It was not a lesson Lawrence Summers mastered with great ease. But after nearly a decade working beside sphinxlike Alan Greenspan, and having watched his own tenure as president of Harvard cut short by a phrase that slipped too nimbly from brain to mouth, Summers, director of the President’s National Economic Council, has become a restrained public man. Gone are the days when he would glibly compare flailing financial markets to jet crashes, as he did to TIME in 1999. He is mindful of how ill-considered asides by policymakers can cause financial-market angina. So you can probably imagine the ripple that ran through the Peterson Institute for International Economics in Washington in July when Summers looked up from his prepared speech, flashed a grin and loosed the sort of utterance that once upon a time marked imminent indiscretion. “There was,” he told the room, “a fight about whether I was allowed to say this now that I work in the White House.”
What Summers proceeded to offer was, in fact, an unusually candid insight. And though couched in jargon, it was an insider’s confession of why our present economic moment is fraught with both danger and opportunity. There appears to be, Summers told the suddenly very attentive crowd, a strange bit of physics working itself out in our economy. The problem is related to a hiccup in an economic rule called Okun’s law. First mooted by economist Arthur Okun in 1962, the law (it’s really more of a rule of thumb) says that when the economy grows, it produces jobs at a predictable rate, and when it shrinks, it sheds them at a similarly regular pace. It’s a labor version of how the accelerator on your car works: add gas, go faster; less gas, go slower.
What made Summers’ frank comment important is that it suggests this just-add-gas relationship may now be malfunctioning. The American economy has been shedding jobs much, much faster than Okun’s law predicts. According to that rough rule, we should be at about 8.5% unemployment today, not slipping toward 10%. Something new and possibly strange seems to be happening in this recession. Something unpredicted by the experts. “I don’t think,” Summers told the Peterson Institute crowd ”” deviating again from his text ”” “that anyone fully understands this phenomenon.” And that raises some worrying questions. Will creating jobs be that much slower too? Will double-digit unemployment persist even after we emerge from this recession? Has the idea of full employment rather suddenly become antiquated? Is there something fundamentally broken in the heart of our economy? And if so, how can we fix it?
[i]”I don’t think,” Summers told the Peterson Institute crowd — deviating again from his text — “that anyone fully understands this phenomenon.” [/i]
Mr. Summers, sure they understand. They understand that the Government does not create wealth. It siphons capital from the markets, constricting the markets. Reagan understood it real well with tax cuts which created 20million new jobs. Bush used it, with poor fiscal restraint, after 9-11 to create jobs. Both Obama and Carter have seen fit to tax for capital reduction while spending money in the most unproductive ways possible (Acorn for Obama, Syn Fuels for Carter). Anyone who lived through Carter knows what is coming;;;;;;;;;;Stagflation. No jobs, lots of inflation. All you have to do is watch gold and oil shoot up as the dollar weakens.
It is so pathetic how these so called “public servants” aren’t serving. Two million people marched on DC this weekend to protest this kind of irresponsible leadership. And don’t think its going to get any quiter.
Hmmm, perhaps H. Ross Perot saw, or rather thought he heard, something new and strange coming down the road, oh, seventeen years ago.