About bloody time, it is!
Rich Gardner | 06.20.2011
Larry Summers fills his piece with “No $%#@ Sherlock” pearls of wisdom. Very welcome pearls, no doubt about that, but very long-overdue ones.
So, after serving for a little less than two years as Obama's Director of the White House National Economic Council, Larry Summers, back at Harvard University as a professor, has now suddenly realized that the Nobel Prize-winning Paul Krugman, the economist Dean Baker, the FireDogLake blogger Scarecrow and many, many others, were right all along!
He fills his piece with such "No $%#@ Sherlock" pearls of wisdom as:
Beyond the lack of jobs and incomes, an economy producing below its potential for a prolonged interval sacrifices its future.
After bubbles burst there is no pent-up desire to invest. Instead there is a glut of capital caused by overinvestment during the period of confidence — vacant houses, malls without tenants and factories without customers.
It is false economy to defer infrastructure maintenance and replacement when 10-year interest rates are below 3 percent and construction unemployment approaches 20 percent.
The greatest threat to the nation’s creditworthiness is a sustained period of slow growth that, as in southern Europe, causes debt-to-GDP ratios to soar.
I mean, hey, don't get me wrong, this is all wonderful stuff. It's very belated on his part, but it's very good to see that Summers is aware that without serious action by the Federal Government to boost spending:
...we might well be looking at the possibility of a double-dip recession. Substantial withdrawal of fiscal support for demand at the end of 2011 would be premature.
Uh, news for Professor Summers, the US IS looking at a possible double-dip recession and that's been crystal clear ever since this month's job numbers came out. Why has jobs growth slowed down? Well, the Republicans and the Tea Party people (Often one and the same) have been on an absolute crusade about cutting the federal budget. When the economy needs spending to recover and the Obama Administration acquiesces in spending cuts, the result of depressed job creation shouldn't have been the slightest bit surprising.
The real problem is that all of this has been absolutely crystal clear for over two years and Summers was in a position in the Obama Administration where he could have had a positive effect on the situation. Summers suggests that "withdrawal of fiscal support" would be a bad thing, i.e., that pivoting too early from job creation to tackling the budget deficit would be an unwise move. True, but back in early 2010, when the " Cat Food Commission " (Officially termed the "Simpson-Bowles Deficit Commission," we refer to cat food because Alan Simpson and Chester Bowles made it very clear that they wanted federal spending to be reduced so much that they'd soon see our senior citizens scrounging dumpsters for food and considering cat food to be a delicacy) was established as a way to cut citizen benefits without anybody's clear fingerprints showing up too much, well, that would have been a nice time for Summers to have had these epiphanies.
Politically, the Obama Administration has long since pivoted from job creation to deficit reduction. They gave the initiative to the Republicans and Tea Party people a long time ago. Frankly, if I were them, I wouldn't worry about consistency. I'd simply pivot back to job creation. I'd keep the explanations minimal as the press corps is unlikely to press them for explanations and consistency anyway. Doing that would require institutional memory and some grasp of economic theory in the first place. Summers' proposed solutions are very weak and small-bore, but they point in the right direction. Right now, the very best thing the Obama Administration could do would be to take Summers' very recent revelation and to run with it.