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larry summers
'Awful News for Humanity': Alarm as Larry Summers Joins OpenAI Board
“There is no greater indication that OpenAI is unserious about the interests of humanity than their elevation of Larry Summers to its board of directors," said one watchdog.
Nov 22, 2023
News that OpenAI co-founder Sam Altman will be returning to the artificial intelligence startup just days after he was ousted by the firm's board of directors was accompanied by the announcement Tuesday of a new initial board consisting of three individuals—one of whom is the Wall Street-friendly economist and former U.S. Treasury Secretary Larry Summers.
Given Summers' record of fighting tougher regulations for risky financial instruments and—more recently—his incorrect predictions about the trajectory and stubbornness of inflation in the U.S., his elevation to the board of a company whose AI work has profound implications for the future of humanity drew immediate alarm.
The Revolving Door Project, a progressive watchdog group whose research has uncovered Summers' deep corporate ties, called his selection to the OpenAI board "awful news for humanity."
"There is no greater indication that OpenAI is unserious about the interests of humanity than their elevation of Larry Summers to its board of directors," said Jeff Hauser, the group's executive director. "Summers energetically promotes cryptocurrency, inflation hysteria, and himself with equally misplaced ardor."
Economist and journalist Nomi Prins wrote on social media that Summers "holds the top spot of those responsible for the 2008 financial crisis," alluding to his opposition to more strictly regulating financial derivatives that fueled the economic collapse.
"If AI is to be focused on human policy and care, he's a dustbin for deregulation and recklessness," Prins argued. "As president of Harvard in 2005, Summers launched a disgusting tirade on women in math and science and seemed to believe it was based on 'research in behavioral genetics.' You want Larry to be involved with steering AI forward with human consideration?"
"Summers' ascent to the heights of AI should accelerate concerns that AI will be bad for all but the richest and most opportunistic amongst us."
OpenAI's decision to reinstate Altman as CEO under a new board consisting of Summers, former Salesforce co-CEO Bret Taylor, and Quora chief executive Adam D'Angelo came less than a week after the previous board removed Altman, sparking an immediate employee revolt.
The chaotic leadership shuffle at the $90 billion company was the culmination of infighting that had been building for more than a year, with some of the tensions surrounding Altman's pursuit of commercial expansion at the potential expense of safety, according toThe New York Times.
"The tension got worse as OpenAI became a mainstream name thanks to its popular ChatGPT chatbot," the Times reported Tuesday. "At one point, Mr. Altman... made a move to push out one of the board's members because he thought a research paper she had co-written was critical of the company. Another member, Ilya Sutskever, thought Mr. Altman was not always being honest when talking with the board. And some board members worried that Mr. Altman was too focused on expansion while they wanted to balance that growth with AI safety."
Wirednoted last week that "disagreements over the issue of prioritizing safe development of AI previously led several prominent OpenAI researchers to leave the company and found competitor Anthropic."
Earlier this year, Altman joined a number of industry leaders in signing a letter declaring that "mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war." But researchers have warned that the guardrails put in place at OpenAI are badly inadequate, particularly given the current regulatory vacuum in the U.S.
Last month, U.S. President Joe Biden signed an executive order aimed at bolstering AI safety standards, a move that watchdogs welcomed as a positive first step that must be followed by more ambitious action.
It's unclear precisely what influence Summers will have on the direction of OpenAI or artificial intelligence development more broadly.
As Bloomberg observed Wednesday, "The few comments he has made about AI have centered on the labor impact."
"In 2018, Summers disputed the claims from then-Treasury Secretary Steve Mnuchin that AI would not replace American jobs for 50 to 100 years," Bloomberg noted. "The robots are coming,' Summers wrote in The Washington Post. That year, he also warned of economic catastrophe if the U.S. 'loses its lead' in biotech and AI to China."
Last year, Summers told Bloomberg TV that "we are living in truly historic times" and said the AI revolution carries "opportunities and threats," adding that there's "no assurance at all" that advances in artificial intelligence will usher in progressive outcomes.
Critics suggested that with Summers involved in the management of OpenAI, the chances of guardrails operating in the public interest, as opposed to corporate profits and dominance, are worse.
"Summers' ascent to the heights of AI should accelerate concerns that AI will be bad for all but the richest and most opportunistic amongst us," said Hauser.
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Why the Economic Doomsayers Were Wrong
The macroeconomic situation today has confounded both those who called for interest rate hikes and those who warned against them.
Aug 14, 2023
Back in 2021 and early 2022, a posse of prominent economists—including Lawrence H. Summers, Jason Furman, and Kenneth Rogoff, all of Harvard—criticized the Biden administration’s fiscal and investment program, and pressured the U.S. Federal Reserve to raise interest rates. Their argument was that inflation, fueled by federal spending, would prove “persistent,” requiring a sustained shift to austerity. Unemployment, sadly, would have to rise to at least 6.5% for several years, according to one study touted by Furman.
