I’m not a fan of Larry Summers. He’s part of the reason the banking crisis turned out as bad as it did. He supported, for example, deregulation of the banking industry throughout the Clinton and Bush years, and, when he had the power to do so (as Treasury Secretary), put a stop to certain investigations of banking practices. He also has been a cheerleader for Milton Friedman’s ideas (which I, personally, have some strong reservations about).
But, as a former economics advisor to President Obama, and as an academic economist who is now back at Harvard, Summers certainly deserves a fair hearing on matters of economic and fiscal policy. He’s not an evil man (insofar as I know), and, surely, the last few years have taught him some things about how to keep an economy from going into a ditch.
So here, from a recent interview, is his opinion on the debt ceiling debate, and whether he’s worried about what will happen in August:
I believe that ultimately reason will prevail. There is no alternative to the government meeting its obligations. My daughters and I may have a disagreement about how much they spend at college and who should pay for their spending. We don’t have the option of not paying the Visa bill.
As a father of two daughters myself, I can’t help but like a man who thinks of his daughters for analogies. And, if citizens are inclined to call representatives to urge them to raise the debt ceiling, here are some of the reasons for doing so that Larry Summers suggests people offer:
Because they want to avoid a version of the Lehman Brothers catastrophe for 2008 on steroids. Because they don’t want to see the buck broken on money market funds and the ensuing financial panic. Because they don’t want to live with the consequences for their purchasing power of a crash in the dollar. Because they don’t want to live in a nation that is no longer a nation of law, that meets its obligations. For those reasons and many more, we all have an enormous stake in doing the elementary and the obvious thing and meeting our debt obligations.
So, after we get past the debate over whether we should raise the debt ceiling—and Larry Summers thinks this is a no-brainer—the next debate is over taxes and spending:
All of us want to pay less in taxes. The question is whether we can bring spending down in acceptable ways to the level of current revenue collections. And that’s what’s going to be debated for some time to come and I don’t think the question of where that debate is going to end is at all clear right now.
His advice and reflections sound sensible to me.
But then I think of his role in the unfolding of this: