It's like reading Paul Krugman in spring 2009. We need more stimulus to avoid a lost decade. Larry Summers, former economic advisor to President Obama, and architect of a too weak stimulus in spring 2009, now says we need to stimulate the economy. Except unlike Krugman and other progressive economists, he wants more tax cuts for business: cutting the social security tax in business. But any stimulative effect likely will be undercut by our defict hysteria and spending cuts to balance it. It's like a merry-go-round to nowhere.
Even with the massive 2008-09 policy effort that prevented financial collapse and depression, the United States is now halfway to a lost economic decade. From the first quarter of 2006 to the first quarter of 2011, the U.S. economy’s growth rate averaged less than 1 percent a year, similar to Japan in the period its bubble burst. During that time, the share of the population working has fallen from 63.1 to 58.4 percent, reducing the number of those with jobs by more than 10 million. The fraction of the population working remains almost exactly at its recession trough, and recent reports suggest that growth is slowing.
Larry Summers: How to avoid a lost decade
Remember all the progressives screaming in 2009?
Paul Krugman on February 17, 2009:
Paul Krugman, the professor of economics at Princeton University and a Nobel Prize winner, spoke Tuesday to CNBC, where he discussed his views on the stimulus package.
The $787 billion stimulus is not nearly enough to fill the "well over $2 trillion hole" in the economy, Krugman said. "A fair bit of the bill is not really stimulus," he adding, noting that just about $650 billion would actually spur consumer spending and other types of stimulus.
http://www.huffingtonpost.com/...
And we now know it was not enough. It's two years later and the economy is limping along to a lost decade. The free fall ended and the political system ensured a lost decade with the election of a Republican House and elite focus on deficits and destroying gov't demand in the economy.
Now Summers recognizes that we are halfway through a Lost Decade.
His way out? Cut the social security tax on business.
Without the payroll tax cuts and unemployment insurance negotiated by the president and Congress last fall, we might well be looking at the possibility of a double-dip recession.
Substantial withdrawal of fiscal support for demand at the end of 2011 would be premature. Fiscal support should, in fact, be expanded by providing the payroll tax cut to employers as well as employees. Raising the share of the payroll tax cut from 2 percent to 3 percent would be desirable as well. At a near-term cost of a little more than $200 billion, these measures offer the prospect of significant improvement in economic performance over the next few years translating into significant increases in the tax base and reductions in necessary government outlays.
We averted Depression by acting decisively in 2008 and 2009. Now we can avert a lost decade by recognizing current economic reality.
Larry Summers: How to avoid a lost decade
So we do we defund Social Security by $200B? Robbing Social Security does not seem to be a good policy long term. Then we'll hear about "the crisis" and how we must destroy Social Security.
Or we can take it from general revenue, thereby rasing the defict, as we did last year. You know Republicans will extort at least $200 B in spending cuts in return for it, thereby defunding the government and undercutting the weak stimulative effect. We end up doing the Republicans' dirty work for them.
I lack confidence in Mr. Summers' policy prescriptions. The time for stimulus was in spring 2009. We had one real chance. It was enough to pull the economy out of freefall, but it only got us to the Lost Decade.
We really don't get do-overs. Each stimulus since has had a weaker and weaker effect. At best, we will have slow growth.
We are halfway through the Lost Decade. And the political system is so broken that we are defunding government and killing jobs.
Summers' new silver bullet is too little, too late, and may well do more harm than help over the long term.
The only answer I see is the President and Democrats proposing real job creation policies that they know Republicans will defeat in the House. This election will be about jobs not deficits. Force Rs to defeat job plans over and over and run agaisnt them. They created the Great Recession, fought it at every point and still continue to fight the creation of jobs. Then if we re-elect the President and Democratic Congress, there at least is a small hope for a better economy long term.
Conflict, not cooperation in the Republican tax cutting agenda.
We listen to Larry Summers at our own risk.