While this trio (and many like-minded commentators) failed to sway the White House or Congress, they were in tune with Fed Chair Jerome Powell and his colleagues, who began hiking interest rates in early 2022 and have kept at it. The Fed’s rapid monetary-policy tightening soon prompted progressives, led by Senator Elizabeth Warren of Massachusetts, to fear that it will trigger a recession, mass unemployment, and (though they didn’t say it) a Republican victory in 2024.
But the macroeconomic situation today has confounded both positions. Contrary to those advocating austerity, inflation peaked on its own in mid-2022 (owing partly to sales from the U.S. Strategic Petroleum Reserve). There was no persistence, no surge from the 2021 fiscal stimulus, and no wage-driven inflation from low unemployment. The models and historical precedents that the Harvard trio had relied on clearly no longer apply (if they ever did).
The “fiscal channel” for interest-rate payments is an inconvenient concept for those who wring their hands over the “burden” of public debt.
There also has been no recession, unemployment has not risen, and higher interest rates have not deterred business investment. Residential construction took a hit, but the construction sector overall soon shook that off, and the banking crisis earlier this year has not led to financial contagion. A recession remains possible, of course, but so far there are very few warning signs.
These happy circumstances have led some observers to congratulate Powell and the Fed on achieving a “soft landing.” But crediting the Fed is magical thinking. There is no way, under any theory or precedent, that rate hikes beginning in January 2022 could have knocked back inflation by July of the same year. Whatever its consequences down the road, the Fed’s policy tightening has been irrelevant to the inflation slowdown so far.
But why haven’t 18 months of rising interest rates had any perceptible effect on employment, investment, or growth? That is as much of a puzzle for progressives as the fall of inflation is for austerians—especially considering that the pandemic-driven boost to household savings has ended, and Congress has started cutting back modestly on various spending programs.
Part of the answer surely lies in new tax incentives for investment, notably in semiconductors and renewable energy. But those sectors are fairly small, and their growth will have accounted for perhaps a hundred thousand jobs. Another part of the answer may lie in direct investment by companies fleeing Europe’s industrial decline, itself a byproduct of sanctions against Russia. But, again, these numbers cannot be very large.
What else is going on? One factor, suggested to me by Robert Aliber, an emeritus professor of economics and international finance at the University of Chicago, is that the top quarter of U.S. households became cash-rich during the pandemic. These households represent the largest share of U.S. purchasing power, and their spending is largely immune to high interest rates.
Another suggestion comes from Warren Mosler—the godfather of Modern Monetary Theory—who notes that U.S. national debt has risen to nearly 130% of GDP, up from about 60% in the early 2000s. The net interest paid on that debt increased by 35% from 2021 to 2022—reaching 2% of GDP—and about 70% of those payments went to the U.S. private sector. If one adds the effect of interest paid (starting in 2008) on $3 trillion in bank reserves, the fiscal support through this channel has been substantial.
History supports Mosler’s conjecture. Back in 1981, U.S. federal debt was only about 30% of GDP, and much of it was in fixed-interest, long-term bonds, with no interest paid on bank reserves. As a result, then Fed Chair Paul Volcker’s shockingly large interest-rate increases mostly hit private debtors and business investment, and the offsetting fiscal boost from interest payments was small.
In contrast, when the federal debt exceeded 100% of GDP in 1946, almost all of it was in war bonds held by U.S. households. Despite yielding only 2% in interest, those bonds provided a boost to private incomes and a base for mortgage borrowing through the 1950s—a time of largely stable middle-class prosperity.
The “fiscal channel” for interest-rate payments is an inconvenient concept for those who wring their hands over the “burden” of public debt. It suggests that Powell’s rate hikes may bepowerless to slow GDP. Indeed, additional rate increases could even be expansionary, at least up to a point.
As in other extreme cases—like Argentina, where interest payments amount to a quarter or more of GDP—rate hikes will increase costs for businesses, pushing up prices, and also apply price pressures on fixed assets (land, minerals, oil) that will show up in our inflation measures. That, in turn, will discourage saving, spur borrowing, and impel the Fed to raise rates even more.
Over time, this process will lead toward economic chaos. But, if this narrative has merit and high interest rates don’t bring on the recession that the Fed so clearly desires, it will be difficult to change course. Ideology and habit can nurture the hope that doubling down on an ineffective policy will make it work.
What might stop this dynamic? One answer is severe fiscal austerity, with budget cuts used to provoke the recession that interest rates have failed to bring about. We are already seeing pressure for this option from Wall Street. Last week, Fitch downgraded its credit rating on U.S. sovereign debt, in a move clearly timed to scare Congress as its budget deadlines approach. Such a policy shift, if it is strong enough, would complete the ongoing obliteration of the American middle class.
Obviously, it would be better to do the opposite—to empower the middle class and disempower the bankers. That would means cutting interest rates while regulating new credit flows, controlling strategic prices, and strengthening fiscal support for household incomes and well-paying jobs. People with decent and secure incomes can reduce their reliance on unstable loans.
That is what we ought to do. But don’t hold your breath.
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With Inflation Down, Economists Demand Fed Permanently Halt 'Dangerous Rate-Hiking'
"As interest rates have risen to 'cool' the economy, who do you think has shouldered the burden? Working people," said Robert Reich. "There's no reason to continue punishing them when they aren't to blame for inflation."
Jun 14, 2023
After the latest consumer price index update signaled cooling inflation, the Federal Reserve's interest rate-setting committee on Wednesday temporarily paused hikes, an approach that progressive economists and others want the panel to continue.
The Federal Open Market Committee confirmation that, as expected, it will keep the federal funds rate at 5-5.25% follows 10 consecutive hikes since early 2022 that have increasingly generated concerns of a recession and major job losses.
University of California, Berkeley professor and former Labor Secretary Robert Reich is among the fierce critics of recent rate hikes.
"The Federal Reserve is pausing interest rate hikes for the time being. Good," Reich said Wednesday. "As interest rates have risen to 'cool' the economy, who do you think has shouldered the burden? Working people. There's no reason to continue punishing them when they aren't to blame for inflation."
\u201cInflation climbed 4% in the year through May.\n\nInflation is slowly but surely coming back down to pre-pandemic levels. The Fed should NOT use today\u2019s news as justification for further rate hikes that will do more harm than good.\n\nhttps://t.co/GbN5xMvQEO\u201d— Patriotic Millionaires (@Patriotic Millionaires) 1686690300
U.S. Sen. Elizabeth Warren (D-Mass.) has also repeatedly raised alarm about the increases since last year and welcomed the newly announced pause while urging a long-term shift in strategy.
"With inflation falling by more than half since last summer, the Fed has finally heeded calls to halt its extreme rate hikes," she tweeted. "The Fed raised interest rates at the fastest pace in decades and it needs to maintain this pause or risk throwing millions of Americans out of work."
Groundwork Collaborative chief economist Rakeen Mabud, another longtime opponent of the Fed's rate-hiking, said in a statement Wednesday: "Inflation is down and the job market remains strong. We never had to choose between lower prices and a strong labor market."
Mabud urged Powell to "concede that you don't have to destroy the labor market to bring down prices," which she said "starts with not only skipping today's rate hike, but permanently halting this dangerous rate-hiking campaign."
Meanwhile, Groundwork Collaborative executive director Lindsay Owens highlighted a piece from Intelligencer's Eric Levitz which declares that Harvard University economist and former Treasury Secretary Larry Summers "was wrong about inflation."
\u201cRare to see good accountability journalism. Nice to see @EricLevitz taking on this important topic. He\u2019s right\u2014Larry Summers was wrong about the need to drive millions out of work to bring down inflation. Progressives were right. We never had to choose. https://t.co/cI7bxkAYGp\u201d— Lindsay Owens, PhD (@Lindsay Owens, PhD) 1686755223
"Larry Summers was right to anticipate impending inflation in February 2021. But from the beginning, his analysis was predicated on the idea that excessive stimulus would lead to unsustainably low unemployment and thus wage-driven inflation," Levitz explained. "There has never much reason to believe that the labor market was the primary driver of post-Covid price growth. And at this point, it's abundantly clear that, in 2023 America, a tight labor market will not inevitably trigger a wage-price spiral. We do not need to put millions of people out of work in order to contain inflation. Larry Summers was wrong to say otherwise."
Sharing the Intelligencer analysis on Twitter, Owens and Mabud's group wrote that "Larry Summers presented us with a false choice between strong labor markets and inflation. Groundwork said it then and we'll say it again: We never had to choose."
Despite progressive experts' demands for an end to interest rate hikes, Federal Reserve officials are projecting two more quarter-point increases this year. According toThe Associated Press, Fed Chair Jerome Powell told reporters Wednesday that "given how far we have come, it may make sense for rates to move higher but at a more moderate pace."
Throughout the rate-hike campaign, critics have called out Powell and others for ignoring how corporate greed is driving inflation. The Hillnoted that during the Wednesday press conference, he did not mention "the role that profits are playing in the current phase of inflation, despite mentions of 'unusually high' profits in the latest anecdotal summary of U.S. economic conditions in the Fed's beige book."
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