The Center of the Universe

St Croix, United States Virgin Islands

MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Lawrence Summers on the economy

Posted by WARREN MOSLER on May 25th, 2010

>   
>   (email exchange)
>   
>   On Mon, May 24, 2010 at 6:50 PM, wrote:
>   

SUMMERS: “FOR MILLIONS OF AMERICANS, THE ECONOMIC EMERGENCY GRINDS ON” – WH adviser Larry Summers spoke to the Johns Hopkins School of Advanced International Studies today: “[T]he observation that the economy is again ascending does not mean that we are out of a very deep valley. Far from it when we are nearly 8 million jobs short of normal employment and about $1 trillion – or $10,000 per family – short of the economy’s potential output and income and when recent events in Europe have introduced uncertainty into the prospects for global growth. Shortfalls in output and employment stunt the economy’s future potential as investment projects are put off and as the skills and work habits of the unemployed atrophy. This last point is especially important when for the first time since the Second World War the typical unemployed worker has already been out of work for more than six months. And behind these statistics lie millions of stories of Americans who have seen the basic foundations of their economic security erode. Beyond the economic projections and equations we economists make lie the struggles of communities devastated by the impact of this recession.Whatever the judgments of groups of economists about the official parameters of the recession and the growing signs of recovery, for millions of Americans the economic emergency grinds on.”

>   
>   So why doesn’t he damn well do something about it?
>   

Because we’ve run out of money.

39 Responses to “Lawrence Summers on the economy”

  1. Tom Hickey Says:

    Summers” “This last point is especially important when for the first time since the Second World War the typical unemployed worker has already been out of work for more than six months. And behind these statistics lie millions of stories of Americans who have seen the basic foundations of their economic security erode.”

    When does “recession” become “depression”?

    Seems like widespread 6 mo + unemployment is at least one criterion.

    Reply

  2. Tom Hickey Says:

    MIke Whitney on board with MMT:

    Great Depression 2.0. Bet on it!

    Reply

  3. Dan Says:

    We haven’t run out of money. We print the money. We are the sole source for the money. We could put a trillion into the hands of people who would own the assets and make the products of this country more attractive without a seconds worry. Instead our administration gives it to the greedy and avaricious financial sector who is creating no wealth while absconding with as much as they can.

    We have just run out of the intelligence and motivation our people used to apply to problems to resolve them. It is a lack of spirit, not resources.

    Reply

  4. beowulf Says:

    Curious that unlike the experts in every other fields of human knowledge, political economists are doing worse now than their predecessors 50 or 60 years ago. For one thing, they don’t seem to know (or care) much about federal law or US history.

    “Normal employment” is just a phrase, ditto with “full employment”, the statutory term the Federal Reserve Act sets as one of its goals is “maximum employment”. The maximum employment the US economy has ever attained in the past (which must be what the Federal Reserve Act means unless its aspiring to attain something even greater in the future) was during 1944, the last full year of World War II– Unemployment Rate of 1.2%, Inflation Rate of 3.5%, GDP Growth of 28%(!).

    Of course, the Act also sets as its other goals stable prices and moderate long-term interest rates. Swell, but even an unemployment rate triple the 1944 level is more ambitious than anything Larry Summers or Tim Geithner is capable of planning for (8 million new jobs implies a “normal employment” rate of around 5%).

    Reply

  5. RSJ Says:

    “> So why doesn’t he damn well do something about it?
    >

    Because we’ve run out of money.”

    How about, because the executive branch cannot appropriate funds, but must ask Congress to do so. A self-imposed constraint, I know.

    Bush found plenty of money to wage wars whenever he wanted. For war, there is always money.

    In this case, business profits are back up, yields are low, so unemployment is not a priority. If business profits fall or there are more financial market crashes, then we will see more stimulus.

    Reply

    Min Reply:

    RSJ: “How about, because the executive branch cannot appropriate funds, but must ask Congress to do so. A self-imposed constraint, I know.”

    Obama said that we are running out of money. Who whispered that in his ear?

    This is an election year. Why didn’t the Dems pass a stimulus bill through the House? Along with a real jobs bill, one that would put millions back to work? (I know about lags, but we have had a couple of years lag time, and high unemployment is projected well into the future.) OK, the Reps would filibuster. Let them. How many votes would they get by that strategy? How many would they lose?

    All signs point to clouded minds in the administration and both major parties.

    Reply

    Min Reply:

    RSJ: “In this case, business profits are back up, yields are low, so unemployment is not a priority. If business profits fall or there are more financial market crashes, then we will see more stimulus.”

