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Thursday, July 25, 2013

Larry Summers and the Pivot to Austerity

by Calculated Risk on 7/25/2013 05:43:00 PM

Just a thought, I haven't seen any discussion on this ... the pivot to austerity in early 2010 is widely viewed as a major mistake (as opposed to staying focused on employment). Larry Summers was the Director of the National Economic Council until December 2010, so he probably played a key role in the austerity pivot.

In 2010, Fed Chairman Ben Bernanke was already warning about premature tightening:

"Economic conditions provide little scope for reducing deficits significantly further over the next year or two; indeed, premature fiscal tightening could put the recovery at risk. Over the medium- and long-term, however, the story is quite different."
This has been a familiar comment from Bernanke over the last few years: less austerity now, and put the long run deficit on a sustainable path.  Unfortunately this advice has fallen on deaf ears.

A key question for Mr. Summers is what role he played in the premature pivot to austerity.

Also, from FT Alphaville: Larry Summers on QE
Lawrence Summers made dismissive remarks about the effectiveness of quantitative easing at a conference in April, raising the possibility of a big shift in US monetary policy if he becomes chairman of the Federal Reserve.

... the people who have discussed policy with him say Mr Summers regards fiscal policy as a more effective tool than monetary policy. “More of what will determine things going forward will have to do with fiscal policy and that there is less efficacy from quantitative easing than is supposed,” he said in his Santa Monica remarks.