Summers: More Idiocy Spewing From “The Mouth”


After finishing retching from Bernanke’s spew earlier, I came across this….

In much of the industrial world, what started as a financial problem is becoming  a structural one. If growth in the US and Europe had been maintained at its  average rate from 1990 to 2007, gross domestic product would have been between  10 and 15 per cent higher today and more than 15 per cent higher by 2015 on  credible projections. Of course, this calculation may be misleading because  global GDP in 2007 was inflated by the same factors that created financial  bubbles.

May be misleading?

Larry goes on to postulate that GDP “might” have been inflated by 5%.  Try again Larry; when you’re adding $7 in debt for each dollar of GDP being added, as we were in 2007, the distortion is a lot higher than 5%!

While there is agreement on the need for more growth and job creation in the short run and on containing the accumulation of debt in the long run….

There is?  Or is there only agreement on the appearance of growth?

And then we get into the other problem — from what baseline?  From the baseline of 2007, when the economy was one giant bubble predicated on ever-rising financial leverage and home prices?  From 1999, when the same was going on in worthless .COM stocks?  Or from….. where?

The problem with structural deficits and the distortions they add to the economy is not new.  Nor is it confined to governments; debt is debt and all unbacked credit emissions sends equally-false signals into the economy and results in production that cannot be paid for out of current economic surplus!

This is a bit of truth that is anathema to people like Larry, because if one admits to this then one has to go back and look at their previous (and current!) advocacy — where one finds all sorts of mantras like “don’t harm the recovery by getting rid of deficit spending.”  Oh wait; that means that I was advocating sending intentionally-false demand signals into the economy?


The problem with controlling debt “in the intermediate term” is that it never works, not because the implementation chosen is flawed but rather because it can’t work.

Yes, you can temporarily “goose demand” by adding debt to the system.  That should be obvious; if you have no money and someone “lends” you $20,000 to buy a car, you can now buy a car where you couldn’t before.

But such a “pull forward” of demand is in fact a negative sum game because you must not only pay for the car but in addition you no longer need a new carand thus you will not buy one tomorrow.  Worse, your interest expense forces you to pay more for the car and since nobody intentionally lends at a loss on average you will pay more than the actual time value (and default risk) would imply.  As a consequence the demand signal sent into the economy by these actions are false.

Now let’s add to this fact all the nasty and negative second-order effects.  Having “successfully” gotten businesspeople to hire to build all those new cars you are now stuck with having to continue to pull forward more and more demand so that the next car is built too!  But wait — what about that interest?

This is an exponential — that is, geometric — series, and therefore it cannot, by definition, go on forever.  Worse, for every day it does go on the imbalance that it puts into the economy grows at a greater and greater rate!

Those like me whose economic thinking emphasises promoting demand worry that  expansionary policies carried out for too short a time will prove insufficient  to kick-start growth while at the same time discrediting their own efficacy and  reducing confidence.

Your “economic thinking” is a scam Larry.  The only reason it “works” on the masses is because they can’t manage to solve the following problem:

6 – 1 x 0 + 2 / 2 =

And get the right answer.

The above, incidentally, came “over the transom” from someone on Facebook.  The answers on his comment thread were nearly all wrong.  I “shared” it on mine, thinking that my readers would be capable of third grade arithmetic, and a large number of people commenting on my posting of it got it wrong.

There aren’t multiple answers to this problem, by the way, and nobody who claims to have graduated from grade school should fail to come up with it, without a calculator, pencil or paper.

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