    Democrat means Republican Lite?

    Reply

    RSJ Reply:

    I think it’s a priority for those democrats facing a tough re-election campaign in liberal districts. I also think it’s somewhat of a priority for the administration. Far below bailing out the banks and increasing campaign donations, but above, say, climate change.

    But it’s not a priority for republicans in the senate, and only 1/3 of senators are re-elected every cycle. It’s not a priority for any republicans in the house, and probably not a priority for half of the democrats in the house.

    This is why it’s something that Summers can give a speech about, but it’s not something that Obama will really fight for. Obama will make some gesture — give a small tax break to businesses that create jobs, for example, and encourage the extension of unemployment benefits. That’s the amount of political capital he is currently willing to spend on this issue.

    Reply

    RSJ Reply:

    And in terms of money being an issue, wait until there is another banking crisis, and we’ll see if we “don’t have any money” to bail them out.

    Lack of money is a canard — an excuse that he can use because it gives him political cover. People believe we don’t have money, so he can use that as an argument that he is doing all he can. But there is not a real belief that the U.S. cannot spend more, there is only a lack of willingness to spend.

  6. Min Says:

    RSJ: “But there is not a real belief that the U.S. cannot spend more, there is only a lack of willingness to spend.”

    Maybe so, but what about President Clinton? Now that he is largely beyond the political fray, he still appears to believe what Robert Rubin told him. He certainly seem to have a sincere belief that we should pay off the national debt, just like Andrew Jackson.

    Reply

    RSJ Reply:

    I don’t know what Clinton believes, Min, but I do know that some things are “too expensive” to do, while other things are “too expensive to not do”. Which is which is a question of priorities, not the payment mechanism.

    Reply

    zanon Reply:

    I can tells you what Clinton believes.

    I know because I have spoke to rubin about it in person.

    Clinton/Rubin believe that Clinton surpluses, which pay down deficit, lead to low interest rates and prosperity of Clinton era.

    MORONS!

    Reply

    Tom Hickey Reply:

    Exactly.

  7. Tom Hickey Says:

    I think that many people are conflicted about this. On one hand, the experts are saying that debt is bad and the US cannot afford its obligations, which seems to make sense from household budgeting. On the other hand, they see government spending on wars, bailouts and many other things that don’t benefit ordinary folks, and when it come time for ordinary folks, well, then “we are running out of money and can’t afford it.” I would say that many people are simply confused and suspect that they are being taken for a ride, but they aren’t sharp enough to see through the three card monte.

    Reply

  8. zanon Says:

    No, I think people beleive that Govt is taking money that could be theirs, or their childrens, and giving it to favored interests like bankers and unions.

    they are also correct in a certain way

    Reply

    Tom Hickey Reply:

    Zanon: what I am hearing is, “There was plenty when it came to tax cuts for the rich, off-budget wars, unlimited military spending, and then the Wall Street bailout and the big loans to GM and Chrysler. Now they are saying that there is nothing left for Social Security and Medicare. There is something fishy here.” This is from people of both parties. Retired people and those approaching retirement age (over say 50) are upset and blame both parties for being in bed with the rich and powerful and out of touch with them.

    What is happening now is that the well-off are saying that the recession is over and we need to tighten so money done’s lose value through inflation, while most ordinary folks still feel under a lot of pressure even if they still have a job. This is creating political turmoil, and there is potentially going to be hell to pay in November at the mid-terms for incumbents of both parties, the way it is shaping up.

    Of course, there’s a lot of time between now and then and much can change either way. But the stimulus is petering out and it doesn’t seem like there is anything forthcoming to pick up the slack.

    Anyone else close to the ground hearing this?

    Reply

    Tom Hickey Reply:

    I should have added that the reason that they are confused is that know that they are getting taken for a ride and want their share of the booty, but they are also very concerned about the deficit and mounting national debt, which they think means that taxes will have to raised sooner or later to pay it down. It is really difficult to get people to listen to reason on these things, since they are indoctrinated so deeply with the household-government finance analogy, yet they see the elite spending wildly on themselves and then wanting the ordinary folks that work for a living to take the hit.

    Reply

    beowulf Reply:

    the reason that they are confused is that know that they are getting taken for a ride and want their share of the booty, but they are also very concerned about the deficit and mounting national debt, which they think means that taxes will have to raised sooner or later to pay it down.

    Sounds like they’re not confused at all. There no economic reason to be concerned, but politically, they’d be foolish not to worry about higher taxes because of deficit hysteria.
    Washington elites (both the politicians and the press) think the American public is foolish for wanting both higher federal spending and lower federal taxes. Of course, this just means that the American public is instinctively in-paradigm but their leaders are not.

    It reminds me of Josh Marshall explanation of why Europe and Canada abolished capital punishment:
    But the reason isn’t, as death-penalty opponents usually assume, that their populations eschew vengeance. In fact, opinion polls show that Europeans and Canadians crave executions almost as much as their American counterparts do. It’s just that their politicians don’t listen to them. In other words, if these countries’ political cultures are morally superior to America’s, it’s because they’re less democratic.
    http://tpmlivewire.talkingpointsmemo.com/2009/10/europeans-support-capital-punishment-too.php

    Matt Franko Reply:

    Tom,
    On the right Im hearing moaning about the stimulus spending (I interpret they feel it is going to the wrong people, “wasted”), just general anger that leads them to the Tea Party events, and also the Obama citizenship thing (gaining traction imo albeit very slowly).

    Inflation and paying back the debt seem to be secondary issues (inflation never even comes up actually) at ground level on the right.

    My ultra left friends want to raise taxes on the “rich”.
    Resp,

    Reply

    zanon Reply:

    For Gods Sakes Tom

    Can you not puts two and two together?

    Of course there is nothing left for social security and medicare — it all went to wall street/war/union/fannie/freddie.

    Gold standard thinking — you have pot of gold, you gave it to some, there is non left for other.

    also, you should get out more. where i am, i also here about people saying “california has no money for disabled children BUT Muni driveres who kill passengers every week get six figure retirement and take 6 months off if they get spat on”. And in this case they are entire correct — california is not currency issuer and it has prisoners walking the street and disabled children not getting help they need because government union worker (i know the very thought makes you quiver in the ECSTACY!) are being paid $100K, $200K, $300K, $400K+ for nothing.

    Oh yes, and obama’s stimilus spending is being spent on streets with no potholes being dug up again and again (hate the traffic james) amd TESLA, who make playthings for millionnaires, and a bunch of MORON “green” projects run by thugs and crooks. It is WASTED!!! Even people on left think it is crazy and should go to children, hospitals, etc. Not that rat Elon Musks.

    Reply

    Tom Hickey Reply:

    Not arguing about CA problems. I bailed several years ago. my point is that the people that I am in touch with generally consider themselves “fiscally conservative,” even though they are not overly so, yet are concerned with big deficits and growing national debt (interest payments). On the other hand, they are also not going to be stiffed on Medicare and SS after all they contributed. SS and Medicare are still the third rail of American politics, and any party that tries to cut them will feel the backlash of a very significant voting block that has a lot of clout in every locale.

    Notice that the president’s exploratory commission is “bipartisan” because any big changes to “entitlements” can only be passed by a united front by both parties. I don’t believe that will ever happen. There is a real kerfuffle brewing in the US between the middle class and the rich over this, and if we have a double-dip, which is looking increasingly likely, it will be exacerbated.

    Tom Hickey Reply:

    MIke Lux lays out at Huffington Post pretty much what I am hearing.

    http://www.huffingtonpost.com/mike-lux/a-question-that-needs-ans_b_590846.html

    zanon Reply:

    that may be so at national level toms hickey, but what about local level?!

    story at local level is public sector union members making outrageous pay, outrageous retirement, not having to do any works, and thus rendering state unables to pay for disabled children and other things left claims to care about. is all just one big democratic vote bank.

    so obama fiddles with bankers and unions, while we have 50 herbert hoovers who channel our futures to $400K firemen.

    Tom Hickey Reply:

    Depends on the locale. No recession here. Unemployment at a steady 4.6 for some time. Housing price stable. Residential and commercial construction continues as it has for the past several decades. The state is under some pressure, but nothing all that big in comparison to many. What recession?

    zanon Reply:

    Excellent and I loves your concern!

    You are quite correct, what are we worrying about? pls tell NYTimes there is no recession any more, nor was there nay because your state is OK.

    I will also tell disabled children i see being mugged on street that they should get over themselves because there is no recession, and besides, retired unionized govt worker deserves their $400K/year retirements.

    Tom Hickey Reply:

    As I said, I bailed on CA some time ago and now live is a “college town” with a population that is highly educated and very liberal, in a state that has is not depend on manufacturing. So it is pretty recession-proof here.

    Even though there no problems here of any magnitude in comparison with many other places, there is still pressure for “fiscal responsibility” that is cutting into vital resources like education, due to mostly to ignorance on the part of national leaders who could be providing the state and local funding necessary invest in America’s future.

    beowulf Reply:

    For Gods Sakes Tom

    Can you not puts two and two together?

