There’s a lot not to like about Larry Summers, but something positive emerged last week.
As you no doubt already know, along with current Federal Reserve Vice Chair Janet Yellen, Summers is one of the two leading candidates to be the next Federal Reserve Chairman and, as such, his views on Fed money printing and the lack of aggregate demand as the proximate cause of our economic woes found in this Financial Times story($) should make things pretty interesting were he to actually get the job.
First, on “quantitative easing”:
“QE in my view is less efficacious for the real economy than most people suppose,” said Mr Summers according to an official summary of his remarks at a conference organised in Santa Monica by Drobny Global, obtained by the Financial Times.
And, perhaps more importantly, on an economy’s “potential” output:
In his remarks in April, Mr Summers said it was likely either the economy would accelerate, or else estimates of its growth potential would have to come down.
“If we have slow growth, we are not going to keep thinking that 5.5 per cent unemployment is normal,” said Mr Summers. “We are going to decide rightly or wrongly that the potential of the economy is less and therefore we are going to decide that we are closer to that potential and that is going to operate in favour of suggesting that we should normalise interest rates.”
You don’t hear this sort of talk from anyone other Austrian economists and, to PhD economists in the U.S., it’s about as close to blasphemy as you can get.