Larry Summers Is Like a Guy Who Yells That the Sun Really DOES Revolve Around the Earth and that the Current Orbit is Just a Temporary Aberration . . . and That If We Just Wait a Little While, "Everything Will Return to Normal"

Two leading White House economic advisors - Larry Summers and Christina Romer - are giving very different views on the economy.

As Fox news summarizes:

"Everybody agrees that the recession is over," said Larry Summers, director of the National Economic Council.

"Of
course not," countered Council of Economic Advisers Chairwoman
Christina Romer in a separate interview when asked if the recession is
a thing of the past ...

Romer appeared to be more politically
sensitive to [the high unemployment rate], reflecting Obama's recent
statement that he won't rest until all Americans who are looking for
work can find jobs again.

Based on the "official definition,"
the economy has, "at least in terms of GDP, reached that point" where
the recession has ended, she said. But given high unemployment which
could go even higher, Romer offered a different response when asked if
the recession was over "in your mind."...

Summers appeared to
cite such forecasts in explaining the stages of economic recovery. He
referenced the fact that unemployment dropped from 10.2 percent to 10
percent last month and predicted more solid trends toward recovery next
year.

"Today, everybody agrees that the recession is over,
and the question is what the pace of the expansion is going to be," he
said on ABC's "This Week." "These things happen in stages. First, GDP
goes up. That has happened. Then, hours that are worked by workers who
already have jobs go up. That's starting to happen. Then employment
goes up. We got very close to that this year, this month, with only
11,000 jobs lost. And then unemployment starts to come down. So these
problems weren't made in a month or a year, and they are going to take
a substantial time to solve.

At first glance, Summers' argument sounds convincing ... GDP has been growing, and jobs lag the general economy.

However, as Paul Volcker explained to Spiegel this weekend, the growth in GDP is an illusion. Specifically, the economy is actually shrinking, and the only growth is from what the Fed has poured into the economy:

SPIEGEL:
The US has not yet instituted any kind of reform policy. What we see is
the government and the Federal Reserve pouring money into the economy.
If one looks beyond that money, one sees that the economy is in fact
still shrinking.

Volcker: What should I say? That's
right. We have not yet achieved self-reinforcing recovery. We are
heavily dependent upon government support so far. We are on a
government support system, both in the financial markets and in the
economy.

Moreover, Romer is right that unemployment might increase. Indeed, Summers has created a rising tide of unemployment in America which threatens to stall any lasting economic recovery for a while.

Indeed, many leading economists believe that America has permanently lost jobs under Summers' watch.

Summers is out of touch with reality. He lost billions at Harvard due to his blindness about the riskiness of derivatives.

As I wrote in February:

Summers is the guy responsible for:

• Allowing the banks to carry extraordinary levels of debt, thirty-to-one fractional reserve banking margins

• Ensuring that derivatives were not regulated, and that AIG could operate as a giant hedge fund

• Repealing New Deal era legislation
  which separated investment banks from commercial banks, insurers and
  stock brokers, and which kept companies from becoming "too big to fail"

As a 1999 New York Times article entitled "Congress Passes Wide-Ranging Bill Easing Bank Laws" quotes Summers as saying:

''Today
Congress voted to update the rules that have governed financial
services since the Great Depression and replace them with a system for
the 21st century,'' Treasury Secretary Lawrence H. Summers said. ''This
historic legislation will better enable American companies to compete
in the new economy.''

As I pointed out in April:

On Friday, Summers basically said we should continue to do the exact same things which got us into this mess because:

All
crises must end. The “self-equilibrating” nature of the economy will
ultimately prevail, although that may take massive one-off government
actions. Such a crisis happens only ”three or four times” per century,
so taking on huge amounts of government debt is fine; implicitly, we
will grow out of that debt burden.

Um . . . sorry to break it to you there Larry, but a group of economics professors has recently demolished the "self-equilibrating economy" theory:

If
one browses through the academic macroeconomics and finance literature,
“systemic crisis” appears like an otherworldly event that is absent
from economic models. Most models, by design, offer no immediate handle
on how to think about or deal with this recurring phenomenon. In our
hour of greatest need, societies around the world are left to grope in
the dark without a theory. ...

The implicit view behind standard
models is that markets and economies are inherently stable and that
they only temporarily get off track. The majority of economists thus
failed to warn policy makers about the threatening system crisis and
ignored the work of those who did. ...

The confinement of
macroeconomics to models of stable states that are perturbed by limited
external shocks and that neglect the intrinsic recurrent boom-and-bust
dynamics of our economic system is remarkable. After all, worldwide
financial and economic crises are hardly new and they have had a
tremendous impact beyond the immediate economic consequences of mass
unemployment and hyper inflation. This is even more surprising, given
the long academic legacy of earlier economists’ study of crisis
phenomena ... This tradition, however, has been neglected ...

And when economist James Galbraith spoke at a recent panel on the causes of the financial crisis, the first thing he listed as the main cause of the crisis was "The idea that capitalism ... is inherently self-stabilizing" ...

Summers [is] like a guy swearing that the Sun really does revolve
around the Earth and that the current orbit is just a temporary
aberration . . . and that if we just wait a little while, "everything
will return to normal".

As I pointed out in September, Summers has totally misunderstood the multiplier effect.

He must be replaced with someone whose allegiance is to America as a whole, and not solely Wall Street.

As Congressman DeFazio put it:

[Obama]
is being failed by his ec[onomic team ... We may have to sacrifice just
two more jobs [Summers and Geithner] to get millions back for Americans.

Comments

[Anonymous]

DeFazio....The Tree Farmer ?????

Knows All....

This guy is a nightmare.....

Where are his qualifications ?

This guy is the perfect example of a classic politician....

Note this....

An individual walking down the street .....with no real background....not worldly....just basically nothing special...

But if has the gift of gab....

CAN BE A POLITICIAN......and literally overnight is qualified on every subject matter....qualified in depth and ready to blabber away.....