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.
***The problem’s going to be, in my view, that it decreases the incentive to produce.***
Seems wrong. That is, I reckon it's the exact opposite: if more people have more money in their pockets, the incentive to produce will increase, not decrease.
How exactly is a transfer program going to increase the amount of money we have? If we fund through taxes, there’s no increase in money available, if we borrow it, there’s no increase in money available, and if we expand the money supply we simply dilute the power of a dollar.
How exactly is this going to lead to more money in people’s pockets?
I gather from your comment you don't accept the efficacy of Keynesian stimulus. Fair play, but too big a topic for a back-and-forth in comments. I think in this particular case you're on firm ground if there's insufficient slack in the economy. But I don't think that's the situation at hand (I'm pretty optimistic on the economy's prospects for growth in the next couple of years, mind you, but that's partly because odds are high that Biden will sign another big relief package into law).
In any event, ten million Americans are still unemployed, private sector job growth has been anemic since the bounce back last summer, and state/local governments are facing really awful headwinds.
I think stimulus can be effective, just not in the long run, and not now, and moreover, this isn’t really stimulus. This is just a transfer scheme with some topical adjustments (in my view, at least.) Aggregate demand isn’t slipping because of a lack of confidence, it’s slipping because of the virus. Beat the virus (perhaps by getting rid of the Fda, or at least telling it to buzz off and approve the darn vaccines, and spending a few tens of billions on distribution) and considering how well household savings are looking and so forth, the economy should boom back to where it was.
Continuing on the checks here - who is going to spend them, exactly? Most people are just going to turn around and save it - and then spend it all when the virus is over. We don’t have massive wealth redistribution in normal times *for good reason* - it’s counterproductive! Why should we do it now?
(If we want targeted aid for people struggling to get by, honestly, people should just borrow money. If we need to increase the money supply to do it and keep interest rates low, by all means - but it would seem to me that essentially selling a share in your future earnings would be a good move to paper over the turbulence)
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.
This spending isn't necessay? Tell that to the millions of unemployed Police, Firefighters, teachers and other state workers who are now unemployed, in addition to the millions of private sector unemployed. Tell that to the tens of thousands people queueing at foodbanks on a daily basis, or the millions of renters and homeowners who can no longer pay for their accommodation!
I didn't mean to imply all the spending of the $1.9 trillion isn't necessary, just that some of it could be spent more productively as Summer's argues. I should have written more carefully. We absolutely should be robustly helping the unemployed. But too much of the $1.9 trillion goes to people who aren't unemployed and have already increased their savings and don't need financial help from the government. I would much rather see that spending used for longer term investments such as green infrastructure, more R&D and the like. BTW, Summer's did a follow up answering some of the questions raised by his original op-ed: https://www.washingtonpost.com/opinions/2021/02/07/my-column-stimulus-sparked-lot-questions-here-are-my-answers/ Another BTW, I'm unaware of massive unemployment for police, firefighters and teachers. Could you point me to that data? Thanks
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).
The virus is another example of that problem
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.
***The problem’s going to be, in my view, that it decreases the incentive to produce.***
Seems wrong. That is, I reckon it's the exact opposite: if more people have more money in their pockets, the incentive to produce will increase, not decrease.
How exactly is a transfer program going to increase the amount of money we have? If we fund through taxes, there’s no increase in money available, if we borrow it, there’s no increase in money available, and if we expand the money supply we simply dilute the power of a dollar.
How exactly is this going to lead to more money in people’s pockets?
I gather from your comment you don't accept the efficacy of Keynesian stimulus. Fair play, but too big a topic for a back-and-forth in comments. I think in this particular case you're on firm ground if there's insufficient slack in the economy. But I don't think that's the situation at hand (I'm pretty optimistic on the economy's prospects for growth in the next couple of years, mind you, but that's partly because odds are high that Biden will sign another big relief package into law).
In any event, ten million Americans are still unemployed, private sector job growth has been anemic since the bounce back last summer, and state/local governments are facing really awful headwinds.
I think stimulus can be effective, just not in the long run, and not now, and moreover, this isn’t really stimulus. This is just a transfer scheme with some topical adjustments (in my view, at least.) Aggregate demand isn’t slipping because of a lack of confidence, it’s slipping because of the virus. Beat the virus (perhaps by getting rid of the Fda, or at least telling it to buzz off and approve the darn vaccines, and spending a few tens of billions on distribution) and considering how well household savings are looking and so forth, the economy should boom back to where it was.
Continuing on the checks here - who is going to spend them, exactly? Most people are just going to turn around and save it - and then spend it all when the virus is over. We don’t have massive wealth redistribution in normal times *for good reason* - it’s counterproductive! Why should we do it now?
(If we want targeted aid for people struggling to get by, honestly, people should just borrow money. If we need to increase the money supply to do it and keep interest rates low, by all means - but it would seem to me that essentially selling a share in your future earnings would be a good move to paper over the turbulence)
Several of your comments are just removed from reality:
Demand is partially slipping because of the virus, but millions of people do not have enough to eat, even more so than before the virus.
And you think household savings are looking good?! Stop looking at aggregate numbers, they hide a multitude sins.
People should just borrow money?! Really!! Who are they going to borrow from? You?!
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 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.
This spending isn't necessay? Tell that to the millions of unemployed Police, Firefighters, teachers and other state workers who are now unemployed, in addition to the millions of private sector unemployed. Tell that to the tens of thousands people queueing at foodbanks on a daily basis, or the millions of renters and homeowners who can no longer pay for their accommodation!
I didn't mean to imply all the spending of the $1.9 trillion isn't necessary, just that some of it could be spent more productively as Summer's argues. I should have written more carefully. We absolutely should be robustly helping the unemployed. But too much of the $1.9 trillion goes to people who aren't unemployed and have already increased their savings and don't need financial help from the government. I would much rather see that spending used for longer term investments such as green infrastructure, more R&D and the like. BTW, Summer's did a follow up answering some of the questions raised by his original op-ed: https://www.washingtonpost.com/opinions/2021/02/07/my-column-stimulus-sparked-lot-questions-here-are-my-answers/ Another BTW, I'm unaware of massive unemployment for police, firefighters and teachers. Could you point me to that data? Thanks
Here's one I could quickly find, dated May 2020:
https://www.americanprogress.org/issues/economy/news/2020/05/26/485396/need-direct-assistance-local-governments-response-coronavirus/
Well freaking said!