I find it very frustrating that he is still trying to analyze this as "stimulus" to deal with a "GDP gap".
When a hurricane hits and knocks down a bunch of buildings and destroys power lines, in the subsequent year you're probably going to have abnormally high investment in infrastructure, housing, etc. That's not stimulus. It's disaster relief. So too with the COVID spending.
And sure, it may lead to _temporary_ inflationary pressure, because while that repair is going on, wages in related the industries will get bid up, and people in other industries will have to look around for ways to be more efficient (like placing orders at restaurants through your phone -- which I've experienced at a couple local places, and it's great). But, come on, wages for the working class getting bid up? That's very much in the realm of, "We're being shot with a water cannon, on a hot day, and it's great." We should be so lucky.
It doesn't matter whether you call it a stimulus or disaster relief, if it causes stagflation that's just as bad. This is not to say that Summers is correct, ultimately he's just speculating, but it is a little unsettling to notice that things have not gone the way the pro-big-spending side of this debate expected so far, and that the pro-big-spending side doesn't seem to even acknowledge the possibility that oversized relief spending could possibly cause inflation.
I mean sure, the name you use doesn't matter if it's not an accurate description, but the point is that government spending to fill in a demand shortfall (e.g. because people's appetite for risk has suddenly changed and so they cut back spending on both consumer goods and investments) is _a different thing_ from government spending to re-build when things are damaged. Just calling this a "stimulus package" obscures that difference. Similarly, if you spend $20k on a new car, that is a long-term investment that will presumably provide benefits for years to come; it's a very different thing from blowing $20k on a night at a casino. Calling the latter "an investment" would be inaccurate, but just calling them both "spending" would obscure the difference.
But despite being disaster relief, this is the exact type of spending (giving cash to consumers mostly) that should be expected to have a stimulative effect. I suspect that's all Summers means by calling it "stimulus."
I'm not certain what you're specifying with "this", but if you mean Biden's second reconciliation bill, the one that is supposed to invest in "human infrastructure" -- sure, there are definitely elements of it (like making the child text credit permanent) that are pure demand-side stimulus, and would likely have the effect you're thinking of.
But disaster relief type spending _really doesn't_, and if you believe that the temporary spending to, say, help restaurants avoid going bankrupt, has that "stimulative" effect, then you have misunderstood something really fundamental about macroeconomics.
In order to get something like the '70s stagflation, you need for people broadly to start embedding expectation of the next round of inflation into their behavior. When you do disaster relief, everyone _expects_ the spending to end. When you blow a bunch of money re-building a town that got flooded, _everyone knows_ that the new higher level of spending is temporary; once stuff is built back, the spending will stop. So they don't make hiring/firing and pricing decisions based on the assumption that it's permanent.
Year-over-year nominal wage increases have definitely ticked up, but not into worrisome territory. There are a lot of stories about employers offering some kind of signing bonus or other hiring perks -- but critically, they are NOT offering a permanently higher base rate of pay. This looks like employers who understand we're going through temporary shortages, but are not expecting a long-term regime of higher inflation.
This is not to say we should be completely complacent. But the Fed is _not_ being complacent; they're tracking various different measures of inflation and I'm sure if nominal wage growth or some of their measures of "super-core" inflation started to tick up, they would respond with higher rates. Worrying about "stimulus" from spending that is _not stimulus_, though, makes the conversation about the issues _actively worse_.
I agree with some of this, but you don't think $1,400 checks, and expanded unemployment insurance that didn't expire until months after most people who wanted vaccines had been vaccinated, is effectively stimulus? For most people who received these benefits they went way beyond what was actually needed to remediate the effects of the disaster.
My position on the unemployment thing is that instead of extending it ad hoc, we really should make more-generous unemployment into an Automatic Stabilizer, that expands and contracts in response to some measurement of economic conditions (perhaps the Sahm Rule).
And on the $1,400 checks, I think putting so much money into that was bad policy (poor targeting of funds, when we actually did still need more disaster relief money), but it seems to have been good politics -- and we go to the polls with the electorate we have, not the one we might want or wish to have.
Also, FWIW, I favor a Universal Basic Income -- I think UBI plus a very generous negative income tax on early dollars of income, to make working marginal jobs worthwhile, would be a better policy than minimum wage. The idea is that you're not going to starve in the streets if you tell an employer to "take this job and shove it", because of the UBI, but the subsidy from the negative tax means that if an employer has some work that would yield marginal value to the business, even just a few bucks an hour, they can farm out that kind of odd job and find a taker, because the wages plus the tax subsidy add up to enough to be worthwhile.
