A Conversation with Lawrence H. Summers and Paul Krugman

On Friday, February 12, Paul Krugman and Lawrence H. Summers joined Markus’ Academy for a conversation.
Krugman is Professor Emeritus at Princeton University, the Distinguished Professor of Economics at the Graduate Center of the City University of New York, a columnist at the New York Times, and a 2008 recipient of the Nobel Prize in Economics.
Summers is a Professor at Harvard’s Kennedy School of Government, a former U.S. Treasury Secretary, President Emeritus of Harvard University, and former Chief Economist at the World Bank.

[@Claudia-yd3dd]

I love this channel and the Markus Academy, thank you very much.

[@niteshk386]

Fantastic channel. Thank you very much.

[@ldm8393]

Very interesting, thank you!

[@nimbleninja12]

Jesus.. I have to play this on 1.5x whenever summers speaks

[@rockefroth4770]

Politicians often speak slow, they wanna make sure listeners get 100% correctly their messages.

[@markov1917]

Actually he got better !

[@AnexoRialto]

A bit of inflation. Say, 4-5% p.a. increase in the CPI, wouldn't be so bad because it would begin to eat into the sovereign debt overhang left after the pandemic is over. It would also allow interest rates to get out of the 0% range. New borrowing would be more expensive, but there's room for a large tax increase for the very rich.

[@tmac2000]

This used to be standard thinking / policy Now it's Communiusm

[@puma7171]

Agree, but the hard part is to get inflation going to begin with. Since 2009 monetary policy has been so ultra-extremely expansionary, and has barely prevented deflation. But then again, checks in the hand of consumers might help.

[@mikegbabcock]

How out of touch do you have to be to say that raising the day to day living expenses of average people 4-5% is a good thing? How clueless do you have to be to think that the rich could even afford to pay 5% additional interest on $30T? Moral statements do not just erase the mathematical impossibility of these crazy ideas.

[@chrisschill9222]

@@klam77 japan has been the most messed up developed economy since the 90s with very low growth, low innovation and dismal returns.

[@chrisschill9222]

That is correct. But it would be at the cost of lenders (citizens, banks, retiree funds, ...) as it already happening by the below inflation returns on government bonds. It is a transfer from lenders to borrowers essentially.

[@jackc.8487]

Ok, Paul is probably right that the untargeted checks will largely be saved, and so will not be stimulative to consumption spending, but it is likely that they will be directed to bidding up housing prices, stock prices, and perhaps other speculation, which can lead to destabilizing bubbles and busts. Huge increases in mortgage issuance and stock purchases can already be seen. This bill will strengthen those trends. I agree with Larry and Marcus here.

[@teddybruscie]

But those trends already existed before Covid. Sure it may intensify it but I'm not convinced it's enough to have a real impact on inflation that wasn't already trending.

[@shazbots]

Sounds right to me (1 year later...)

[@simonarodan]

Sommers seems to be arguing not about the size of the package, but how much of it is not targeted on projects like climate changes and infrastructure.

[@MarkusPOTM]

Well, a year later, what do we think? Which was the larger driver of inflation, monetary (QE) or fiscal spending? Supply constraints king? Still a great discussion and time capsule moment. In the moment, the fog of war is thick, meanwhile hindsight is closer to 20/20.

[@lanamurphree4702]

Im of the belief that the inflation is largely supply side. I think that it certainly wasn't QE or other monetary changes (although they certainly affected asset prices) but I also think it wasn't fiscally driven either. I believe this for three main reasons: (1) the evidence that a one time increase in income induces saving rather than spending is pretty substantial, (2) there was a significant lag time between the fiscal stimulus and inflation. This lag seems a lot more consistent with large startup costs that occurred because of the lockdown. There's also the increase in energy prices in 2022 that exacerbated the inflation problem. (3) I think there's a lot more anecdotal evidence that suggests the SRAS curve is steeper at the margins. For example, southwest's cancelled flights because of the shortage of pilots caused by the long lockdown. Let me know if you disagree/if you think it was fiscal or monetary

[@fithrafaisal7123]

I second paul’s perspective. The idea is to avoid economic hysteresis. There might be bubble but not in the near future. The thing is, we need to prioritize the economic measures. First things first

[@bleacherz7503]

Well I drank you the koolaid. Problem is now the entire economy is sick

[@jamessheffield4173]

How about the fiscal policy of World War II?

[@spiritofgoldfish]

We have institutionalized opposition, not representation.

[@Avidcomp]

If increasing liquidity through money creation works, then why tax the public at all?

[@mhpt74]

The risk of a demagogue returning to power if the economy is not in decent shape in four years is clearly looming in the background of this debate. Maybe the choice of title on Krugman’s bookshelf was a Freudian slip.

[@newtonpritchett9887]

I mean, now that I see it, there's almost no way it wasn't carefully placed there

[@brackettmonoyios8819]

A year later, it sure looks like Summers was right.

[@finishedwork]

Absolutely right

[@condor7810]

2 years after this was recorded (Feb. 2023): Larry Summers called it exactly right. Egg on Krugman's face.

