Larry Summers, now the burden of Harvard University, is back on the op ed pages to explain what’s wrong with the economy and how to fix it.
It’s all in the technocratic language of macro economics — Brad DeLong approves and will likely retranslate later — but here, I think, is the gist: It seems the financial and housing collapse crushed demand, and it has to be rebuilt with jobs and economic growth over a very long period. And until you do that, you can’t expect deficits to come down, so it’s way premature to pivot to reducing the deficit. Instead we need more stimulus to increase demand, restore jobs and boost the economy. And this is a great time to invest in infrastucture, education, and so on, because we have lots of people who can do that work who need jobs, we need the infrastructure, and interest rates on borrowing are near historic lows. Oh, and we need to restore confidence.
Most of that could have been written by Paul Krugman, the guy the Administration ignored for three years, or by DeLong and many critics of the Adminstration’s far too tepid economic policies. In fact, it has been written by them. So is this Larry’s mea culpa?
Larry Summers is the guy who, when presented in early 2009 with a set of calculations and projections from Christine Romer that showed we needed a stimulus about twice the size the one Summers ultimately proposed to the President, said we should limit fiscal stimulus policy to a mere “insurance policy” against the possibilitiy of another Great Depression. That would be enough to produce a self-sustaining recovery, he told President Obama. And they stuck to that story even when Romer’s starting assumptions proved too optimistic, because we were in a far deeper ditch than she assumed.
When numerous serious economists and dismayed scarecrows insisted the stimulus was far too small and likely too short, and pleaded for jobs programs and another stimulus by the end of 2009 and throughout 2010, Summers dismissed them. He insisted the President and his team had done enough with the policies they had. Eventually, the Administration was forced to admit in December 2010 that the economy needed another $300 billion or so in unemployment insurance and added stimulus via a payroll tax cut. Not to mention a shameless gift of over a hundred billion for the richest people in America.
Once again, serious economists and scarecrows said this would not be enough, reminding the Administration that simultaneous deficit reductions and layoffs at the Federal and State levels would negate any stimulus effect. Summers and his boss dismissed these warnings, too.
Now Summers tells us we need another $200 billion in extended payroll tax cuts. He explains that this is the nature of recessions connected with financial collaspe, that this inherently crushes demand and it takes a lot of money — from borrowing and spending — and an long time to build demand back up to the level at which economic growth and significant job creation are self sustaining. Well, no kidding, Larry. Except you pretended for two and half years that wasn’t true and the rest of us were stupid.
He now tells us, as Krugman et al have been warning for years, that we’re in the middle of a “lost decade,” a predictable era we learned about from the Japanese financial crash and their lost decade. Unfortunately, Summers took until the fifth year to realize his economic advice left America in the midde of a terrible economic decade.
At no point in Summer’s op ed does he own up to the huge blunders for which he and his boss are chiefly responsible. We don’t read of all the lectures he gave to the skeptics about how the Administration had done all that should and need be done. And where was Larry when the scarecrows warned that Ben Bernanke, whom we pleaded with the President not to reappoint, was signalling his predictable unwillingness to meet the Fed’s obligations to pursue full employment?
He now warns us against a premature pivot to deficit reduction, but he neglects to mention it was the President and his team who sanctioned that premature pivot over a year ago; his team made up excuses, and continues to make up excuses, for empowering the Cat Food Commission then and the Joe Biden Dining Table surrender now.
Yet even now, Summers can’t let go of his own and his President’s mistakes. He and his President insisted that any investments funded in the 2009 stimulus needed to be “shovel ready,” because they didn’t want the stimulus to last too long. We argued the recovery could take many years, so that extended investment programs would be needed. And we said it was the right time to invest: we had infrastructure that needed to be rebuilt, millions out of work willing to do it, and interest rates were low. It’s more than two years later, and now Larry Summers says, gosh, it makes sense to be making infrastructure investments now, because we need them, we have people who can do it and need the jobs, and interest rates are low.
Where have you been all these years, Larry?
And what’s the point of using the word “confidence” as part of what we need to restore? You know that’s Tea-GOP code for restoring “business confidence” among the group that simply wants to cut corporate taxes and slash regulation — like the stuff that EPA does, or OSHA, or the folks who oversee drilling permits in the middle of the Gulf. And wasn’t it Larry Summers who insisted we needed those efficient TBTF banks to remain competitive? You just can’t seem to stop doing damage, can you?
You screwed us with financial deregulation. You screwed us with an inept, inadequate stimulus. You screwed us with the unnecessary “pivot” from jobs to deficit reduction. And now you want us to believe in the confidence fairy?
Just go way.