he's a genius! On Mon, Aug 1, 2011 at 4:38 PM, Eugene Coyle <[email protected]> wrote: > > > FEBRUARY 2, 2011, 8:30 PM > Summers’s Crystal Ball > By WILLIAM D. COHAN > William D. Cohan on Wall Street and Main Street. > Tags: > larry summers, the economy > > The peripatetic Larry Summers is once again back at Harvard, teaching a > class on American economic policy with Martin Feldstein and Jeff Liebman – > two other prominent former government economists – and reacquainting himself > with the joys of free speech now that he is no longer President Obama’s > director of the National Economic Council, President Clinton’s treasury > secretary or Harvard’s 27th president. What better time, then, than winter > to check in with the lion? > Michel Euler/Associated Press Larry Summers at the World Economic Forum in > Davos, Switzerland, last week. > In an interview before he headed off to Logan Airport on a voyage that would > take him to the World Economic Forum, in Davos, where he has been a regular > for years (and where he would have an unscripted but amusing dinner > encounter with Amy Chua of “Tiger Mother” fame), to Moscow (unless last > week’s terrorist attack waylaid him) and, finally, to Israel (unless the > dramatic events unfolding in Egypt forced him to change his plans), Summers > expressed a surprising degree of optimism about the prospects for the United > States economy this year. “I think a stronger and stronger foundation for > continuing growth is being laid,” he said. > Summers said he thinks “for the first time in years,” the United States > economy is growing at a rate faster than the consensus estimates. He > believes GDP will grow at 3.5 percent to 4 percent in 2011, materially > higher than the consensus rate of 2.5 percent. He said this is a bit of a > watershed. He recalled how once upon a time he used to tell the finance > ministers of other countries that until their economic forecasts were “too > pessimistic” he had little faith in their countries’ economic prospects. The > pessimism in the consensus forecasts now makes him optimistic. “Consensus > forecasts are serially correlated,” he said, “so when you see upwards > revisions you’re likely to see continuing upwards revisions.” > > One of the reasons Summers is increasingly sanguine comes from the > machinations of the lame-duck session of Congress, which not only extended > the Bush-era tax cuts to all Americans (including to the wealthy) but also > granted employers a 2 percent payroll-tax holiday and a 100 percent tax > write-off for investments in plant and equipment made in 2011. “Seems to me > that there’s a fair-sized wind at the back of the economy,” he said, thanks > in part to these decisions. And that was before the Dow Jones Industrial > Average crashed through 12,000 on Tuesday – for the first time since June > 2008 – capping an impressive 5 percent rise since Obama signed the new tax > law six weeks ago. “I am guardedly optimistic about the situation of the > American economy over the next year or so,” Summers said, “and I think > that’s likely to in general improve the mood of the country. Just as there > are some avalanche effects on the downside where a snowball gathers force > because it’s gathering force, I think things of that kind can happen on the > upside as well.” > Of course, Summers acknowledged that the post-tax bill euphoria has come at > the cost of the increasing the federal budget deficit, which the bi-partisan > Congressional Budget Office now puts at $1.5 trillion this fiscal year. This > is a long-term, not a short-term, problem, he said, and will likely not be > addressed by politicians in a constructive way – unless they “ostrich,” he > said – until the cost of financing these deficits (through higher interest > rates) increases over time. Summers predicted that this would happen when > the demand for borrowing from households and corporations – which fell > dramatically during and after the financial crisis – picks up as the economy > improves. “When you start to see upward pressures on interest rates, that > will pressure the political system on the budget deficit,” he said, since an > increasing cause of the deficit is the interest expense required to finance > it. > Summers said the United States is still able to finance the deficits > relatively inexpensively because the demand for borrowings from the consumer > and corporations has not picked up. But at some point, the deficits must be > addressed. “I don’t think there’s any question that ultimately the > government has to pay for what it spends, and that running deficits isn’t an > alternative way to finance the government,” he said. “It’s a way of > deferring the painful choices and adding interest costs to them.” The > “painful steps” need to be taken, he said, but not yet. “The right sequence > is to focus on getting the economy growing and then to turn our attention to > the out-year deficit problem.” > A growing economy will also help alleviate another seemingly intractable > problem of the Great Recession – stubbornly high rates of unemployment among > those people still seeking work and a general malaise among those who are > close to giving up their search. The key to higher employment, he said, is > increasing the demand for the goods and services produced by American > companies. “You don’t hire more waiters unless the waiters you have in your > restaurants have more work than they can handle,” he said. “There’s a > continuing shortage of demand, and that’s the root cause of unemployment. > It’s the root cause of low-capacity utilization…What you need to do is have > more output with more people, and the way you have more output with more > people is you need people who want to buy that output, and that’s why it > comes back to demand.” > Summers said there are numerous ways to stimulate this demand: by increasing > exports; by encouraging companies to make new investments earlier than they > otherwise would; by investing in the nation’s infrastructure; by encouraging > people to consume more; and, by substituting new technology for older > technology. “I got three PC’s in my basement, but I still want an iPad,” he > said by way of example. > All in all, Summers paints a pretty rosy picture of why happy days will soon > be here again. But whether he is right or just a savvy former senior Obama > administration official spinning a web for a president with re-election on > the brain remains to be seen. In the meantime, we can gather around the > campfire and hope and pray that somehow we are immune from the historic > budget deficits, the chronic unemployment, the rising commodity prices, the > European sovereign crises and the political unrest in nearly every corner of > the world. Kumbaya. > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > >
-- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
