Home > ethics > The Larry Summers’ Memo

The Larry Summers’ Memo

from Lars Syll

The Memo

DATE: December 12, 1991
TO: Distribution
FR: Lawrence H. Summers
Subject: GEP

larry-summers-is-sleepy-three-thumb-480x350‘Dirty’ Industries: Just between you and me, shouldn’t the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]? I can think of three reasons:

1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. 

2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I’ve always though that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical generation) and that the unit transport costs of solid waste are so high prevent world welfare enhancing trade in air pollution and waste.

3) The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity. The concern over an agent that causes a one in a million change in the odds of prostrate cancer is obviously going to be much higher in a country where people survive to get prostrate cancer than in a country where under 5 mortality is is 200 per thousand. Also, much of the concern over industrial atmosphere discharge is about visibility impairing particulates. These discharges may have very little direct health impact. Clearly trade in goods that embody aesthetic pollution concerns could be welfare enhancing. While production is mobile the consumption of pretty air is a non-tradable.

The problem with the arguments against all of these proposals for more pollution in LDCs (intrinsic rights to certain goods, moral reasons, social concerns, lack of adequate markets, etc.) could be turned around and used more or less effectively against every Bank proposal for liberalization.

Postscript

After the memo became public in February 1992, Brazil’s then-Secretary of the Environment Jose Lutzenburger wrote back to Summers: “Your reasoning is perfectly logical but totally insane… Your thoughts [provide] a concrete example of the unbelievable alienation, reductionist thinking, social ruthlessness and the arrogant ignorance of many conventional ‘economists’ concerning the nature of the world we live in… If the World Bank keeps you as vice president it will lose all credibility. To me it would confirm what I often said… the best thing that could happen would be for the Bank to disappear.” Sadly, Mr. Lutzenburger was fired shortly after writing this letter.

Mr. Summers, on the other hand, was appointed the U.S. Treasury Secretary on July 2nd, 1999, and served through the remainder of the Clinton Admistration. Afterwards, he was named president of Harvard University.

The Whirled Bank Group

  1. March 13, 2015 at 3:45 pm

    Hausman and MacPherson: Economic Analysis, Moral Philosophy, and Public Policy. — they start out with this example to show that what appears to be objective cost benefit analysis is laden with hidden normative assumptions. The moral is that normative analysis is everywhere involved in economics, and THEREFORE, it is essential for economists to learn something about moral philosophy. Current economic methodology is terrible because normative statements are being made all the time without any awareness of this.

    • blocke
      March 13, 2015 at 5:47 pm

      We use to call this a liberal education, that preceded specialization in technocracies, you know, history, literature, great books, etc. general culture, a classical education. in the old Humboltian sense of moral order.

  2. BC
    March 13, 2015 at 4:26 pm

    Economics is politics. Politics is war by other means. War is the business of empire. War is good business for imperialists. War and business are “amoral”.

    Ergo, economics is politics is war is the amoral business of empire.

    Thus, economists are imperial ministerial intellectuals charged with devising rationalizations to affirm, support, and reinforce the amoral values, norms, and objectives of the rentier Power Elite top 0.001-0.1%

  3. Ack Nice
    March 13, 2015 at 6:56 pm

    Summers’ actions are even worse than his rancid spewings. 2 cases to illustrate:

    http://www.pbs.org/wgbh/pages/frontline/warning/view/#morelink

    at that link you can read that a most admirable woman, Brooksley Born, tried desperately to warn the world about derivatives – in the 1990’s – !! (speaking of dire warnings from years ago)

    Larry Summers, taking orders from his gang of banksters, stopped her.

    Had Brooksley Born been listened to instead of marginalized and silenced by the likes of Summers-the-Creepy, the world might have learned in time that (as an unknown commenter said somewhere):

    “derivatives are sort of like a horse race where you don’t bet on the horse to win, place or show, or the amount of sweat on the horse as it gallops by the finish line, or even on the smell of the sweat on the horse as it gallops by the finish line; with derivatives, you bet on what other people will THINK of the smell of the sweat on the horse as it gallops by the finish line. And then you sell bets with or against those who are betting against the guys who have the IOUs of the guys who bet people will think the horse-sweat smells sweet or against the guys who have the IOUs of the guys who bet people will think the horse-sweat doesn’t smell sweet. Or both. Or all of them.”

    (I loved that wicked-apt comment so much I saved it) – – but back to our education about Larry:

    In his book about Enron, Conspiracy of Fools, Kurt Eichenwald describes Summers’ role in the early stages of the California energy crisis when the state was suddenly faced with power shortages and energy costs that were soaring up to 20 times normal levels. Then-Governor Gray Davis, convinced that Enron and others were manipulating the market, begged the federal government to intervene.

    Even as blackouts shut down dialysis machines and traffic lights from Sacramento to San Diego, Summers and the Federal Reserve chairman, Alan Greenspan, decided to take a few moments to teach the California governor a lesson or two about free markets. In an emergency meeting the day after Christmas 2000, Summers and Greenspan, responding to the governor’s complaints about corporate tampering, lectured the governor that price manipulation was only possible because California had improperly regulated its markets. They urged the governor to take it easy on Enron and the other power companies because, in effect, being too critical of them might make them reluctant to do business in California. Summers and Greenspan pressured the governor to remove state caps on consumer rates.

    A second meeting took place a few weeks later, via video teleconference, with Summers, California’s governor, and energy providers —including Enron’s Ken Lay. This time, Summers not only called for consumer rate increases, he also urged the governor to reassure the markets by relaxing environmental controls (Ken Lay’s suggestion) so that more power plants could be built quickly.

    Once again, the California governor protested, refusing to raise electricity rates for consumers, declining to eviscerate environmental controls, and instead requested federal price caps on the electricity that power companies sold to California. Remarkably, Summers defended the energy executives, including Ken Lay, as doing “a pretty good job” of serving California, and dismissed the possibility that they were colluding to drive prices up —even though, as we know now, that’s precisely what they were doing, Summers disparaged the governor’s plan; it wouldn’t work because such government intervention would inevitably “distort the market,” he said.

    Blackouts increased throughout California and energy prices continued to soar until, finally, in the spring of 2001, federal regulators imposed price caps on not just California but on all of the western states.

    – –

    Like I said, Larry Summers is a madman – a stark raving imbecile. Doesn’t take a PHD in anything to see it and say it. Just takes honesty.

    Put a just cap on personal fortunes to prevent the next and the next and the next Larry Summerses from circumventing Justice through legal thievery – and getting rewarded for stealing.

    Now *there’s* an idea…

    • Herb Wiseman
      March 13, 2015 at 11:34 pm

      One of the founders of COMER, William Krehm (now 101 years old) criticized derivatives in the 90s also. We often get marginalized even when we sue the Bank of Canada!

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