March 16, 2009

Lawrence Summers is a Grand Hypocrite

Lawrence Summers, former World Bank chief economics, Clinton Treasury secretary and Harvard president, has completely turn his convictions around. This would be good, if he didn't maintain that this apparent conversion is somehow 'temporary': reports (ht to Emmanuel):
Widely seen as being among the most pro-market voices in the White House, having been Bill Clinton’s last Treasury secretary in the 1990s, Mr Summers said the view that the market was inherently self-stabilising had been “dealt a fatal blow”. At a time when the Republican critique of Washington’s aggressive response to the crisis is growing more trenchant, Mr Summers made an unapologetic case for government intervention.

“This notion that the economy is self-stabilising is usually right but it is wrong a few times a century. And this is one of those times . . . there’s a need for extraordinary public action at those times...”
What a load of crap. Summers has it almost exactly backwards. The 30 years or so that this credit bubble has been constantly growing have been the time that the market has not been self-correcting. This crisis is the much awaited self-correction.

Funny that he didn't feel this way when the Asian financial bubble burst in 1997. Then he was all for harsh austerity measures. The current global phenomenon is only different in its scope and size. There is no fundamental difference.

Not that I'm at all for letting this crisis run its course without any remedial measures. But if we are going to let the unquestionably unstable credit machine churn out bubble after freaking bubble, we should device a comprehensive safety net that covers all and every part of the world economy, not just a select set of G-7 nations.

Naturally, it would have been much more fruitful to keep the lid on the credit machine that was unleashed by the Reagan and Thatcher governments in the early 1980's. Unregulated issuance of credit has always and everywhere been the source of financial bubbles.

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