Friday, March 13, 2009
Larry Summers: let's stop the "excess of fear"
Obama's top economic adviser gave this crisp speech that shows how the crises are being created by unbalanced interventions of the government. The previous period of growth was based on "excess of greed", Summers' counterpart of Greenspan's "irrational exuberance". Too much borrowing, too little saving, too much greed, too little fear.
Now, once it was shown that the previous levers were skewed, the situation has reverted itself: there currently exists an "excess of fear" that is simply overcompensating the previous "excess of greed": the pendulum has swung from a bubble to an anti-bubble. Very true. Summers clearly agrees with your humble correspondent that the government policy should be "neutral" and avoid excesses - which also indirectly means that he agrees with Václav Klaus that big downturns are primarily created by "activist", non-neutral policies of the governments and central banks, not by the free markets.
Now, a question is whether the pendulum may be smoothly and quickly returned to the origin of the coordinates, to navigate it towards a soft landing. There are reasons to doubt such a possibility: attempts to manipulate with the pendulum of greed and fear may lead to even bigger swings and excesses. I can't resist to embed the game again. Try to stabilize the pendulum, click the ball, and change its color. And then imagine that you are Obama who is facing the same task even though he can only do 37 in bowling.
Do you understand why sane people are afraid of relying on governments that are almost systematically composed out of inept dilettantes? The free markets dynamically choose people who can bowl as much as 300 - and people like Thomas Alva Edison who can invent how to press Tab/Enter in the window above to achieve the same goal with little effort! ;-)
Other, systemic excesses
Equally importantly, greed and fear are not the only two commodities that can come in excess. I am afraid that the administration that Summers works for is creating an "excess of debt" (producing an "excess of fear" of the foreign holders of the U.S. treasuries and perhaps even a future "excess of inflation"), "excess of demotivation", and "excess of egalitarianism and socialism". And these excesses are arguably worse than the excesses of greed and fear because unlike the excesses of greed and fear, their impact on the economy is uniformly negative and doesn't get "averaged out".
More generally, it seems very obvious that Summers realizes that many things that the administration is going to do are wrong - for example, Summers thinks that the stimulus measures must be "temporary", are they? - but he has simply learned his lesson from the interactions with the feminist bitches at Harvard. He cares about his chair, after all, and an "excess of inconvenient recommendations" to his socialist boss must be avoided.
That doesn't mean that your humble correspondent would agree with everything that Summers says about the downturn. He also wants the stimulus to be targeted and to help the poor and middle-class people. I think that government's actions - e.g. tax cuts - should be across the board (across the sectors and across the classes) and they shouldn't be selectively helping those two income groups because such an "excess of compassion" discourages the economy from useful work.
In the same way, sectors of the real economy shouldn't be helped too selectively because such an "excess of selection" may also lead to an "excess of lobbying" or even an "excess of corruption" and an "excess of new bubbles" in the sectors that were helped. ;-)
For example, the healthier companies should still feel safer (and obtain easier loans) than the less healthy ones. More generally, it should still be better for individuals and companies to have a higher output than a lower output, otherwise the very creative forces of the economy get diluted.