Summers speaks

By Felix Salmon
July 17, 2009

Larry Summers gave a big speech at the IIE this morning, and his prepared remarks — all 3,412 words of them — are now up on the IIE website, maybe because the NEC’s web presence is barebones in the extreme. Of course, when you let someone else publish your remarks, you lose a certain amount of control over how they’re presented; I do wonder what Summers thinks about the fact that when you get to the bottom of his speech, you find yourself faced with a cute little button saying “twit this”.

There’s a bit more than 140 characters’ worth of stuff in this speech, though, including Summers’s explanation of how he got to $800 billion:

The size of the stimulus reflected a balance of several considerations: the size of the likely output gap that the economy was facing, the difficulties of ramping up spending and then ramping it back down after recovery in a high budget-deficit environment, the question of how much could be spent both quickly and productively, and the recognition that the Recovery Act was just one of several initiatives by the Administration that would have a dynamic impact on the state of the economy.

This seems right to me: the output gap — which was indeed underestimated — was just one of many factors, and the size of the stimulus might well have been capped by questions unrelated to GDP growth or the unemployment rate.

Elsewhere in the speech Summers proves himself a master at stating the utterly meaningless: “It is essential that stimulative policies be sustained for as long as necessary but also that they be sustained no longer than necessary,” for instance, is a classic piece of political pablum.

My favorite part of the speech, however, is the inclusion of the phrase “even Alan Greenspan asserted that” — with the clear implication that the differences between Greenspan and Summers are both obvious and large, and that the two men are definitely not the kind of pair who would pose heroically and jointly for a national magazine cover portrait. Let’s make sure no one reminds Summers of who the third man in the picture was: while Summers has taken his lumps over the past decade, and Greenspan’s reputation has declined precipitously, Rubin’s reputation has been utterly obliterated. But that’s what happens when you enter into the orbit of Citigroup.


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Read the Tract: “Plea for a New World Economic Order.”, which explains the nature and causes of economic depressions and proposes a plausible alternative solution.

In regard to the stimulus investment, my understanding is as follows:

1. The current surging fuel cost (World oil prices doubled during the last 6 months) is overwhelming the market rally.
And the pending clean energy bill might serve as a second stimulus package world-wide boosting private investments.

2. People are so worried about losing their job, coverage, denial of treatment, which seems to increase bank deposit latetly. That means stimulus funding mainly goes toward bank deposit for a rainy day increasing jobless rate. It proves again that a healthy society yields better productivity, prosperity.
It is time to ‘Change’ the notion of the public health as a fundamental human right and install ‘a safety system for all’ like all of the other industrialized nations, I think.

3. The stimulus funding begins to mobilize just 11%, meanwhile, the auto industry has undergone its restructuring with the massive job-related impact.

4. The pandemic swine flu has been hurting the global economy seriously.

Thank You !

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