For those of you who aren't that into social media, you should know that Twitter is a remarkable outlet for the economics profession. I have great respect for the practitioners in the field. Social media has allowed me direct interaction with Fed officials, senior economists, and former administration officials who served in various capacities at Treasury and the West Wing. At the same time, I'm not a trained economist, I am completely self taught (which is actually easy given the resources the internet provides) nor will I serve on any panel or get invited to offer my opinions.
On Thursday, August 22nd, we were treated to a thread, a Midrash, actually, by Larry Summers, former World Bank Chief Economist, U.S. Treasury Secretary, former President of, and professor at, Harvard. He seems to have come to the conclusion, at long last, that monetary policy just might not be the all conquering cure for every economic ailment.
The chatter unleashed on what is known as #FinTwit has gone through the roof. For me, I am positively dumbstruck by this.
How in God's name did someone with Mr. Summers' CV belatedly come to the conclusion in late 2019, that after nearly a decade of zero bound interest rates, monetary policy alone could not get the economy into escape velocity and finally bury the contagion the Great Financial Crisis had spread? Did Professor Summers actually believe that cheap credit, by itself, would compensate for three disastrous tax cuts that throttled inequality and incentivized rent seeking, or neuter the effects of a predatory health care system that has strip mined the buying power of millions of Americans, or the complete lack of anti-trust enforcement, all of which have ravaged the country for almost 20 years? I can't believe he expressed this publicly. Especially since I've been hammering at this point for years. After all this time, Mr. Summers now announces that the effectiveness of Central Bank policy in the face of all these obstacles would appear to be "in doubt." Well, thanks for that.
Now there IS a lot of talk about "out of touch elites" out there, and some of those "elites" (sic) certainly are. But not all of them, and there have been many voices from the field who came to this conclusion years ago. I ought to know. I've been interacting with them for years. But after posting this thread, you would think Mr. Summers just uttered The Sermon on the Mount. The economic community has gone apoplectic over this screed, simply for stating was has been plainly obvious since 2010. And now, he's the talk of Jackson Hole. Mr. Summers appears to have found God, and we'll be hanging on every word.
Me? I'm going to have lunch.