summers to highlight the dangers of rentier capitalism – articulated first by those Summers previously shunned – has become so mainstream and hegemonic that the Very Serious People want to at least make some gestures.
Regardless of the motivation, Larry Summers talking about the dangers of rent and the virtues of progressive transfers is, if nothing, entertaining.