{"id":270,"date":"2015-10-09T23:30:02","date_gmt":"2015-10-10T03:30:02","guid":{"rendered":"http:\/\/commoncents.blogwyrm.com\/?p=270"},"modified":"2023-05-06T18:59:01","modified_gmt":"2023-05-06T22:59:01","slug":"an-interesting-warning","status":"publish","type":"post","link":"https:\/\/commoncents.blogwyrm.com\/?p=270","title":{"rendered":"An Interesting Warning"},"content":{"rendered":"<p>A recent article by Larry Summers, entitled <a href=\"https:\/\/www.washingtonpost.com\/opinions\/the-global-economy-is-in-serious-danger\/2015\/10\/07\/85e81666-6c5d-11e5-b31c-d80d62b53e28_story.html\">The global economy is in serious danger<\/a>, recently caught my eye.\u00a0 For those who don\u2019t know, Lawrence (Larry) Summers is a professor at Harvard and served as the Secretary of the Treasury from 1999 to 2001.\u00a0 No doubt the inflow of cash into the treasury during his tenure, a fact many economists credit to the ebullient spirit associated with \u2018the new digital economy\u2019 and the automatic stabilizers in the economy, did much to give him a reputation as an economic seer.\u00a0 But generally, I tend to take what he has to say with a huge shaker of salt mostly based on such idiotic sentiments as<\/p>\n<p><center><iframe loading=\"lazy\" width=\"420\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/CDCllPoroqg\" frameborder=\"0\" allowfullscreen><\/iframe><\/center><\/p>\n<p>This current \u2018chicken little\u2019 prophesy of doom is really no exception.\u00a0 Although, to \u2018be fair\u2019, he does make some valid points in some areas but the bulk of his analysis is repackaged Keynesianism, which, oddly enough, may actually work in the particular situation the global economy is in.<\/p>\n<p>In a nutshell, Summers warning center on secular stagnation where slow growth in the developed world hurts the emerging markets which, in turn, hurts the industrial countries.<\/p>\n<div class = \"myQuoteDiv\">The problem of secular stagnation \u2014 the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies \u2014 is growing worse in the wake of problems in most big emerging markets, starting with China.<\/p>\n<div class = \"myAttrib\"> \u2013 Lawrence Summers<\/div>\n<\/div>\n<p>To support this claim, Summers cites the IMF\u2019s revision of growth forecasts for the US, Europe, and China downward.\u00a0 On the surface, this seems to be a slam dunk of a pronouncement but looking under the veneer one should ask if the IMF foresaw the global financial crisis of 2008.\u00a0 If they didn\u2019t, which I suspect they did not, why start believing them now?<\/p>\n<p>Summers also cites a curious statistic to make us feel all scared inside about the slowdown in growth in China.\u00a0 He points out that China poured more concrete in the time span from 2010 to 2013 that the United States did in the entire twentieth century.\u00a0 This statistic, <a href=\"http:\/\/www.gatesnotes.com\/Books\/Making-the-Modern-World\">which is explained in more detail here<\/a>, seems genuine but who cares.\u00a0 Again, without any context whereby the statistic is put on level footing it is hard to know what to make of it.\u00a0 During the bulk of the twentieth century concrete was not the chosen material for building.\u00a0 Only in the last third of that century did steel reinforced concrete really rise to a common building material, with granite and brick being much preferred prior to that time.\u00a0 A more meaningful comparison would have been to show how much the US used in the span between 2010 and 2013 and even then the comparison would be misleading as the US isn\u2019t trying to catch up to the developing world nor is it trying to lift over a billion souls up to a higher standard of living almost overnight.<\/p>\n<p>In another curious meandering of his thought made manifest in print, Summers writes<\/p>\n<div class = \"myQuoteDiv\">History tells us that markets are inefficient and often wrong in their judgments about economic fundamentals. It also teaches us that policymakers who ignore adverse market signals because they are inconsistent with their preconceptions risk serious error.<\/p>\n<div class = \"myAttrib\"> \u2013 Lawrence Summers<\/div>\n<\/div>\n<p>Okay, which one is it Larry?\u00a0 Should we ignore the market because it is inefficient and often wrong about economic fundamentals or should we listen to the adverse signals that originate from it?<\/p>\n<p>Sigh\u2026<\/p>\n<p>Despite all this intellectual-sounding fluff, the odd thing is that I think Summers has a point.\u00a0 Currently the amount of money in the economy is high and inflation is low.\u00a0 More dollars should be chasing the same amount of goods leading to growth and, perhaps, inflation.\u00a0 But it isn\u2019t happening.<\/p>\n<p>Summers doesn\u2019t seem to venture a guess as to why but he comes close to a hint.\u00a0 He mentions that China is suffering from a hangover due to unproductive investment.\u00a0 What a surprise \u2013 a Keynesian actually suggesting that economic activity is not enough \u2013 that an economy needs to invest wisely.<\/p>\n<p>And so finally, we arrive at the only useful nugget to be found in Summers\u2019 analysis.\u00a0 Governments, businesses, and households all have to be prudent and wise in their investments.\u00a0 In the late 90s through to 2008, they were generally overly enthusiastic and made stupid investments and took on unsupportable debt. \u00a0Post financial crisis, governments have layered even more burdensome regulation on the economy; regulations that they continually tinker with to show how responsible they are.\u00a0 Businesses are sitting on cash timidly afraid to take risk.\u00a0 Households have hunkered down and are waiting to see what their so-called leaders will do.<\/p>\n<p>Someone has got to get the ball rolling again and perhaps Summers is right in saying that it is government that needs to do this. But if this is the case, then businesses and household need to be vigilant in making sure that increased government spending is done wisely.\u00a0 We don\u2019t need anymore hangovers.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A recent article by Larry Summers, entitled The global economy is in serious danger, recently caught my eye.\u00a0 For those who don\u2019t know, Lawrence (Larry) Summers is a professor at... <a class=\"read-more-button\" href=\"https:\/\/commoncents.blogwyrm.com\/?p=270\">Read more &gt;<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-270","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/270","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=270"}],"version-history":[{"count":4,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/270\/revisions"}],"predecessor-version":[{"id":1211,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/270\/revisions\/1211"}],"wp:attachment":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=270"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=270"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=270"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}