By L. Randall Wray
Larry Summers is no hero. Probably only Bob Rubin and Alan Greenspan played a more important role in promoting the deregulations and lax oversight that helped to create this crisis. And Summers has continually got it wrong in dealing with the crisis his bad judgment helped to create. Rather than bailing out Mainstream he bails out Wall Street. Rather than creating jobs for the unemployed he does his best to keep the crooks in charge of the biggest banks. Rather than pushing for a thorough overhaul of our financial system he still frets about “heavy handed” re-regulation.
So why is the WASHINGTON POST’s E.J. Dionne fluffing Larry? Yesterday, he published a fawning piece, promoting Larry as the newest “maestro” on the block. (Remember when Greenspan was proclaimed to be the maestro who had successfully navigated the economy through the dot-com collapse and recession?) In the “adult film” industry, the fluffer helps to get the stars “in the mood”. Dionne claims that Larry, who rescued our economy from the precipice of another great depression, is now performing his “careful and unapologetic rendition of the two-handed economist act”, arguing that while we must eventually eliminate the government budget deficit, we must not do it now. Lord, make me chaste, but not just yet. In a remarkable bit of spin, Dionne claims Larry is “nothing if not careful”. Right. Like the mad bull in a china shop. Remember when Larry said we ought to use developing nations as our toxic waste dumps. Or when as president of Harvard he claimed that women just do not have the right genes to do science. Yes, as Dionne says, Larry is always “pragmatic”. What kind of mood is Dionne trying to put Larry in with such fluff?
Look, Larry is correct that trying to cut the budget deficit now is crazy. As NEP economists argue, however, we do not need “two handed” arguments. Deficit cutting whether now or in the future is not a legitimate goal of public policy for a sovereign nation. Deficits are (mostly) endogenously determined by the performance of the economy. They add to private sector income and to net financial wealth. So, yes, Summers and Dionne are correct that the deficit will come down when (if) the economy recovers. But whatever happens to the deficit should be considered to be a “non-event”, not worthy of notice. This is not a two-handed balancing act—deficits now, necessary austerity later.