Based on Simon Johnson’s account of a conversation with him, Larry Summers seems even more delusional in person than in the media:
LS: We will get out of the crisis by encouraging exactly the kind of behaviors that “previously we wanted to discourage” two years ago. It is “this insight, this view” particularly with regard to leverage (overborrowing, to you and me) that “undergirds the policy program in the United States.”
LS: Growth in the 1990s and more recently was based too much on finance (this appears to be a relatively new thought for Summers). The high and rising share of finance in corporate profits “should have been a warning”. The next expansion should be based less on asset bubbles and more on investment in key public services.
The essence of the government’s short-term strategy is obviously to prop up the financial sector, in order to sustain something close to the current levels of debt in the economy. But there was no hint in his remarks that this creates tension with point #4 – growth needs to be less finance-oriented in the future, i.e., talent has to be allocated elsewhere. If the rents are now government-generated but still in the financial sector, why would people or capital move?
Unbelievable. At least lie, just to pretend you’re trying to do the right thing…
