Thursday, 10 April 2014
Lawrence Summers is clueless.
Reason is that he keeps contradicting himself on the subject fiscal stimulus. For example…..
He co-authored an article with Brad De Long in 2012 advocating fiscal stimulus. Then at the end of last year he made his now famous speech at the IMF introducing his “secular stagnation” idea: which was that we’re in a hole and there’s nothing we can do about it: i.e. not even fiscal stimulus can get us out of the hole.
Then early this year he made an amazing discovery, namely that it is actually possible to raise demand via fiscal stimulus.
Only problem was that he advocated doing it via investment in “high return” infrastructure investment. Now there are two flaws in that idea.
First, it can take years to get those sort of investment projects going and complete them by which time the current recession will probably have finished. Second, if an investment is “high return” then that investment should be made ANYWAY: i.e. regardless of whether we are in a recession or not.
Incidentally you won’t be surprised to learn that another not too clued up economist from Harvard (forgive the tautology) also promotes the “high return” investment idea: that’s Kenneth Rogoff.
Then in this Financial Times article a few days ago, he shied away from fiscal stimulus but produced a new and unbelievably stupid idea namely that “Creative consideration should also be given to ways of mobilising the trillions of dollars in public assets held by central banks and sovereign wealth funds largely in the form of safe liquid assets to promote growth.”
So what exactly are those mysterious “public assets”? Given their astronomic size (trillions of dollars) all Summers can be referring to is government debt held by central banks. But since central banks are part of the government machine, those “assets” are nothing more than a book-keeping entry!!! They aren’t any form of REAL WEALTH like an empty office block which can be potentially be put to use.
Moreover, are they an “asset”? Well as just intimated, they are an asset as viewed by central banks and a LIABILITY as viewed by governments. That is, they are essentially a debt owed by department of government to another. This is all gobbledegook!!!!
As I pointed out in a letter in the Financial Times, and as others have pointed out, those government debts might as well be torn up: they’re meaningless.
But that’s not to say there isn't a grain of truth in what Summers says. If he is trying to say that governments and central banks can simply create – er – “assets” out of thin air (i.e. money) and spend it (and/or cut taxes) so as to boost economic activity, the he is right. But then that’s no more than Keynes pointed out nearly a century ago, as as MMTers and Positive Money keep pointing out. And that’s fiscal stimulus.
But of course there is a big problem in suggesting that we print money and net spend it, namely that whenever the words “print” and “money” appear in the same sentence, hoards of idiots come out of the woodwork screaming “inflation”.
And in a world ruled by idiots, you have to be careful what you say, as Krugman pointed out recently. Likewise in a conversation between Keynes and Abba Lerner, Keynes told Lerner to be careful what he said in reference to money and printing.
So it’s just possible that Summers is fiendishly clever, and is trying to send a message to economic illiterates that make up Congress: that is, trying to instil in them that come a recession, it’s up to them to do something. But I doubt it. I think he’s cluless.
But never mind: once you’re an established emperor, the fact that you’re naked matters not one iota. Everyone will see you as being dressed in the finest clothes – apart from a few naughty boys like me.