Adam Davidson writes a stellar NYT magazine cover story about Glenn & Larry Summers. I cannot clip and do it justice here, so please click to read directly. There is one paragraph I’d like to deconstruct, as they say:
Summers, who once told me “I don’t do apocalypse,” acknowledged that some entitlement reform is inevitable, but that it is not the real adjustment that needs to be made. “That is playing defense,” he said. “It is essential but insufficient.” Instead, Summers wants the country to start playing offense: the crisis that demands our attention now, he says, is long-term unemployment. Millions of Americans have been out of work for more than half a year, many for much longer; not only are they suffering, but the overall economy is poorer without their contribution. Summers argues that the U.S. government can address this problem in several ways, especially by committing to more government spending, notably on infrastructure.
My longtime friend and onetime boss Donald Marron once said something almost identical to “I don’t do apocalypse,” and I respect that. But I grew up thinking a lot about nuclear war, served in a cold war U.S. Air Force, worked in HUMINT before it was cool, and so thinking about the big risks is more appealing and perhaps natural for me. I find the confidence of many peers quaint, and would say that they suffer from a failure of imagination. The Romans, too, never imagined a world without Rome.
“Some reform is inevitable … and essential.” That’s an important line: not just a concession but a demand. Our friends on the right need to read stuff like this and recognize that Larry Summers and Democrats like him are our ALLIES. We would do well to treat them that way.
“The crisis that demands our attention now, he says, is long-term unemployment.” Yes, weak labor demand is THE problem, agreed, but it is a symptom not a cause. So when he discusses remedy, it is superficial instead of structural. Oddly, Davidson describes the long-term unemployed out of work for half a year or longer, when the dysfunctional labor market has been broken for nearly half a decade. And we have discussed the root issue here many times: labor force participation is plummeting.
Summers big solution: “more government spending, notably on infrastructure.” This is such a tired idea, but let’s break it down. Why infrastructure spending? There is some underlying model in Summers’ brain about how growth happens, and I think he thinks growth is a function of scale. More infrastructure yields more tightly connected markets, hence more scale, more specialization, more productivity. Viola! Where this reasoning fails is that there are lots of ways to generate scale that don’t cost the government money. Why don’t we do THOSE things, easy things that Republican and Democratic economists agree on? More international trade, for starters: let’s lower barriers, tariffs, quotas, and subsidies to commodity industries (e.g., most agriculture). And why not do some the easy thing on immigration: green cards for foreign-born, American-educated scientists and engineers?
The reasons liberal economists talk about infrastructure is NOT because of scale, but because it is a vehicle to advocate for more aggregate demand stimulus through fiscal deficit spending. And there’s the rub. That is not part of any growth model. It is a stability model, at best, and temporary.
Keynes quipped: In the long run we are all dead.
I quip: When does temporary end?