Driving Mr. Summers on financial regulation reform, G20
Larry Summers, a top economic adviser to President Barack Obama, is a realist when he says “people are imperfect and we have not seen the last misjudgment.”
So, in his view, financial regulatory reform is just as necessary as, well, laws aimed at ensuring safe driving.
He cites the late Senator Daniel Patrick Moynihan’s belief that people being people are probably going to drive fast and recklessly, and so it would be wise to encourage seat-belt use, build crash-proof bumpers, design highways more carefully, arrest people for drunk driving, and establish a system that made accidents less likely to result from human error.
“I think if you look at the approaches to financial regulation that we are pursuing, they place more emphasis on creating a system that is safe for failure and misjudgment,” Summers said at a Reuters Insider newsmaker forum.
“In a sense, insisting on low levels of leverage and more capital is a kind of speed limit,” he said.
His comments came as lawmakers on Capitol Hill are in the throes of final negotiations on Wall Street reform legislation.
The driving analogies can be applied to the G20, too.
On the eve of the G20 meeting in Canada this weekend, Summers said world leaders will be discussing strategies to get economies moving with reasonable growth in a way that is mindful of the fiscal challenges and in the context of efforts that, over time, will ensure fiscal sustainability.
“I’m sure that people … will try to divert them into an argument about the brakes versus the accelerator, but I’ve never seen a car with only a brake or an accelerator. I’ve never seen a car driven successfully by someone who is only focused on one of the two pedals, and my suspicion is that you’ll see quite productive discussions of balance and budget,” Summers said.
And there’s a driving analogy for matters of the U.S. economy.
“One of the first things they taught me in my Driver’s Ed course was that never, ever, could you fail to look down the road even as you were looking at what is right in front of you,” Summers said.
Photo credit: Reuters/Molly Riley (Summers), Reuters/Michael Mulvey (Dallas highway),