Comments on: Larry Summers Favors Nirvana

By: Handle

Handle — Thu, 09 Oct 2014 16:49:39 +0000

Summers has been conspicuously and publicly active lately, and I think his standards of rigor have slipped in these presentations. It’s fun to speculate on what his latest game might be (the NYT describes his new role as a ‘provocateur’).

For example, his latest paper says the Treasury produced ‘crosswinds’ against the Fed’s efforts to shape the bond yield curve by taking advantage of low rates and issuing more long-term notes, thus undermining the intended impact by about a third by increasing the supply.

But … this doesn’t seem to make any sense. The Treasury has to fund the deficit, and it is easily foreseeable that they would be financially strategic in their selection of a maturity profile.

On the other hand, as Scott Sumner says, “The Central Bank always acts last,” and just as it can always neutralize any undesirable inflationary impact of Fiscal Stimulus produced by Congress (which I think Sumner says neutralizes the stimulus itself), it can neutralize any undesirable maturity portfolio distortions produced by the Treasury by buying up what it deems to be excessive supply.

By: F.F. Wiley

F.F. Wiley — Thu, 09 Oct 2014 16:48:29 +0000

“It’s sad to see someone with Summers’s background”

On the other hand, you might say that the background explains the approach. With his lineage, his choices may have been to keep the unrealistic assumptions or leave the family.

By: LTPhillips

LTPhillips — Thu, 09 Oct 2014 16:01:19 +0000

Summers is engaging in the usual “blackboard economics,” to use Coase’s terminology. Assume perfect rationality and the absence of any form of government failure and an omniscient decision maker will allocate our public resources in an optimal manner. It’s sad to see someone with Summers’s background and intellect engage is this form of “analysis” or rhetoric.

By: R Richard Schweitzer

R Richard Schweitzer — Thu, 09 Oct 2014 15:55:22 +0000

But, why, Dr. Summers, are resources “unemployed?”
We can admit that there are surpluses (particularly noted in large production and distribution enterprises) which are substantially “sequestered,” by managerial motivations (reserves for future power, avoidance of risks, avoidance of exposures of innovation limitations, etc., etc.).

And where there is not absolute or total sequestration, the redeployment flows are slow and hesitant.

Why are we not discussing those features and their causes, let alone possible “remedies?”