    LOL, you and Tom should have a talk show, that or start a detective agency in San Diego or something. :o)

    California public employee pensions are in a world of their own, it will be interesting to see just how those guys get crammed down.

    Tom Hickey Reply:

    “California public employee pensions are in a world of their own”

    California is in a world of its own.

    zanon Reply:

    It is democratic and progressive liberal paradise!

    Tom Hickey Reply:

    If only there were a Mediterranean climate. But then it would be overrun.

    zanon Reply:

    we built fence to slow that down in 1990s.

    but now san francisco pays $4000/week to illegal hondouran underage drug dealers so they have housing while they are sanctuary from deportation (no i am not kidding you). I am sure you and Noam Chomsky approve hole hartedly.

    http://articles.sfgate.com/2008-07-01/news/17171582_1_group-homes-juvenile-offenders-youths

    Tom Hickey Reply:

    I sympathize with people who are feeling the effect of the gangs. I felt that too when I lived in the North Bay. Obviously, this is unsustainable and it one of the things that is ruining the California I used to love. CA has always been a bit of la-la land, but the present direction is way over the top for me. I’ll be visiting, not staying.

    However, what Chomsky (and I) am saying is that there is a reason the US is dealing with the problems it is, such as illegal immigration, international terrorism, and rampant drug-related violence. It is largely attributable to socio-economic conditions arising in part from American political policy, domestic and foreign, extending from the era of slavery and gunboat diplomacy to dollar hegemony and the race for resources and markets. People don’t count in this game, and consequences are not anticipated, let alone try to shape a better future with the options that are available.

    But here we go again.

    Reply

    zanon Reply:

    Toms Hickey:

    You lived in north bay? you are lucky you are still alive.

    And yes, San Francisco has decided to protect illegal underage hondouran drug dealers and give them money taken from disabled children who are left to rot or be murdered by unionized muni drivers or released criminals because of “dollar hegemony”. here was me thinking it was the insanity that comes from fanatic progressivism. Or maybe Bush. i am clearly idiot.

    you should really come back here. I can think of nothing else that will break you out of the stupor you exist in and regurgitate onto the others. Chonsky should go to mogidishu.

    Reply

  9. w Says:

    > So why doesn’t he damn well do something about it?

    …because it’s ‘them’ versus ‘us’. democrats versus republicans has been a smoke screen for decades and rent seeking has never been more lucrative, or more perilous if the populace gets wise. greater rewards for greater risk i suppose.
    the bankers are a conduit (and certainly not without sin) but the rot stinks from higher up.
    the way agg demand has cratered the past month I’m not yet sure which signal the populace is sending, neither is good and mr summers should be concerned. his boss even moreso…
    thank you for starting this site, i’ve never commented here before (one of your many, many lurker fans i’m sure) but thanks to you i’ve learned quite a bit. thank you to you, and your many excellent regular commenters!

    Reply

    Tom Hickey Reply:

    W: … rent seeking has never been more lucrative, or more perilous if the populace gets wise. greater rewards for greater risk i suppose.

    Right. The big problem economically stems from finance. Rent-seeking has taken over from investment, since there seems to be more money can be extracted made from economic rent in the developed countries than productive investment. Investment is going into emerging nations.

    Reply

    beowulf Reply:

    The President also benefits (if that’s the word) from racial stereotypes. Just as white Southern politician John Edwards was perceived as more conservative that he actually was (and how!!); Obama, as a black Chicago politician, is perceived as more liberal than he actually is.

    Reply

  10. beowulf Says:

    Drudge linked to a Daily Telegraph story about US money supply (quotes Summers re 8 million jobs):
    US money supply plunges at 1930s pace as Obama eyes fresh stimulus

    …The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

    “It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said…

    Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to “grit its teeth” and approve a fresh fiscal boost of $200bn to keep growth on track. “We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on,” he said… David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. “You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip,” he said
    http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

    Reply

    Tom Hickey Reply:

    According to Richard Koo, the big problem now is continued private sector deleveraging that is not being adequately offset by government deficits. He sees the push toward “fiscal responsibility” as leading to a double-dip if it actually results in tightening. If thre is no tightening but no further stimulus, then probably lengthy stagnation will result. He has got the sectoral balance thing straight, and more significantly, provides the example of Japan, showing how it works in practice.

    Reply

    zanon Reply:

    $200B just got cuts to $150B

    Go obama go!

    Reply

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>