Here is a Summers remark pulled from below: “In 1993, here’s what the > > situation was: Capital costs were really high, the trade deficit was > really big, and if you looked at a graph of average wages and the > productivity of American workers, those two graphs lay on top of each > other. ... " That is really putting a spin on the facts. I just looked at a handy copy of THE STATE OF WORKING AMERICA 2008/2009. It has a graph of productivity and real family median income, 1947 - 2007. p.58. This is an iconic graph seen often in various publications. It shows a clear divergence, beginning around 1974 and growing through 2007. So Summers is spinning things here with the claim that "average wages" and productivity lay on top of each other. Maybe so, if you include MDs, MBAs, CEOs and lawyers in the average. Clever fellow, that Summers.
On Jan 25, 2013, at 3:01 PM, Jim Devine wrote: > The New York Times / January 24, 2013 > > A Top Hawk Gets Dovish on Deficit > By CHRYSTIA FREELAND | REUTERS > > DAVOS, SWITZERLAND — Get ready for a new elite consensus on the U.S. > budget deficit. One of the functions of the World Economic Forum — > decide for yourself whether this is a virtue or a vice — is to give > the plutocrats a venue for figuring out their party line. Think of it > as crowdsourcing for the 0.1 percent. > > [great line!] > > For a long time, the conventional wisdom among this crew has been that > the deficit and the debt were the United States’ chief economic > problems. That’s why I wasn’t surprised when Martin Sorrell, the head > of the global communications giant WPP, referred to the deficit as the > country’s most important economic issue at a breakfast discussion he > moderated at the forum this week. The conversation was off the record, > but when I asked Mr. Sorrell if I could quote his comment, he happily > doubled down: Not only was the deficit the United States’ most > important economic woe, it was the most important economic issue in > the entire world. > > “This is the world’s gray swan,” Mr. Sorrell told me, in a play on the > idea of unpredictable, powerful “black swan” events, popularized by > the financial scholar Nassim Nicholas Taleb. > > Most of the panelists (disclosure: I was one of them) at the WPP > conversation agreed with Mr. Sorrell — but that Davos consensus may be > on the verge of shifting. One of the most convincing signs of that > switch came from an interview I did here with Lawrence H. Summers, a > Harvard University economist. > > Mr. Summers, as he put it himself, is hardly a radical [!] — his > résumé includes stints as secretary of the Treasury, president of > Harvard, and President Barack Obama’s chief economic adviser. He is > also an academic economist in excellent standing: Mr. Summers was one > of the youngest tenured professors at Harvard and a recipient in 1993 > of the John Clark Bates Medal, which is awarded every two years to the > best economist under 40. > > Most important of all, when it comes to the deficit debate, Mr. > Summers is a political protégé of Robert E. Rubin, the Treasury > secretary under President Bill Clinton whose hawkishness on the > deficit was so iconic that it inspired the always quotable political > maestro James Carville to muse that he wanted to be reincarnated as > the bond market, because it was, in the Rubin world view, omnipotent, > a characteristic to which Mr. Carville aspired. > > All of which is to say that Mr. Summers is the closest the Davos set > comes to the Delphic Oracle and a historic deficit hawk in very good > standing. That’s why Mr. Summers’s relatively dovish comments about > U.S. deficit reduction should carry such clout. > > Mr. Summers’s most important point was that economic policy is more > like medical treatment than religion. It isn’t a dogma that should be > cleaved to under every circumstance. Instead, it is a tool kit, whose > particular application depends on the specific patient. > > Viewed in that way, there is no contradiction between supporting a > hawkish approach to U.S. government spending in the 1990s and a more > expansionary bias today. The world has changed, so the right policy > needs to be different, too. > > Here is how Mr. Summers explained it: “In 1993, here’s what the > situation was: Capital costs were really high, the trade deficit was > really big, and if you looked at a graph of average wages and the > productivity of American workers, those two graphs lay on top of each > other. So, bringing down the deficit, reducing capital costs, raising > investment, spurring productivity growth, was the right and natural > central strategy for spurring growth. That was what Bob Rubin advised > Bill Clinton, that was the advice Bill Clinton followed, and they were > right.” > > [huh? what do wages have to do with it? or productivity? In any event, > the US budget-balancing (and surplus-running) didn't cause a recession > -- as basic Keynesian theory says and Summers should know -- because > the late-1990s bubble encouraged booming private investment and > consumption spending, while attracting a lot of funds from overseas. > Some of that capital inflow also occurred to the search for a safe > haven. In any event, the non-recession/boom of the late 1990s was more > of a matter of luck than it was due to Rubin's policy.] > > But the fact that deficit cutting was the right prescription in the > 1990s doesn’t necessarily make it the priority today. > > “Today, the long term interest rate is negligible, the constraint on > investment is lack of demand, productivity has vastly outstripped wage > growth, and the syllogism [sic] that reduced deficits spur investments > and you’ll get more middle-class wages doesn’t work in the same way,” > Mr. Summers said. > > [didn't our Larry argue against fiscal stimulus in the early Obama > years, helping to moderate that stimulus so that it wasn't sufficient > to end the recession quickly?] > > True believers in deficit reduction need not give way to complete > despair — Mr. Summers insisted that deficit reduction was not > “inconsequential.” It remained, he said, a “prudent defense” and a > vital form of “economic hygiene.” Fail to deal with the deficit in the > long run and the inevitable outcome is “economic catastrophe.” > > The crucial difference, he argued, is that in contrast to the 1990s, > deficit reduction “does not constitute the basis for satisfactory > growth strategy.” Instead, to get growth, particularly for the > beleaguered middle class, you need what he gently calls [government] > “investment,” a category a budget hawk might simply term “spending.” > > This conditional view of economic policy is a lovely example of the > aphorism that “when the facts change, I change my mind; what do you > do?” It is usually attributed to Keynes, but some pedants say the > first recorded version was uttered by Paul Samuelson, the Nobel > laureate economist who happens to be Mr. Summers’s uncle. > > It is comfortable to take a religious view of economics — once you’ve > chosen your creed, you never have to think again. But when it comes to > deficits — and maybe a lot else besides — that may not be how the > world works. Even in Davos, reality trumps ideology. > > Chrystia Freeland is editor of Thomson Reuters Digital. > -- > 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 _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
