Wednesday, May 2, 2012

The Man who Blew Up the Harvard Endowment Has Some Advice for Europe

Larry Summers is out with a piece in the Financial Times calling for a growth policy to end the Euro Zone crisis. He says austerity is not the way. Yes, yes, I agree. A growth policy which removes minimum wage laws, which removes burdensome regulations is exactly what is needed in the EZ. As for austerity, yes, yes, burdensome taxes should be removed, not increased (even though cutting back on government social welfare programs, which is part of austerity is a good idea).

Summers is on to something, here. But wait, this is the Larry Summers, who fired Iris Mack after she warned him about the derivatives exposure in the Harvard endowment. Has Summers finally gotten something right?

Well, not exactly.

For Summers, economic growth means more government spending. What is his "growth" prescription to these financially teetering countries? Why, more debt!! I am not making this up. Summers writes:

Sceptics will rightly wonder how a prescription for more spending by countries that already have trouble borrowing can be correct. The answer lies in the difference between borrowing by an individual and by a country. Normally, an individual helps his creditors by borrowing less, but a person who stops borrowing to finance commuting to work does his creditors no favour. Similarly, since for a country income is determined by spending, a country that pursues austerity to the point where its economy is driven into a downward spiral does its creditors no favour. Yes, there will ultimately be a need to raise retirement ages, reform sclerosis-inducing regulations and restructure benefit programmes. Phased in, commitments in these areas would be constructive. But the prospect for success, politically and economically depends on the restoration of growth.
There you have it. In Summers mind, it is only government spending that can restore growth. He totally ignores the fact that governments are bureaucratic, central planning organizations that are the direct opposite of what is required for growth. What is needed is the opportunity for free enterprise and the profit motive to flourish, not more central planning.

The EZ governments have abused the trillions they have already borrowed and so Summers wants to give them more. Amazing.

Clearly, Summers has too much time on his hands. Can someone get him a position as Paul Krugman's man- servant?


  1. I repeat myself: They have all kissed their minds a final farewell.

  2. Its no wonder the world is so screwed up when you have what are supposed to be the brightest minds on the planet giving the most idiotic and impossible advice to follow. The progressive era is coming to an a economic force. Thank god!

  3. Is this really so hard? Take a look at the countries that are NOT buried in debt, and see what percentage of their GDP government spending represents.

  4. But what happened to the Keynesian stimulus deployed in Europe in 2009? Didn't that work?

    Check out Estonia who went into belt-tightening after the 08 crash.

  5. He's one of the inner circle of establishment and so, while he might recommend a few liberalizing measures (that will make connected big business happy) he isn't going start telling the politicians and their masters to dead dead either so nothing new here. But it does show that some of them do realize that they are the problem.

  6. Who would listen to Summers after how horribly wrong he was on the economy blowing up for Harvard's endowment? I would listen to a high school kid who read this page every day for a few months over him because they would have a much better understanding of how things work.