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Recovery Summers

November 17, 2016

Getting a recovery from here, from within the mess that Obama has left behind, will be a task of such Herculean difficulty that only because Trump is president do I think it is even possible. And one of the most important virtues he may have is not listening to economists such as this one discussed in the article at the link: The brilliant economist who designed the failed 2009 stimulus plan tells us that Donald Trump’s economic plans are going to fail. Here we are dealing with Harvard economist, i.e. Keynesian economist, Lawrence Summers, about whom the article states:

At this point, we have to note that the esteemed Dr Summers was the architect of President Obama’s 2009 stimulus program, the American Recovery and Reinvestment Act of 2009, an $831 billion boondoggle which was promised to hold unemployment to a maximum of 8%; it reached 10.0% in October of 2009, and stood at 9.2% in June of 2011, when it was projected to be below 7%. There are many economists who still justify the stimulus bill by saying that while the effects of the recession were worse than estimated, they’d have been worse yet without the ARRA. That, of course, is unprovable, but when the designer of such a huge, failed program tells me that someone else’s economic plans won’t work, I have to look at his statements with a jaundiced eye.

Trump has spending plans of his own that aside from The Wall, which if it significantly reduces the size of the American welfare bill may pay for itself many times over, will also add to the burdens on the economy. But he also intends to cut energy costs, improve decaying infrastructure, free up the regulatory framework that suppresses industry, renegotiate trade deals that are intended to work for American industry, and lower government outlays generally. He will also remove Obamacare, which has raised the cost of full-time employees, while lowering the cost of health insurance. Interest rates will also start to rise which should assist in the shifting of resources into more productive areas of the economy, and will also add to the willingness of many to save.

I definitely do not say it’s easy, and no one can guarantee things will turn round rapidly enough to show results soon enough to work politically, specially in the midst of the hostile media circus Trump will have to deal with. But at least I feel the for the most part the changes that will be introduced will generally shift things in the right direction. Here is the alternative Summers has in mind:

I have long been a strong advocate of debt-financed public investment in the context of low interest rates and a decaying U.S. infrastructure, so I was glad to see Trump emphasize it. Unfortunately, the plan presented by his advisers, Peter Navarro and Wilbur Ross, suggests an approach based on tax credits for equity investment and total private-sector participation that will not cover the most important projects, not reach many of the most important investors and involve substantial mis-targeting of public resources.

There is no learning from history other than that economists never learn from history. You also know that Congress is will fight like cats to maintain expenditure since that is almost entirely what they have to maintain their support. Whether there is a constituency for re-building the private sector is still to be discovered, but at least with Trump you know he will want to try.

And if you are curious about the significance of the title to the post, you need to recall Obama’s declarations of a “recovery summer” that never arrived even after eight successive summers of trying.

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