Larry's Latest

Lawrence Summers may not be the most handsome economist in the world (photo not entirely accurate), and one may be inclined to get very upset at his controversial explanations for why we see fewer women teaching maths & sciences in top academic institutions.* But one thing is for certain, the man is brilliant and has the capacity to summarize our current economic state of affairs in a way that we here at IPE Journal can only dream about. Here he is outlining the confluence of events that has caused the economic stuff to hit the fan:

Four vicious cycles are simultaneously under way: falling asset prices are forcing levered holders to sell, driving prices further down; losses at financial institutions are reducing their ability to finance investment, which in turn reduces asset values, causing further losses; the weakness of the financial system is reducing growth, which in turn weakens the financial system; and falling output is hitting employment, which in turn leads to reduced demand for output. Without active efforts to interfere with these mechanisms, there can be no basis for confidence that the American economy will recover even in the medium term.

If you like knowing things and don't mind reading, the rest is here. Incidentally, as my co-author has pointed out, Larry's piece is largely in keeping with our previous posts on fiscal policy and inflation.

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*Controversy-inducing footnote: If you actually read the offending address in its entirety, you will find that Summers' remarks have been grossly misrepresented by the media. I personally found his arguments measured, cautious and, frankly, quite plausible. More importantly, he is putting forward falsifiable hypotheses based on the conclusions of previous research. If these studies are wrong then put away the pitchforks and torches and prove it.