Lawrence Summers, former Director of the U.S. Economic Council under Barack Obama, believes his policies are crucial for mending the woes of the world’s economic climate. Without the implementation of his plans, he believes that the risk of a global depression increases significantly. Lunchtime Thursday, he stopped by IAB’s penthouse for a discussion of fiscal stimulus and economic calamity. Bwog’s Chief Supply and Demand Correspondent Grant D’Avino was there to give you the scoop.
At Thursday’s Gabriel Silver Memorial Lecture, Lawrence Summers laid out a vision of the economy similar to the one he held while serving as Director of President Obama’s National Economic Council. His firmly Keynesian explanation for the industrialized world’s economic woes were summed up in one sentence, “There is too little demand.”
With the world economy in what he called “a moment of singular danger,” Summers explained some of the central lessons of economics and teased out their implications for successful policy. “It is not true that what is good for one person is good for everyone,” he said, turning to a concise explanation of the paradox of thrift. The problem, he continued, is that what makes sense for one person—like saving money for the future—can result in economic disaster if everyone does it at the same time, given the right conditions. Summers followed with a point he has made before, “It is the central irony of financial crises that while they are caused by too much confidence, too much borrowing and lending, and too much spending, they can only be solved through more confidence, more borrowing and lending, and more spending.” The failure of many policy makers to recognize these issues, central tenets of Keynesian economics, has contributed substantially to the continued stagnation of the world’s industrialized economies, Summers alleged.