[@LB-hj3nm]

What if this is not a one round game but a multi round game, we will need a lot more dry powder in a multi round game

[@lanimiller1560]

What better to invest in than the next generation?

[@spiritofgoldfish]

We have more choice of potato chips than politics.

[@inediblenut]

This my friend. She a dancer. Her name Bubbles!

[@manuelmanuel9248]

I get the feeling that these two are speculating whether the 1.9 trillion bucks will overheat the economy.Neither of them knows. Too many variables. This is similar to weather forecasts or maybe worse. However, neither of them has a strong opinion against legislating the package. If the economy starts to overheat the executive can stop spending the approved funds. All funds will not be spent in 2021. Moreover, the risk is greater if the government under spends.

[@johngage5391]

No mention about funding this through a Trump tax cut rollback versus increasing debt? I predict the resulting debt will end up being a bigger problem than inflation from the stimulus spending. Debt-driven inflation is just a matter of time, and the combination of climate change and our ballooning debt puts us at high economic risk.

[@jonathanm9993]

I really don't see the immediate danger with debt. Not even the remote danger. The US can't default on it and interest payments are at sustainable levels. Genuinely wondering where you see potential danger.

[@davidhaseley953]

Summers stated that he is concerned about the risks of too large a stimulus package. However, he does not put much weight in the risks of too small a stimulus package. I believe that if the stimulus package is too small, then the economy will not recovery and Republicans (and their lies and desire to dismantle gov't) will get back into power. To me, this latter risk is fair more important than inflation. That is, democracy will not die because of inflation; democracy could die if the Trump segment of the Republican party regains power.

[@asafh04]

No cursing? Polite disagreement? So boring!

[@randygrein5711]

Yeah, discussing real policy and educating people is often seen as boring. Real work is seen as boring, but necessary.

[@billswan3438]

Summers speaks clearly, opening his mouth and enunciating. Krugman does not. So Summers is more convincing, even though Krugman is more right. Yech.

[@andreselectrico]

Why did the Obama administration not came up with a decent stimulus plan? As much as I like the man, I have to admit that everybody is now paying the consequences of that shortcomings.

[@shivkrishna7706]

Because he was eager to get a bipartisan deal. He was wrong in assuming Republicans wanted him to do well. Trump is the direct result of Obama's presidency. I know liberals won't say that loud, but thats the truth.

[@andreselectrico]

@@shivkrishna7706 I very much agree.

[@bleacherz7503]

In retrospect the slower growth was better not worse

[@andreselectrico]

@@bleacherz7503 Elaborate please. I dare to infer that you are referring to the current inflationary situation but I´m not sure. It is that the case? If it is, then I think you are wrong.

[@thomaslwilson2840]

compared to 2008/9, the COVID-19 crisis is VERY different! But with a stimulus, the US will recover. Thank God for Biden! Trump was a disaster in regard to the government COVID-19 response!

[@inediblenut]

I think the direct payment question was the softest, meatball pitch ever. Which is better if you are going to give away a trillion dollars to buy votes? An equal amount to every American, or a payment based on personal wealth that sends 80% of the money to millionaires? If you can't guess, we are about to find out!

[@amenbrother8818]

Summers nails it at the 9 min. point. In 1980 inflation 13.5%, 1981 Fed Funds avg. rate 16.39%. Today inflation 7% and the Fed is proposing raising the Fed Funds rate 1%. The Fed was pumping $120B/mo. into Wall Street for well over a year or $1.44 T. BBB was $140 B a year over 10 years. A 1% increase in Fed Funds will do nothing and if it wasn't so serious it would be laughable. And the mastermind behind this colossal failure just got reappointed, crazy!

[@spiritofgoldfish]

The finance, insurance, and real estate sector sucking wealth out of the economy for the money elite is the problem.

[@waynemcmillan5970]

This is a clear example of the poverty of mainstream macroeconomic theory. Neither economist predicted the GFC and both were surprised by post GFC economic conditions which included stagnation and little inflation. They both have no complete understanding of current macro-monetary reality, but Krugman appears more astute. Rising interest rates are very unlikely after increased fiscal expenditure. I asked Larry a few weeks ago in a tweet to give me any qualitative or quantitative measures that predicts accurately inflation growth, I still await an answer, Larry’s silence is deafening. Most economists realise monetary policy is limited , a blunt instrument and fiscal policy must pick up the slack. Fiscal expenditure on targeted social and economic infrastructure is essential , but a federal job guarantee must be implemented urgently with a restructuring of the economy to move to new sustainable green industries to deal with climate change and immediate poverty relief for those most in need. At the moment the US economy is on life support and fiscal expenditure must be increased dramatically. Inflation at the moment is no problem even if expenditure was raised to $3 trillion. Inflation is highly unlikely. There is so much unutilised capacity in the US economy.

[@beyondaboundary6034]

"I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that." -Larry Summers in 1991 Have his values really changed 30 years later?

[@themobandthecitythehiddenh3777]

Wow, Summers sounds prophetic now.... he was right about most everything, including the damage that inflation would have on the more substantive spending programs. Build Back Better is probably dead in part because of inflation.

