There’s an amusement in here, the P³ wondering why people pay attention to Larry Summers. You know, one of the brightest of our generation, even if he is wrong on some things he is one of those who is always interesting on everything.
But to present his whole argument so none can accuse me of editing it:
I have to say that I find Larry Summers incredibly uninteresting: why a man who has got so much wrong still attracts attention slightly baffles me, but he goes on, and on.
And he gets this one wrong too. Unlike the world’s major international financial organisations (the IMF, OECD, etc) Summers wants the US to head low, when the need to spend appears paramount. In my opinion, Summers is the one who has got this wrong. There are three reasons.
First, stimulus packages can be turned off. But if they are never turned on they have no hope of working. He’d prefer to never turn them on than turn them off.
Second, he assumes that the private sector will do the heavy lifting if the state does not. I think he’s wrong. It has no reason to spend, and nor will be the wealthy be doing so once a quick summer splurge has been done, for reasons I have explained many times before. He disagrees, and thinks that they will spend.
And third, the US (and many other countries) does not need a private sector stimulus. It needs massive public investment much more. Its infrastructure is worn out, inefficient and not green. It has to be renewed, sustainably. That is of higher priority, by far, than more consumer spending (except by those on low incomes, who must be helped more). So he gets his basic economics wrong, or at least confused (as the interview implies to m), and ignores the fact that if there is risk of overheating as a result of this necessary public spend there is a mechanism to also cool the economy. It’s called tax. He talks about it in the interview but never seems to make this connection.
It really is time we had economists who could join the dots. Summers isn’t, in my opinion.
So, to explain the actual Larry Summers argument. This works in either a Keynesian or MMT structure by the way.
The economy is currently below full potential output. We should do something about this. Stimulus is what we should do.
There’s a limit to how big a stimulus we can do. That’s whatever is needed to close that output gap. The MMT structure would possibly indicate that it’s closed when inflation arrives but that’s not so different from the Keynesian one. There is a limit to how much stimulus we can do before we’ve got to stop doing stimulus.
OK. Summers then goes on to point out that if we do stimulus by spraying money at consumers then this reduces the amount of stimulus we can do by rebuilding the infrastructure. Summers goes on to think that the infrastructure part is the more important thing to get done. Therefore we should limit the spraying in order to have more room to fix the infrastructure.
Now, Summers may be right or wrong on this. But his argument is in fact the opposite of what the P³ thinks it is. It is, actually, exactly what the P³ thinks should be done. Let’s go spend on infrastructure in order to provide the needed stimulus. And let’s not spray money at consumers when the infrastructure is the better manner of providing the stimulus.
There is no beginning to the P³’s ignorance, is there? It’s simply an all encompassing miasmic cloud……..