Regardsless, I don't think anyone expects the $1,400 / $2k-total checks to become a monthly event. So again: This is not the sort of thing that gets priced into future business decisions. It _can't_ lead to stagflation. Some of it probably really did help prevent demand collapse, since there were an awful lot of people in weird, personalized hard circumstances who weren't being picked up by other programs. A lot of it probably went to a one-off blip in savings rates.
In any case, the point is that Summers here is treating the _entire bill_ as though all of it was pure demand-side stimulus, when in fact a fair bit was something else. That's macroeconomic malpractice, and he ought to know better.
Why does anyone listen to Larry Summers at all? He's been WRONG about almost everything! How many times can an expert be wrong and still retain credibility? Apparently, that number is infinite. A possible solution would be - oh - I don't know - to STOP INTERVIEWING HIM!!
You know what's wrong with Larry Summers, is that he is a genius that doesn't update his worldview. This interview unveils that so obviously especially when talking about inflation. He has been blown out of the water by modern economists like Claudia Sahm on this subject and still clings to his outdated views even now. Its almost like his brain is ossified in 1989.
I agree with Larry that the Fed has been overstimulating housing. My impression is that this is deliberate compensation for sectors that for nuts-and-bolts reasons can't bounce back as quickly - as in, if these are responding well to stimulus and those aren't, let's overstimulate these and get a more normal-looking average. This explains also the boom in used car prices: Monetary stimulus goes most directly towards assets and the most durable and expensive goods, but new cars is one of the sectors that can't bounce as quickly, so there's been a big stimulus spill-over into used cars.
Where his argument gets fuzzy is when he gets into the fiscal debate and tries to frame it in numbers.
"As of the beginning of the year, it looked to me like worker incomes were running $30 billion a month below trend and this [gap] was rapidly declining. Against this gap, we were adding a stimulus program that would spend out 150 billion a month or more ..."
What is "worker incomes" and what is its "trend"? The implication is that since the working class tends to spend nearly all its income, to avoid inflation we should take care especially not to overstimulate working class income. But it's anyone's guess how Summers is measuring it and its trend, and so hard to say whether his figure of $30b/month and quickly falling as of early 2021 is correct and meaningful or misleading. And what is this "$150b/month or more"? A combination of the extension of pandemic unemployment benefits and $1400/capita cash stimulus adopted in early 2021? Perhaps together with some estimate of the monthly spending impact of infrastructure supplemental spending that was proposed in early 2021 and still hasn't been adopted? Who knows. It's just some numbers grabbed from somewhere that sound important but probably aren't.
This sort of superficial numerical showmanship isn't just Summers' problem. It's a 21st century cultural problem: the human race is >99% macroeconomically illiterate, and politicking on macroeconomic policy is theatrical tending towards shamanistic. Even our financial journalists are clueless: they can't even write in consistent units or distinguish stocks from flows. Really the only place one can read macroeconomic news by literate writers is in financial industry research notes that are not publicly distributed. Summers might well have a case on fiscal policy but from this interview I don't get it.
How does one stop giving addicts their fix without causing them to freak out?
Or, how does the Fed stop feeding Wall Street $120 billion a month in free money when they've been feeding WS free money since 2008?
What I get from an interview with an economist is they don't really know, which is why we need to hear more from sociologists and social planners. Economics might be a better fit in the philosophy department as a sub-category under Logic than in the business departments. ;)
However, I did like some of his policy suggestions, but the flailing POTUS has lost so much political capital at this point, I don't see it happening.
Lastly, did anybody know that the top felony bank (JP Morgan Chase) in the country was using its own cryptocurrency for international transactions?
I just discovered this yesterday. Wondering if the Fed and bank regulators have investigated a bank known for laundering money is using unregulated cryptocurrency they created. It would be an obvious red flag.
I don’t see much useful in this interview. There’s a lot of “I said this at the time” and “let’s say” but little concrete analysis. He did make one clear prediction on growth. Frankly, interviews like this make me question why I should pay for this substack.
I think the justification was that you'd have these academic conferences that would be held at event-center hotels, using the various ballrooms and meeting rooms, and then also since this brought together a bunch of professors and grad students, you'd schedule job interviews during them. And there aren't that many small spaces available at these hotels, and a lot of the small meeting rooms are already scheduled by the conference participants for other reasons. So either you're going to pay for another space, or meet in a space that isn't private (like the a restaurant / cafe / bar), or you use the interviewer's room. And speaking as somebody who's a bit of an introvert and a bit ADHD, trying to interview in a cafe sounds terrible. So I get how they arrived at this solution. But I also get why it has to stop -- WAY too many awful men trying to turn interviews into "casting couch" situations.
I find it very frustrating that he is still trying to analyze this as "stimulus" to deal with a "GDP gap".
When a hurricane hits and knocks down a bunch of buildings and destroys power lines, in the subsequent year you're probably going to have abnormally high investment in infrastructure, housing, etc. That's not stimulus. It's disaster relief. So too with the COVID spending.
