At this point, Summers just goes against what everyone else is saying for the sake of it. We have an abysmal economy that has gotten exponentially worse for working-class families since the 2008 recession. Although Summers is a respected figure in economics (that is still somewhat "liberal"), he hasn't offered any serious solutions to pressing issues rather than just try to poke holes and raise doubt about new ideas from other more progressive economists (Saez, Zucman, etc).
Great article by the way! So glad I found this blog and I subscribed to Bloomberg to read your articles!
I think the headline debt number is one of those "people don't think exponentially" problems. People really don't think in exponentials, and it shows, because they can't tell one kind of exponential growth (a normal national debt) from any other (hyperinflation, etc).
Oh boy, you are so wrong about inflation, since you can't get out of the traditional definition that's stuck in your mind. Try defining inflation as "the price of things that ordinary folks need to pay for to have a decent life"! Then you need to include housing (which has rampant inflation) and pensions (based on stocks, which are surging like crazy, despite no real numbers to show for it).
I agree with the gist of Noah's points here. Relatedly, I find Krugman vastly more convincing that Summers on this stuff. But there's one sentence I want to question:
{{{{But after the Great Recession, and especially now in the days of COVID-19, it has become clear that the Fed will do what it takes to keep interest rates low.}}}}
I accept that the Fed has the power to shield the government from higher borrowing costs. But isn't it possible that, if there were a pick up in inflation* (ie, the purchasing power of the dollar were decreasing in broad terms, and prices were increasing), then PRIVATE LENDERS might also be compelled to increase their prices (interest rates), too? It always used to be conventional wisdom that the Fed controlled short term rates, but that the market determined what borrowers paid for long term loans. Is this no longer the case?
*To be clear I don't regard a worrisome pick up in inflation as likely. I'm simply wondering about the hypothetical wherein it does pick up.
The problem’s going to be, in my view, that it decreases the incentive to produce. We are throwing out money into the population, and eventually we’re going to have to raise taxes to cover it, increase the money supply (highly unlikely, and would be disastrous and lead to inflation) or continue to borrow (we’ve only a finite capacity to do that) whilst meanwhile discouraging productivity.
It’s not so much the price tag that matters, and if this were the only time we were just going to throw money on out there, it’d probably be fine - but it’s not needed, it’s gonna be counter-productive, and breaks the cultural ice on more expropriation and transfer.
Larry Summers is professionally wrong about everything. He is also quite possibly one of the most obviously corrupt people in public life, and really should be behind bars. You know, if we lived in a country that didn't have elite immunity as a core bedrock value.
Like being in favor of a Tobin Tax until his $5.2 Million dollar one day a week gig at D. E. Shaw.
I enjoyed the post and learned from it but what about Summer's other point: this spending isn't necessary and could be better spent in other ways. You suggest adding "more investment." I guess your argument is from a political economy viewpoint this provides negotiating leverage. But from a purely policy perspective wouldn't it be better to replace the non-necessary spending with the investment spending Summer's advocates? Inflation or no, non-productive spending is wasteful, unlike, say green infrastructure or the like. You don't give me this impression but others who say "$1.9 trillion should be a floor" make me think they believe there is no downside to nonproductive government spending.
Larry Summers needs to be more concerned about the details that keep coming out about how close he was to Jeffrey Epstein........
At this point, Summers just goes against what everyone else is saying for the sake of it. We have an abysmal economy that has gotten exponentially worse for working-class families since the 2008 recession. Although Summers is a respected figure in economics (that is still somewhat "liberal"), he hasn't offered any serious solutions to pressing issues rather than just try to poke holes and raise doubt about new ideas from other more progressive economists (Saez, Zucman, etc).
Great article by the way! So glad I found this blog and I subscribed to Bloomberg to read your articles!
I think the headline debt number is one of those "people don't think exponentially" problems. People really don't think in exponentials, and it shows, because they can't tell one kind of exponential growth (a normal national debt) from any other (hyperinflation, etc).
Oh boy, you are so wrong about inflation, since you can't get out of the traditional definition that's stuck in your mind. Try defining inflation as "the price of things that ordinary folks need to pay for to have a decent life"! Then you need to include housing (which has rampant inflation) and pensions (based on stocks, which are surging like crazy, despite no real numbers to show for it).
Noah - Thanks for calling it a relief package and not a stimulus package. Words matter. Labels matter.
I agree with the gist of Noah's points here. Relatedly, I find Krugman vastly more convincing that Summers on this stuff. But there's one sentence I want to question:
{{{{But after the Great Recession, and especially now in the days of COVID-19, it has become clear that the Fed will do what it takes to keep interest rates low.}}}}
I accept that the Fed has the power to shield the government from higher borrowing costs. But isn't it possible that, if there were a pick up in inflation* (ie, the purchasing power of the dollar were decreasing in broad terms, and prices were increasing), then PRIVATE LENDERS might also be compelled to increase their prices (interest rates), too? It always used to be conventional wisdom that the Fed controlled short term rates, but that the market determined what borrowers paid for long term loans. Is this no longer the case?
*To be clear I don't regard a worrisome pick up in inflation as likely. I'm simply wondering about the hypothetical wherein it does pick up.
The problem’s going to be, in my view, that it decreases the incentive to produce. We are throwing out money into the population, and eventually we’re going to have to raise taxes to cover it, increase the money supply (highly unlikely, and would be disastrous and lead to inflation) or continue to borrow (we’ve only a finite capacity to do that) whilst meanwhile discouraging productivity.
It’s not so much the price tag that matters, and if this were the only time we were just going to throw money on out there, it’d probably be fine - but it’s not needed, it’s gonna be counter-productive, and breaks the cultural ice on more expropriation and transfer.
Larry Summers is professionally wrong about everything. He is also quite possibly one of the most obviously corrupt people in public life, and really should be behind bars. You know, if we lived in a country that didn't have elite immunity as a core bedrock value.
Like being in favor of a Tobin Tax until his $5.2 Million dollar one day a week gig at D. E. Shaw.
Or his looting and pillaging of Russia: https://www.institutionalinvestor.com/article/b150npp3q49x7w/how-harvard-lost-russia
I asked Larry's old room mate at Harvard about this. Response: "Damned if I know. I do not understand it.."
I enjoyed the post and learned from it but what about Summer's other point: this spending isn't necessary and could be better spent in other ways. You suggest adding "more investment." I guess your argument is from a political economy viewpoint this provides negotiating leverage. But from a purely policy perspective wouldn't it be better to replace the non-necessary spending with the investment spending Summer's advocates? Inflation or no, non-productive spending is wasteful, unlike, say green infrastructure or the like. You don't give me this impression but others who say "$1.9 trillion should be a floor" make me think they believe there is no downside to nonproductive government spending.
Well freaking said!