Larry Summers: unplugged at the chateau

Two days after Obama’s re-election, his former adviser talks about the fiscal cliff

AP/J. Scott Applewhite

I was really hoping Larry Summers could help me understand the fiscal cliff.

I’m no economist. I never studied economics in any serious way, so it’s not second nature. Complicated economic situations that are often described in 30 words at the top of news stories aren’t my cup of tea. It’s not a fear of numbers (arithmophobia, it turns out, is actually a thing), but simply a lack of expertise.

I suspect I’m not alone. The daily media’s crash course in financials can’t possibly do much to spread economic literacy. That’s not an admission of ignorance. We hope that someone, somewhere, will spell it all out. I bet there are more than a few reporters, none specialists in economics, but many of whom are required to write about it, who feel the same way.

With all that in mind, I sat down Thursday night—beside an economist friend, of course—to watch Larry Summers speak to an audience at Ottawa’s Chateau Laurier about the U.S. election and the fiscal cliff we’re hearing so much about these days. With any luck, I’d learn something.

Summers, of course, is Bill Clinton’s Treasury Secretary and a former Obama economic adviser. You can make certain assumptions about a man of his stature. A guy who’s lived such an intensely public life will probably be a convincing public speaker. He’ll speak with substance.

As it happened, he was all of that. He spoke deliberately, confidently, and without notes. His pacing was vaguely reminiscent of Barack Obama’s—slowly, surely, he built his case—though his presence and delivery, not to mention his rhetoric, weren’t nearly as soaring. Summers held the audience, helped by a fawning introduction by TD Canada Trust CEO Tim Hockey and an audience primed to listen to him so soon after Obama’s re-election.

Summers came to speak about how his countrymen could, and should, avoid an economic catastrophe that would harm GDP growth, job creation, and just about anything else happy in America. He announced his prescription as if it were the obvious remedy; basically the only real choice among very few bad choices. In short, he said, politicians should:

  • Broaden the tax base, which would raise more revenue;
  • Contain the growth rate of healthcare costs, which would limit expenditures.

Summers said he’s seen indications from both Republicans and Democrats in Congress that both of those outcomes are achievable: House of Representatives Speaker John Boehner says he’s open to raising more revenue so long as tax rates don’t rise, a trick pulled off by closing tax loopholes. Summers says if Obamacare is implemented correctly, it could reduce costs and, importantly, create jobs.

It wasn’t exactly inspiring, and it didn’t herald a new kind of politics that Obama’s re-election would ignite. But, during a question-and-answer period following his address, Summers did comment on the significance of a second Obama term. Canada2020 chair Don Newman wondered whether the election really changed anything in America. After all, the Democrats retained control of the White House and Senate, while the Republicans maintained control of the House. Summers’ nuanced response suggested Newman’s calculation missed the point. “Something happened in 2008,” when Obama won, he said. “This election would either confirm or reverse that. And it was confirmed.”

That “something,” of course, included the monumental election of a black man whose ideas appealed not only to a wide cross-section of American voters, but very powerfully to young voters, women, Hispanic and Black Americans. Those constituencies turned out again, and proved Obama’s election, and everything he delivered over four years, was no accident.

That last bit, the political stuff, I soaked in. The economic analysis, well, it came easier than I would have guessed. A guy like Larry Summers, who’s somewhat removed from the thrust and parry of partisan swashbuckling, is able to deliver that. But as I walked out of the hotel and down the street, chatting with my economist friend who did his best not to confuse me, I wondered how many people on the street really understood this metaphorical cliff everyone keeps talking about—even among those who do politics for a living.

How many people could walk into a room, listen to Summers, and come out with a reasonable assessment of his expertise?

I don’t know for sure, but based on conversations about economics with friends and family over the years, I’d guess the number is pretty low, or at least not very high. It had me thinking a lot about a broader definition of literacy. If economic literacy were part of that broader definition, I don’t know how many people could reasonably call themselves literate.

Given that we’re all standing on the edge of a fiscal cliff, it’s scary how little we know about what’s going on around us.




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Larry Summers: unplugged at the chateau

  1. Any time a politician announces that “X jobs will be created” it’s important to remember that there are also “Y” jobs that would have been created anyway, somewhere else in the economy. The really tricky equation is X-Y=Z and whether or not Z is positive or negative.

    If X=50 and Y=0, the politician is being honest – the program is creating 50 jobs.

    If X=50 and Y=-20, the government program is creating 30 jobs and redistributing 20 from somewhere else.

    If X=50 and Y=-200, well, we have a problem.

    (X=0 is also possible. Occasionally “announcements” never get implemented and the only economic activity is some earned media!)

    More economic literacy would be good. More counterfactual thinking would be good too http://en.wikipedia.org/wiki/Counterfactual_thinking

  2. Of course you could topple over a cliff and find you have wound up
    on a gentle slope. Still downhill, though. But less dramatic.

  3. “Summers, of course, is Bill Clinton’s Treasury Secretary and a former Obama economic adviser.”

    WSJ ~ Why Americans Hate Economics:
    Or consider the biggest whopper: Mr. Obama’s thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical “multiplier”—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there’s a fairy passing out free dollars.

    How did modern economics fly off the rails? The answer is that the “invisible hand” of the free enterprise system, first explained in 1776 by Adam Smith, got tossed aside for the new “macroeconomics,” a witchcraft that began to flourish in the 1930s during the rise of Keynes. Macroeconomics simply took basic laws of economics we know to be true for the firm or family—i.e., that demand curves are downward sloping; that when you tax something, you get less of it; that debts have to be repaid—and turned them on their head as national policy.

    http://online.wsj.com/article/SB10001424053111903596904576514552877388610.html

  4. You have to remember that Summers is by, for, and of the Wall Street establishment , and they need stimulus spending to support that hydrogen bubble known as the stock market .

    In fact , one-half of the so-called $600 Billion fiscal cliff is the expiry of the Bush tax cuts for the rich . These include reinstating capital gains tax to 20% from 15% , dividend income taxed at regular income rates vs 15% , and a 4.6 % increase in the top bracket to 39.6% . Exactly what is needed to help reduce the debt.

    The other half are , as a percent of the $3.8 Trillion expense budget , not of great significance , and can largely be achieved by reducing military size , and reducing fraud and waste in the medicare system. Exactly what is needed .

    The only “fiscal cliff” is if the debt is allowed to grow at the present rate.

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