Wednesday, June 5, 2013

This is Actually Quite Good. Larry Summers Speaks Clearly.

Via Brad DeLong's Blog:

The example I always like to use is Kennedy Airport is going to be repaired. It is going to be repaired at some point. Potholes in roads are going to be filled. The question is whether we’re going to fill them now, when we can borrow to fill them at zero in real terms, and when construction unemployment is near double digits, or whether we’re going to do that years from now, when there will no longer be any multiplier benefits to those expenditures and when the deficit problem will be a more serious problem. So it seems to me that we need to recognize that burdening future generations is a crucial issue, but that you burden future generations when you accumulate debt; you also burden future generations when you defer maintenance; you also burden future generations when you underfund pensions or you undercompensate the civil service or you underinvest in research and development and education or public institutions. Now, the challenge, of course, in this view is that it has a St. Augustine character. You’re urging the more pleasant steps today and deferring the more painful steps. But the track record going back to the Greenspan Commission of commitments made at one point that kick in some years hence is that when those commitments are made – not always, but with very substantial probability, they in fact are kept when the time comes. And the observation that the retirement age increases in Social Security have been implemented for some time now without substantial political disruption suggests to me that appropriate measures focused, in my view, on containing health care costs through improved reimbursement procedures is a critical priority; and on mobilizing revenues with appropriate phase-ins, I think we’d make an important fiscal contribution.

Emphasis mine.


  1. The issue I have with this sort of thinking is that it's based on a dubious theoretical ideology. It uses questionable *capitalist "accounting"* short term thinking and the "soft science", economics.
    In the first case it doesn't fully consider the true costs associated with leaving the repairs... nothing is ever effect/consequence free.e.g. A bad road has costs....but in the accounting rationale they are externalities.
    People rabbit on about free will to smoke and to own firearms et al but what is generally not factored in is the consequential costs on the Public... i.e. medical expenses, loss of production and productivity et al. ( they are seen as externalities along with natural resources)
    Accounting also has a concept of opportunity cost . This one sided short term reasoning goes that by putting off repairs we can supply more politically desired (hence vote catching) services. However, this concept is ignored one the other side of politically driven ledger.

    By that I mean what could have been gained for the public as a whole if the businesses/ citizens didn't have to say spend so much on repairs to their vehicles etc... would that 'saved cash' have earned more profit and thereby taxation to perhaps more than offset the immediate cost of repairs.
    Added to that consider if say in the mean time a shopping mall or housing estate is built along the edges of the highway later repairs may cost more than it otherwise might (relative $ considered) a stitch in time concept.

    Now if we look at the 'soft' science( economics) can clearly see that it fails the acid test of a hard science. (i.e. it is not predictive, testable or repeatable.) It is highly subjective/ interpretive and at best retrospective... too many uncontrolled (unqualifiable and unquantifiable) factors.

    I call making decisions on such theoretical and limited perspective "the Leaning tower of Pisa effect."

    It was built over a very long time and between the building it's original phases and the final ones. the builders of the upper stories noted that the building was developing a keen lean.
    Their "solution" was to build an upper floor with a shorter wall on one side to even it up. It didn't work. The subsequent cost of modern day fixes are are more costly than rebuilding the whole edifice ... but with no guarantee of success.

    Governments/ societies were created to/for the greater benefit of the on going populous not just the populist selfish *wants* (as opposed to the NEEDS) of the here and now

    What is also often neglected is the true social cost of many discretionary (vote catching) spends. The Stereotypical right wing arm chair pundit argues that he (usually) need fire arm to protect family and property.
    What they don't factor in is WHY the overt need is there in the first place.
    Experience world wide strongly indicates that social inequity (not equality) is the major driving cause. This this manifests as poverty, alienation, resentment marginalising of groups, lack of opportunity and crime.
    I would ask if you have a problem with disease spreading mosquitoes (criminals) surely it makes more sense reduce their breeding places rather than forcing people to buy bigger and more toxic aerosol insect sprays. See acquired immunity in mossies to insecticides.
    In a capitalist economy that means a secure (a reasonable livelihood a job that maintains relatively equitable) lifestyle .
    I caution not to under estimate the lasting power of jobs in reducing the above problems. Not everyone can or wants to be a corporate big wheel.

    As for which is better for societies in the long run jobs now or using the money elsewhere I'm saying that I doubt that decision makers even consider the opportunity cost of delays on the people.