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.
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 He has been blown out of the water by modern economists like Claudia Sahm on this subject and still clings to his outdated views even now.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 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.
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.
Why were interviews ever happening in hotel bedrooms?