Friday, April 15, 2011

Larry Summers - Debt ceiling politics 'unconscionable'

CAMBRIDGE, Mass. – Turning the issue of raising the debt ceiling into a political tool is "simply unconscionable," economist and ex-Obama adviser Larry Summers said this morning.

Speaking at a forum for journalists at the Lincoln Institute of Land Policy , Summers said using the debt ceiling issue for political reasons "is the moral and practical equivalent of inviting children to play in a room full of dynamite."

Summers, ex-president of Harvard, ex-Treasury secretary (1999-2001) and director of National Economic Council for the Obama administration, 2009-11, said the U.S. economy is coming back, noting how rarely you hear people talking about a double-dip recession anymore. Corporate profits are healthy, and so on and so on.

Most of his talk was about what it was like to be inside the Obama team after the 2008 election and early in 2009. Things were so bad that jobs were being lost at a faster rate per month than at any time since those statistics had been kept.

The basic economic theory that you learn in Econ 101, about markets and the way the economy works as an equilibrium (Demand up? Supply goes down. Supply up? Prices down; demand up. Etc.) is "basically right most of the time." But, he said, "two or three times a century a different dynamic takes hold." The self-equilibrating function gives way to an avalanche of de-stability, a self-fulfilling prophecy that leads to a downward spiral. (Less consumer spending? Jobs go away. Fewer jobs? Less consumer spending. Etc.)

Obama decided that confidence could be the cheapest form of stimulus. He decided it was more important to boost confidence than exact "vengeance" (interesting word, especially from a guy like Summers) against the people who caused the problems, e.g. the banking, mortgage and financial industries.

Then began a fight over how best to use stimulus money. Summers described the tension between people wanting projects that could get done quickly and the visionary projects.

" 'Shovel-ready' is the great American lie," he said. Bureaucrats knew that projects always take longer than you want, he said, noting that the "Hoover Dam" opened in 1937. (Hoover lost the presidency in 1932.)

When the stimulus money arrived at state governments, he said, "It can only be described as a urinary Olympics between the governors and the mayors." The governors tended to think the mayors were "a bunch of useless slugs."

Summers essentially defended the decisions the Obama administration made - no surprise. And he said the lack of criminal prosecutions for the financiers who brought our whole economy down is likely because no crimes were committed. "Being stupid is not a crime," he said. "Lending money unwisely is not a crime."

He did make something of an exception for the former Countrywide CEO Angelo Mozilo, whom he noted was being criminally investigated, and then the investigation was dropped.

Next up to speak is ex-Mayor of Washington, Adrian Fenty. The conference sponsors are the Lincoln Institute, the Nieman Foundation, and Harvard's Graduate School of Design.


Anonymous said...

Demand up? Supply goes down. Supply up? Demand goes down

Are you sure you got that right?

Mary Newsom said...

Thanks for the correction. I have made it above. Writing while listening to another speaker does have its risks....

Anonymous said...

Uh, Hoover Dam was not called Hoover Dam when construction began. Construction began in 1931 and it was actually finished two years ahead of schedule (dedicated Sept. 30, 1935 and turned over to the govt March 1, 1936). It was originally known as Boulder Dam and was not officially named Hoover Dam until 1947.

Larry Summers knows as much about economics as he does about Hoover Dam.

Anonymous said...

Ms. Newsom,

I would like your comments on this statement:

"The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.

Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership."

The date: March 30, 2006

The speaker: Senator Barack Obama, D-IL

Fred said...

Demand up--prices up. Supply down--prices up. Supply up--prices down. Demand down--prices down. Prices up--quantity supplied goes up. Prices down--quantity supplied goes down. Prices down--quantity demanded goes up. Prices up--quantity demanded goes down. That is the way it is taugh in Econ 101

Anonymous said...


Econ 101 doesn't account for quantitative easing.

Anonymous said...

" 'Shovel-ready' is the great American lie," he said

The president touted his trillion dollar stimulus package as shovel ready projects. So I guess Obama is an out an out liar.