And in other news this week…the conscience of Washington and other suburbs of Swampland has been awakened by the election of Donald Trump. For anyone who has had the good fortune to have been in a coma for the past six months, he's the one who got where he is today by making bribes. He beat the one who got where she is today by taking bribes. Anyway, that doesn't matter now. What does matter is that everyone involved now wants to claim the moral high ground. Today it was Larry Summers turn to warn us of the need to adhere to a rules based form of capitalism. He should know, and here he is: ‘Donald Trump’s deal with Carrier is deal-based capitalism’
“There are many aspects of the economic policy of the new administration that I find misguided. But I am most troubled by what President-elect Trump did with Carrier to hold on to an extra 700 jobs in Indiana…
Market economies can operate anywhere along a continuum between two poles. I have always thought of American capitalism as dominantly rule and law based. Courts enforce contracts and property rights in ways that are largely independent of who is before them. Taxes are calculable on the basis of an arithmetic algorithm. Companies and governments buy from the cheapest bidder. Regulation follows previously promulgated rules. In the economic arena, the state’s monopoly on the use of force is used to enforce contract and property rights and to enforce previously promulgated laws.
Even though we know of instances of corruption, abuse of power, favouritism and selective enforcement, we take this rules-based system for granted. But looking around the world today or back through American history, this model is hardly a norm. Many market economies operate what might be called ad hoc or deals-based capitalism: economic actors assume that they have to protect their property and do their own contract enforcement. Tax collectors use discretion in assessing taxes. Companies and governments buy from their friends rather than seek low cost bids. Regulators abuse their power. The state’s monopoly on the use of force is used to enrich and satisfy the desires of those who control the apparatus of the state.
This is the world of New York City under Tammany Hall, of Suharto’s Indonesia, and of Vladimir Putin’s Russia” – Larry Summers
Clearly no President should ever make a deal to guarantee a few hundred jobs. He should confine himself to making deals to guarantee jobs for ambitious academics...like...oh I don't know...wait a minute....what's this here in the memoirs of a certain Robert Rubin - 'In an uncertain world':
“I worked out a rather complicated proposal to make Larry comfortable with staying. I told him that my intention was to remain for two more years. I would try to get the President to agree that if I served two years into the second term, he would then name Larry as my successor—assuming, of course, that the President was still comfortable with Larry. If I left sooner, there would still be what lawyers call a “rebuttable presumption” in Larry’s favor. If I decided to stay longer, Larry could do as he saw fit....
But we had an agreement in principle. For it to work, though, absolute confidentiality was essential. The only people who knew about this arrangement, as far as I knew, other than the President, Larry, and me, were the Vice President — whose agreement was requisite and readily given — Erskine [Bowles], Sylvia, and Judy. For two and a half years, no hint of this understanding ever leaked — which was remarkable”
Now don’t get me wrong, I’m sure that doing a deal to get Larry Summers a promotion was far more beneficial to the nation that a few hundred Carrier jobs ever will be. Without the former there would have been no-one around to help the ex Goldman Sachs CEO Rubin to deregulate derivatives against the advice of Brooksley Born, thus laying the foundations for Goldman Sachs et al to make billions packaging up real estate junk, having it rated triple A, and sold on to investment vehicles owned by suckers like the people who work for firms like Carrier.
Of course, this was a one-off. There is absolutely no truth at all in the suggestion that ‘little deals’ were done, and are still being done, between the Treasury, Justice and Wall Street that result in hefty ‘fines’ and no jail time for senior Wall Street figures.
Yes folks, deals are definitely bad, which is why Professor Summers has railed against them for years. Thank God he has spoken up again.
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Wishing everyone a happy, restful, and deal free weekend…