And sure, it may lead to _temporary_ inflationary pressure, because while that repair is going on, wages in related the industries will get bid up, and people in other industries will have to look around for ways to be more efficient (like placing orders at restaurants through your phone -- which I've experienced at a couple local places, and it's great). But, come on, wages for the working class getting bid up? That's very much in the realm of, "We're being shot with a water cannon, on a hot day, and it's great." We should be so lucky.
I agree.
That is too true for words...
It doesn't matter whether you call it a stimulus or disaster relief, if it causes stagflation that's just as bad. This is not to say that Summers is correct, ultimately he's just speculating, but it is a little unsettling to notice that things have not gone the way the pro-big-spending side of this debate expected so far, and that the pro-big-spending side doesn't seem to even acknowledge the possibility that oversized relief spending could possibly cause inflation.
I mean sure, the name you use doesn't matter if it's not an accurate description, but the point is that government spending to fill in a demand shortfall (e.g. because people's appetite for risk has suddenly changed and so they cut back spending on both consumer goods and investments) is _a different thing_ from government spending to re-build when things are damaged. Just calling this a "stimulus package" obscures that difference. Similarly, if you spend $20k on a new car, that is a long-term investment that will presumably provide benefits for years to come; it's a very different thing from blowing $20k on a night at a casino. Calling the latter "an investment" would be inaccurate, but just calling them both "spending" would obscure the difference.
But despite being disaster relief, this is the exact type of spending (giving cash to consumers mostly) that should be expected to have a stimulative effect. I suspect that's all Summers means by calling it "stimulus."
I'm not certain what you're specifying with "this", but if you mean Biden's second reconciliation bill, the one that is supposed to invest in "human infrastructure" -- sure, there are definitely elements of it (like making the child text credit permanent) that are pure demand-side stimulus, and would likely have the effect you're thinking of.
But disaster relief type spending _really doesn't_, and if you believe that the temporary spending to, say, help restaurants avoid going bankrupt, has that "stimulative" effect, then you have misunderstood something really fundamental about macroeconomics.
In order to get something like the '70s stagflation, you need for people broadly to start embedding expectation of the next round of inflation into their behavior. When you do disaster relief, everyone _expects_ the spending to end. When you blow a bunch of money re-building a town that got flooded, _everyone knows_ that the new higher level of spending is temporary; once stuff is built back, the spending will stop. So they don't make hiring/firing and pricing decisions based on the assumption that it's permanent.
And what do we see in wage data currently?
https://www.atlantafed.org/chcs/wage-growth-tracker
Year-over-year nominal wage increases have definitely ticked up, but not into worrisome territory. There are a lot of stories about employers offering some kind of signing bonus or other hiring perks -- but critically, they are NOT offering a permanently higher base rate of pay. This looks like employers who understand we're going through temporary shortages, but are not expecting a long-term regime of higher inflation.
This is not to say we should be completely complacent. But the Fed is _not_ being complacent; they're tracking various different measures of inflation and I'm sure if nominal wage growth or some of their measures of "super-core" inflation started to tick up, they would respond with higher rates. Worrying about "stimulus" from spending that is _not stimulus_, though, makes the conversation about the issues _actively worse_.
I agree with some of this, but you don't think $1,400 checks, and expanded unemployment insurance that didn't expire until months after most people who wanted vaccines had been vaccinated, is effectively stimulus? For most people who received these benefits they went way beyond what was actually needed to remediate the effects of the disaster.
My position on the unemployment thing is that instead of extending it ad hoc, we really should make more-generous unemployment into an Automatic Stabilizer, that expands and contracts in response to some measurement of economic conditions (perhaps the Sahm Rule).
And on the $1,400 checks, I think putting so much money into that was bad policy (poor targeting of funds, when we actually did still need more disaster relief money), but it seems to have been good politics -- and we go to the polls with the electorate we have, not the one we might want or wish to have.
Also, FWIW, I favor a Universal Basic Income -- I think UBI plus a very generous negative income tax on early dollars of income, to make working marginal jobs worthwhile, would be a better policy than minimum wage. The idea is that you're not going to starve in the streets if you tell an employer to "take this job and shove it", because of the UBI, but the subsidy from the negative tax means that if an employer has some work that would yield marginal value to the business, even just a few bucks an hour, they can farm out that kind of odd job and find a taker, because the wages plus the tax subsidy add up to enough to be worthwhile.
Regardsless, I don't think anyone expects the $1,400 / $2k-total checks to become a monthly event. So again: This is not the sort of thing that gets priced into future business decisions. It _can't_ lead to stagflation. Some of it probably really did help prevent demand collapse, since there were an awful lot of people in weird, personalized hard circumstances who weren't being picked up by other programs. A lot of it probably went to a one-off blip in savings rates.
