#4 Easily our nation's best and most experienced economist is Larry Summers. He's not very conservative, and he just ripped the Biden admin's economic policies to shreds in a long interview with Martin Wolf of the Financial Times. Larry Summers says this is a repeat of the mistakes of the Johnson Admjnistration and that, yes, we're going back to the 1970s -- inflation and recession together.
This FT interview's behind the paywall, so here are some choice bits -- note the math. Summers says that the Biden advisors aren't even bothering g to do the math anymore. In short, the sums being spent are so wildly out of line with even liberal Keynesian analysis as to constitute a fraud:
Larry Summers: If you look at the economy at the beginning of this year, prevailing forecasts were that Covid would reduce wages and salaries to American households by $20bn-$30bn a month, with that figure declining over the year.
So, that would be a $250bn-$300bn hole in wages and salaries over the course of the year. So, I look at this hole and then I see $900bn of stimulus in the December package, $1.9tn of stimulus in the recently passed package and $2tn in the savings overhang, which is also likely to be spent.
I see the Fed with its foot on the accelerator as hard as any Fed has ever done.
I see serious discussion of trillions of dollars more in fiscal stimulus, along with the explanation that this latest package is not temporary Covid relief, but a harbinger of a major transformation in social policy, which suggests that at least some of it will be continued indefinitely.
So, I look at that dwindling hole. Then I look at expenditures that aren’t hard to add into the multiple trillions, and I see substantial risk that the amount of water being poured in vastly exceeds the size of the bathtub.
That could manifest itself, as a much smaller period of excess did during the Vietnam war, in rising inflation and a ratcheting-up of inflation expectations. It could, as has often happened, manifest itself in the Federal Reserve feeling a need for a sharp and surprising increase in interest rates, and the subsequent deceleration of the economy into recession. It could manifest itself in a period of euphoric boom and optimism that leads to unsustainable bubbles, or it could all work out well.
But, it doesn’t seem to me that the preponderant probability is that it will work out well. So I’m concerned that what is being done is substantially excessive.
Martin Wolf: Joe Biden’s $1.9tn package is a risky experiment.
Larry Summers: Now, when we’re talking about fiscal stimulus totalling 14 per cent of GDP in its first round, when we’re also talking about extraordinary monetary measures, structural effects of Covid — notably a large savings overhang — it seems to me that we are way overdoing the requisite response. I always thought of economics as a quantitative field and when I hear people talk about why this is the right thing to do, they say things like “we really need to go big”, or “the 2009 stimulus was too small”.
It seems to me one needs to link the scale of the problem with the magnitude of the response. I look at the response and I look at the scale of the problem and I can’t see how it adds up. There’s not much argument that the 2009 stimulus, in retrospect, was too small. It was 4 to 5 per cent of GDP over a couple of years, so it was 2.5 per cent of GDP in the first year, against a gap that was 6 or 7 per cent of GDP and growing, so it was perhaps a third or half of that gap.
Today’s stimulus is above 10 per cent of GDP in the face of a gap that is 3 or 4 per cent of GDP. Relative to the gap, this stimulus is already of the order of five or six times as large as in 2009. Not even the most extravagant critics of the 2009 stimulus have suggested it should have been six times as large.
I would say one other thing. In...the 2009 stimulus, there were important investments in electronic medical records, new green venture capital and research-type measures, extending broadband and infrastructure repair and investment.
What’s striking about today is that all of the trillions of dollars — all of it — does not include a penny directed at building back better. I could have been comfortable with a headline figure well in excess of $1.9tn if it had been a large-scale, multiyear programme of public investment responding to our deepest societal concerns.
But that’s not what this is. It transfers to state and local governments that don’t have any new budget problem, according to the latest figures. It’s paying people, who have been unemployed, more in unemployment insurance than they earned when they were working. It’s giving cheques to families in the 90th percentile of income distribution. It doesn’t seem prudent on resource allocation grounds, as well as being problematic on macroeconomic grounds
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[ZERO] We already touched on two of the more colorful exchanges from Saturday's Berkshire annual videoconference, both of which incidentally starred the traditionally far more outspoken Charlie Munger, who first crushed a generation's monetary dreams saying that today's Millennials will have "a hell of a time getting rich compared to our generation", and then infuriated tens of millions of cryptofans and diamond hands (such as Dan Loeb) when he said that "the whole damn development" of crytpocurrencies "is disgusting and contrary to the interests of civilization."