Now He Tells Us

Larry Summers is out of government. And he’s talking (and talking, and talking …).

In a recent interview Summers proclaims that Keynesian economics has been totally vindicated, because, as he says, “macroeconomics is about filling in the gaps, not smoothing the cycle.” In other words, economics is about stopping the bleeding, not about getting the patient healthy.

Well you could have fooled me.

The Keynesian in the Treasury Department argues that cutting spending, even when tied to lower taxes, will contract the economy. It was Keynesians in the ‘60s and ‘70s that declared the business cycle dead. It’s Keynesians who say it’s all about demand; that the current economic slowdown has nothing to do with a skills mismatch between unemployed construction workers in Arizona and HTML coders needed in Silicon Valley. Keynesians were right that spending in ’08 and ’09 plugged the hole that the economy started to fall into. But they ignore the long-term consequences of their policies.

Long-term, if you support failed enterprises, you end up with an economy full of failures. Long-term, if the government is the employer of last resort, the government turns into the first resort. People won’t look for work if they don’t have to.

America is exceptional because the people and the institutions are remarkably flexible. Necessity is the mother of invention. Keynes may have stopped the bleeding, but it will take the right incentives to get the competitive juices flowing effectively again.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350

www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

Leave a Reply

Your email address will not be published. Required fields are marked *