Feb 23, 2012 at 5:48 pm
In the first doc, I recall that during my tenure with Larry Summers at the White House, he was an aggressive supporter of Keynesian stimulus, and I point out a few ways in which I thought Ryan Lizza’s otherwise fine New Yorker piece got that wrong.
The second link finds Noam Scheiber revisiting this theme of Larry as unwilling to up the Keynesian ante in early memos to the President-elect. Again, the slant here doesn’t capture Larry’s views or his actions. Numerous people who edited the memo judged the $1.8 trillion stimulus number on which Scheiber focuses to be implausible, and not just in optical and political terms, but in implementation and market terms.
The final memo that went to the President-elect makes this point: “To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion–which would likely not accomplish the goal because of the impact it would have on markets.”
For the record, I was not one of those who worried about markets in this context and neither was Larry—and from everything I’ve seen, we were right. But this is teamwork, and knowledgeable members of the team wanted the President-elect to be aware of this caveat.
One final substantive point. Keynesian economics is not as simple as measuring a hole and filling it up. The implementation constraints I noted above were real, especially if you’re concerned with the capacity of the economy to absorb the stimulus in a useful manner, not to mention the requisite accountability in tracking the bucks. And remember, there was a lot of other stimulus going on at the time, including monetary policy and in credit markets (TARP). I’m not arguing that $800 billion was the “right” number, nor that $1.8 trillion was “wrong.” But there’s more to this than measuring a hole.
I don’t mean to be in the business of defending colleagues every time someone takes a swipe, and btw, Larry and I found a lot to disagree about, including stuff like this and this (actually, what’s your take on the minimum wage these days, Dr. Summers—on board for an increase?). But this narrative of Larry as anti-Keynesian is just flat out wrong. His view, as he consistently expressed to the President-elect and later to the President, was this (from a December 2008 memo):
“The rule that it is better to err on the side of doing too much rather than too little should apply forcefully to the overall set of economic proposals.”
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