I had the privilege of meeting Lawrence ‘Larry’ Summers a little while ago (OK, me and a roomful of other investors). I was rocked; sometimes you just know you’re in the presence of genius. Ever since I’ve thought he’s worth paying attention to.
Since the GFC he’s been on a crusade to try and get governments to spend their way to growth; not as many have done address budgets with increased parsimony as their north-star.
In the essay from him I’m linking to here The Age of Secular Stagnation (originally in February’s edition of Foreign Affairs) he takes a modified tack pointing out that what we may now be experiencing is not a temporary state of affairs in global economies but a ‘secular’ one.
Thus, he argues (again) the time has come for governments to increase deficits. Monetary policy is maxed out and only a fiscal response can deliver the kind of long term growth that’s consistent with social stability.
Did you know that Federal spending in the U.S. (after depreciation) is close to zero? Or, that net government investment in the U.S. is at a six-decade low? With interest rates where they are governments should be aggressively tapping bond markets (where prevailing rates indicate ample demand) and while this means an increased debt burden for future generations will they mind if it’s at ultra-low rates and they’re enjoying the benefits of better infrastructure?
I’m uncomfortable with the argument but the longer low interest rates fail to impact demand the more likely I, and many others, are to vote for this prescription. Moreover, in light of where we are today, his argument has more resonance than, say, three years ago.
Waiting for dim-wits like me to catch up must be very frustrating for planet-sized-brain people like Mr. Summers?
Happy Sunday.