David R. Henderson  

Who Said It? Larry Summers

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Free Trade Petition... Wisest Sentence of the Day...

In yesterday's post, I gave a long quote from the book, Commanding Heights, by Daniel Yergin and Joseph Stanislaw, and I asked who said it. Two of the commenters answered correctly: Larry Summers.

Here's the paragraph that follows the two paragraphs I quoted:

"As for Milton Friedman," Summers added, "he was the devil figure in my youth. Only with time have I come to have large amounts of grudging respect. And with time, increasingly ungrudging respect."

That quote from Summers reminds me of my take on Larry's views when we both worked in the Reagan White House under his mentor, Martin Feldstein. Here's what I wrote in the introduction to the second edition of The Concise Encyclopedia of Economics.

In fact, the story of how I first had the idea for an encyclopedia of economics involves Larry Summers. It was the fall of 1982, when he was a domestic policy economist and I was a senior staff economist under Martin Feldstein, the new chairman of President Ronald Reagan's Council of Economic Advisers. Several of us would sometimes lunch together and, of course, would mix it up on various issues. Macro-economics brought out a wide range of opinions. For instance, Larry and our colleague Paul Krugman, now a regular economics columnist with the New York Times, worried that the high deficits of the time would cause high inflation. Ben Zycher and Lincoln Anderson, fellow senior economists, and I were fairly confident that the policies would not cause high inflation because the Federal Reserve Board under Paul Volcker seemed to be keeping the growth of the money supply low. But on various microeconomic issues and on free trade we were almost completely unanimous. We all thought price controls are generally a bad idea. We all favored free trade and were critical of Reagan for his restrictions on Japanese auto exports to the United States. We often agreed that this or that government policy was counterproductive and that free people, left to their own devices, would work things out better than governments would. It was after one of those conversations that I started thinking that the world could use an encyclopedia. And an encyclopedia makes much more sense if there is agreement among the experts.
Interestingly, the difference between the liberals and the libertarians was less on the economic analysis and even the bottom-line policy conclusions than it was on our feelings about the bottom line. The libertarians--Anderson, Zycher, and I--loved it when the answer was that free markets work; and that was usually the answer. The liberals, Krugman more than Summers, seemed often upset when that was the answer; they seemed to want a big role for government.

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CATEGORIES: Economic Philosophy



COMMENTS (7 to date)
Rimfax writes:

In all fairness, did the libertarians get upset when government appeared to be the answer?

Giovani writes:

Depends. In military, or police or judicial fields government is obviously the answer for most of libertarians, and that is quite trivial. Simply, there should be minimal government providing public goods of protecting freedom, contracts, security etc. Outside those fields, government IS NOT the answer, so libertarians cannot be upset anyway.

johnleemk writes:

Giovani, is it really that straightforward? Yesterday, I was talking with a fellow libertarian about one of our libertarian professors, and I think my friend's description of the prof succinctly describes what I find problematic about a lot (though far from all) of modern libertarian thinkers: they generally have a sound basis for their reasoning, but they are too complacent about questioning that reasoning.

You can more or less predict what most libertarians will say on any public policy issue, because their confidence in the principles they adhere to has stopped them from thinking hard about the costs and benefits of a particular policy. It's gotten to the point where a number of libertarians believe there is never any role for government to play in an efficient economy; I once asked in the comments of this blog about why someone was saying that we do not need a government for national defense, and the only response was a link to the Wikipedia article on anarcho-libertarianism, as if that is somehow sufficient justification for ignoring the fundamental things we have learned from game theory and basic welfare economics.

If you accept the notion that there are prisoner's dilemmas when it comes to collectively-consumed goods and services like national defense, then you must surely at least be willing to consider the possibility that they exist in other areas too. When it comes to the environment, for example, doesn't the inability of people to enforce their property rights when it comes to air or water pollution call for some sort of government intervention? I find it hard to accept blanket statements that government has a clearly-defined role to play in X, Y and Z, and nowhere else -- while that may be true, such black-and-white categorical statements lead to complacency in examining our own reasoning.

James writes:

John,

You make an excellent point, but I think it applies more strongly to positions other than libertarianism. People who object to private thievery and extortion and violance always have such intellectually complacent objections.

For example, the difficulty of enforcing property rights to air and water makes it obvious that I should intervene by forcing people what I think they should do and by taking their money to fund the projects that I need to be funded.

Whenever I suggest this to people (libertarian or otherwise) who oppose private thievery and extortion and violence, they just fall back on their simplistic moral principles forbidding what I propose. They don't even want to look at the cost/benefit estimates that I paid a consultant to estimate.

This must just be attributable to intellectual laziness, right?

Steve Sailer writes:

"We all favored free trade and were critical of Reagan for his restrictions on Japanese auto exports to the United States."

And, yet, Reagan's restrictions on Japanese car imports led to the founding of an enormous industry of foreign-brand car factories in the U.S. Isn't it about time to re-assess the dogma?

Lukas writes:
And, yet, Reagan's restrictions on Japanese car imports led to the founding of an enormous industry of foreign-brand car factories in the U.S. Isn't it about time to re-assess the dogma?

Oh, please...

Richard A. writes:

"We all favored free trade and were critical of Reagan for his restrictions on Japanese auto exports to the United States."

The press during this time period was whipping up anti-Japanese hysteria. Could the press because of its anti-Japanese hysteria be indirectly responsible for the decision to restrict Japanese imports?

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