Tuesday, September 22, 2009

Is Larry Summers the Next Irving Fisher?

Irving Fisher said, a few days before the 1929 stock market crash that, "Stock prices have reached what looks like a permanently high plateau." On October 21 as markets started to weaken he said that the market was "only shaking out of the lunatic fringe" and went on to explain why he felt the prices still had not caught up with their real value and should go much higher. On Wednesday, October 23, he announced in a banker’s meeting “security values in most instances were not inflated.”

Now as the Dead Cat Bounce is long in the tooth, Larry Summers has come out to tell us, on the White House blog, everything is fine, thanks to Keynesian economics:

The wisdom of Keynesian policies has been confirmed by the performance of the economy over the past year. After the collapse of Lehman Brothers last September, government policy moved in a strongly activist direction.

As a result of those policies, our outlook today has shifted from rescue to recovery, from worrying about the very real prospect of depression to thinking about what kind of an expansion we want to have.
After setting himself up for a major embarrassment as we head towards Bernanke Crash II, he amazingly writes about the importance of innovation:

An important aspect of any economic expansion is the role innovation plays as an engine of economic growth. In this regard, the most important economist of the twenty-first century might actually turn out to be not Smith or Keynes, but Joseph Schumpeter.

One of Schumpeter’s most important contributions was the emphasis he placed on the tremendous power of innovation and entrepreneurial initiative to drive growth through a process he famously characterized as "creative destruction." His work captured not only an economic truth, but also the particular source of America’s strength and dynamism.
This as President Obama wants to choke off innovation by propping up the old and suffocating creativity through new regulations everywhere you turn, from health care to global finance. And, as there is a growing deficit and talk of new taxes, which will result in less money for new ideas.

With thinking like this, and reality not even making an appearance, I can see how his management at Harvard brought the university to its financial knees.

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