[@spiritofgoldfish]

The veneer of democracy is quite thin.

[@spiritofgoldfish]

A sound currency would cause world peace to break out, which the empire will not tolerate, crash or not.

[@jonathanm9993]

I'm sorry what's a sound currency and how would it solve any issues?

[@spiritofgoldfish]

@@jonathanm9993 A sound currency would be based on gold, for example, not fiat currency that can be created at will. It would result in world peace for the same reason the US went off the gold standard to begin with. The balance of payments deficit is almost entirely military, paying for 8-900 foreign bases and constant foreign wars. A sound currency would make war and military occupation unaffordable.

[@jonathanm9993]

@@spiritofgoldfish I think a return to the gold standard would be a horrible idea. The currency would be in a constant state of deflation and hinder the economy to operate at full capacity and once a crisis hits, the macro tools of fiscal and monetary policy would basically be rendered ineffective. I also wonder if fractional reserve banking would even be possible with a hard gold standard in place.

[@spiritofgoldfish]

@@jonathanm9993 The free ride of our imaginary money being the world reserve currency won't last forever, whether you think it's a good idea or not. I would suggest being prepared sooner rather than later and own some physical gold and/or silver.

[@jonathanm9993]

@@spiritofgoldfish it's not imaginary it's bound by the economic potency of the real US Economy and the trust in the Federal Reserve by foreign an domestic investors. Both are fine atm so that fear seems a bit irrational. It also doesn't answer my issues with the reimplementation of a gold standard.

[@dolcampb]

Crazy that Larry Summers was ever influential. He blames the political process for the small stimulus in 2009 -- the truth is that while Congress lowered the stimulus slightly, it was he himself who kneecapped the stimulus proposal before sending it to the Congress.

[@jackc.8487]

Untrue on Summers lowering the stimulus package in 2008. Read "A Promised Land". Moreover, Congress didn't lower the Recovery Act package, but the "Gang of Four" highjacked about 10% of it as a bribe to vote for the bill. See pp. 254-266.

[@dolcampb]

@@jackc.8487 What does Obama say in "A Promised Land"? Multiple other sources have Summers knee-capping the stimulus package, including reporting by Zack Goldfarb. Also, if you are correct that Romer & Summers were both for a larger stimulus, then why did the Obama admin. not propose a larger stimulus? It could be that the Senate just reduced the House bill/previous versions, and not the Obama admin's original proposal...

[@jackc.8487]

@@dolcampb Push back from a half dozen "moderates" in Democratic Party, like Ben Nelson, but also Snowe, Collins, Spector, on Republican side. He had to have those votes to pass it. They wouldn't go any higher and extracted big bribes in the form of earmarks for pet projects. Summers and Geithner wanted bigger package, more stimulas.

[@LarryAt27N]

The trouble with Summers is that he is almost as smart as he think he is.

[@fpretus]

PKrugman is awesome.

[@bleacherz7503]

You are ignorant

[@emtman91]

Ask Summers about Epstein!!!

[@thomassimmons6704]

does summers know this is a conversation and not a sermon?

[@spiritofgoldfish]

Money rules government, yet the libertarians insist government is the problem and we need rule by money.

[@Guizambaldi]

Okay. So the size of the package is too much, but politically that's what is gonna happen anyway. Summers is worried the democrats are flirting with vulgar keynesianism, which has plagued Europe and especially Latin America.

[@theodorearaujo971]

You've destroyed the currency and exacerbated wealth and income inequality by failing to allow a recession in 2009. Should have prosecuted the bankers.

[@theodorearaujo971]

@@jasonk125 that recession was nothing because Bernanke decided to step in and support the MBS market to the tune of 85 Billion a month and Summers & Tim Geithner (now the President of a payday lending company) borrowed 1.25 Trillion a year for all 8 years of the Obama Presidency to stave off the real effects of what should have been a correction.

[@theodorearaujo971]

@@jasonk125 wait until you see the suffering from this collapse. Better to pull the bandaid off fast than slow. And we should have criminally prosecuted the rating agency and financial market personnel who deserved it because their fraud (and government policy repealing Glass-Steagall, etc.) caused the collapse.

[@JH-mf8vk]

Alway wonder how Krugman got his Nobel Prize. If productivity, creativity, and skills can easily be printed to fill the gap, then of course we will all be equal - equally dumb and equally poor!

[@lucasl9632]

did you even listen to him - he, in the first 20 seconds says that we shouldnt think about this as filling a gap

[@Guizambaldi]

It's great that in the dimension you live the economy is always operating in potential, so no need for demand. Stop being so arrogant and grab an undergrad macro book.

[@jonathanm9993]

For substantial research and addition to the field of international trade.

[@aaronburr2816]

If you watch this empty nonsense talk and think that you are getting something real, you are lost

[@andrewgreenbaum6042]

why?

[@Anthony-dy5cq]

Larry summers says taxing the rich wouldn't work but not taxing the rich isn't working and taxing the rich has empirical evidence it works whereas not taxing the rich also has empirical evidence it doesn't work so the answer is obvious taxing the rich works to sustain an economy.