In any case, the point is that Summers here is treating the _entire bill_ as though all of it was pure demand-side stimulus, when in fact a fair bit was something else. That's macroeconomic malpractice, and he ought to know better.
Why does anyone listen to Larry Summers at all? He's been WRONG about almost everything! How many times can an expert be wrong and still retain credibility? Apparently, that number is infinite. A possible solution would be - oh - I don't know - to STOP INTERVIEWING HIM!!
This interview was great though - to fully elucidate that he's just making stuff up.
You know what's wrong with Larry Summers, is that he is a genius that doesn't update his worldview. This interview unveils that so obviously especially when talking about inflation. He has been blown out of the water by modern economists like Claudia Sahm on this subject and still clings to his outdated views even now. Its almost like his brain is ossified in 1989.
I agree with Larry that the Fed has been overstimulating housing. My impression is that this is deliberate compensation for sectors that for nuts-and-bolts reasons can't bounce back as quickly - as in, if these are responding well to stimulus and those aren't, let's overstimulate these and get a more normal-looking average. This explains also the boom in used car prices: Monetary stimulus goes most directly towards assets and the most durable and expensive goods, but new cars is one of the sectors that can't bounce as quickly, so there's been a big stimulus spill-over into used cars.
Where his argument gets fuzzy is when he gets into the fiscal debate and tries to frame it in numbers.
"As of the beginning of the year, it looked to me like worker incomes were running $30 billion a month below trend and this [gap] was rapidly declining. Against this gap, we were adding a stimulus program that would spend out 150 billion a month or more ..."
What is "worker incomes" and what is its "trend"? The implication is that since the working class tends to spend nearly all its income, to avoid inflation we should take care especially not to overstimulate working class income. But it's anyone's guess how Summers is measuring it and its trend, and so hard to say whether his figure of $30b/month and quickly falling as of early 2021 is correct and meaningful or misleading. And what is this "$150b/month or more"? A combination of the extension of pandemic unemployment benefits and $1400/capita cash stimulus adopted in early 2021? Perhaps together with some estimate of the monthly spending impact of infrastructure supplemental spending that was proposed in early 2021 and still hasn't been adopted? Who knows. It's just some numbers grabbed from somewhere that sound important but probably aren't.
This sort of superficial numerical showmanship isn't just Summers' problem. It's a 21st century cultural problem: the human race is >99% macroeconomically illiterate, and politicking on macroeconomic policy is theatrical tending towards shamanistic. Even our financial journalists are clueless: they can't even write in consistent units or distinguish stocks from flows. Really the only place one can read macroeconomic news by literate writers is in financial industry research notes that are not publicly distributed. Summers might well have a case on fiscal policy but from this interview I don't get it.
How does one stop giving addicts their fix without causing them to freak out?
Or, how does the Fed stop feeding Wall Street $120 billion a month in free money when they've been feeding WS free money since 2008?
What I get from an interview with an economist is they don't really know, which is why we need to hear more from sociologists and social planners. Economics might be a better fit in the philosophy department as a sub-category under Logic than in the business departments. ;)
However, I did like some of his policy suggestions, but the flailing POTUS has lost so much political capital at this point, I don't see it happening.
Lastly, did anybody know that the top felony bank (JP Morgan Chase) in the country was using its own cryptocurrency for international transactions?
I just discovered this yesterday. Wondering if the Fed and bank regulators have investigated a bank known for laundering money is using unregulated cryptocurrency they created. It would be an obvious red flag.
I don’t see much useful in this interview. There’s a lot of “I said this at the time” and “let’s say” but little concrete analysis. He did make one clear prediction on growth. Frankly, interviews like this make me question why I should pay for this substack.
Cancelled my subscription. Good luck Noah.
Sorry to see you go! And over a free post, too... ;-)
Why were interviews ever happening in hotel bedrooms?
I think the justification was that you'd have these academic conferences that would be held at event-center hotels, using the various ballrooms and meeting rooms, and then also since this brought together a bunch of professors and grad students, you'd schedule job interviews during them. And there aren't that many small spaces available at these hotels, and a lot of the small meeting rooms are already scheduled by the conference participants for other reasons. So either you're going to pay for another space, or meet in a space that isn't private (like the a restaurant / cafe / bar), or you use the interviewer's room. And speaking as somebody who's a bit of an introvert and a bit ADHD, trying to interview in a cafe sounds terrible. So I get how they arrived at this solution. But I also get why it has to stop -- WAY too many awful men trying to turn interviews into "casting couch" situations.
Yeah I don’t understand. This was an econ thing? A grad school thing?
He's a motie! https://en.wikipedia.org/wiki/The_Gripping_Hand