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.


  1. The article appeared in the Washington Post, not the New York Times.

  2. Everything is relative, from a European perspective the Wall St. lackeys Geithner and Summers sound like they were voices of reason and common sense.Here in Sweden, last week, the Social democratic workers party leader and it's economic spokesperson did advocate harsher S & G pact rules with more and harsher punishment for the sinners. They not only advocating budget balance and but budget surplus to create growth. This is very probably Sweden's next prime minister and finance minister after the autumn elections.

  3. Mea Culpa: Dionne is at WP, not NYT. I know this. Am trying to get this piece corrected buy our underpaid blog mngmt "team" (in truth, their pay is zero). So please be patient. LRWray

  4. Hello Professor,I am mostly convinced by neo-chartalist/MMT arguments. But can I please ask one question about government bonds?When the US federal reserve buys back a Treasury bond from the private market, this bond then goes onto the Fed’s balance sheet as an asset.But what happens when the bond matures?Does the Treasury pay the Fed the principal back at maturity? (If so, why would the government need to pay itself?)Does the Fed receive yield payments from the Treasury on the government bonds it holds as assets?I would really like to understand this.Best Wishes

  5. Lord Keynes: My Lord, I thought you were dead. Please do something about the state of economics.Yes Treasury pays interest to Fed, and Fed turns its profits over to Treas so it is as if the interest was never paid.Yes with a budget surplus it is as if taxpayers surrender their Treasury bonds to pay the taxes. The Treasury bonds are retired. More technically, Treas receives credit to its demand deposit at a special private bank. It moves this to its Fed acct. Fed deducts reserves from the bank; now banking system is short reserves so sells bonds to Fed. The bond is the Fed's asset, the Treasury's deposit at the Fed is Fed's liability. The two cancel one another as the bond matures. Treasury's deposit is deducted (its asset) and its liability is eliminated (bond). Private sector has lost a bond (net financial asset) due to the budget surplus. LRWray

  6. "I give the Washington Post five years." Brad DeLong (2001)