Economy

Every Synapse of Larry Summers' Every Neuron Contains Genius

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El Tiempo magazine's Michael Scherer believes outgoing director of the National Economic Council Lawrence Summers warned that "increased government involvement in the health care sector is a risky idea" in his farewell address. I am not so sure.

With a little help from 1800GETSLIM and the White Hair Club for Men, Larry Summers makes it a farewell to remember.

Scherer considers two paragraphs from Summers' speech at the Economic Policy Institute. But with the surrounding text it seems clear that Amazing Larry is calling for a broader and deeper public commitment to prevent decay in the functions of a growing government. And he uses this as justification of PPACA's involvement in health care. Underlined text is Time's citation. Italics mine: 

 
The third and final thing we must do is renew the public compact between the present and the future. Budget deficits are a tax on our future, unless used to finance productive investments. I am not one who sees financial collapse on the imminent horizon.  Indeed, I believe that at this point the risks of deflation or stagnation in the United States exceed the risks of uncontrolled growth or high inflation.  But unless we change our course, we are at risk of a profound demoralization of government.

At one level this means a decay of essential public functions and a loss of our national self-confidence. At a deeper level, we risk a vicious cycle in which an inadequately resourced government performs badly leading to further demands that it be cut back, exacerbating performance problems, deepening the backlash, and creating a vicious cycle. That is why while recovery is our first priority, it is essential that we establish long-run parity between revenues and expenditures.

Now this is a more complex matter than is often supposed.  One of the more important and less well-known ideas to come out of the economics profession over the last generation or so is the phenomenon known as Baumol's Disease. In certain areas, rapid productivity growth is possible.  In other areas it is much more difficult. It always has and always will take 8 teachers to teach 96 students for one hour in classes of twelve. Productivity improvement simply is not possible in the way that it is in other activities. Similar phenomena apply to almost anything that involves direct human interaction. Nursing care is another example.

Moynihan's Corollary to Baumol's Disease is the observation that there is a tendency in activities in which Baumol's disease is most pronounced to migrate to or be located in the public sector.  To take just one example, every five years the share of GDP devoted to government spending on health care goes up by 1 percentage point. As we contemplate our long-run fiscal future we must contemplate this reality rather than to suppose that there is some past static pattern of expenditures of revenues and expenditure that can be maintained indefinitely.

That is why Bowles-Simpson so important.

That is why President Obama committed to health care cost reduction in the context of the recently enacted health care legislation.

I wish I could have been there to start a chorus of boos at "not one who sees financial collapse on the imminent horizon." At least cut some adjectives Larry! What's the difference between an imminent horizon and a horizon?

The full text is worth a gander for its Commander McBragg self dramatizations ("Just as scholars continue to debate how close we came to nuclear conflict during the Cuban missile crisis, they will continue to debate just how close the American financial system and economy came to all-out collapse in the six months between September of 2008 and April of 2009") and boring stories of glory days ("The United States improved its structural deficit by nearly 4 percentage points of GDP between 1993 and 2000").

One thing I'll miss about Larry Summers: He was purely Larry Summers, perpetually in character in a way the Orzsags and Romers could only imagine being. In his farewell address, Summers summons a future of managed prosperity, finely honed inflation, trade-pact economics, an ivied welfare state and a government that, like Larry Summers himself, doesn't get bigger but just doubles in greatness every few years. Future generations can read it, and from every line the truth will ring out: This was Larry Summers.

Seriously, why is Geithner still employed?

I have been called a "Summersophile," and at some level I guess I did get some worried-toothache joy from watching him sleep through history. In that spirit, I recommend you make Mark Dery's study of the life-giving powers of love-hate your long read of the day.  

NEXT: Progress, Animated

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  1. First post!

    Anyways… The only danger of deflation is that the nominal value of assets will reflect reality and reflect badly on the liberal system. Inflating nominal prices deflates PPP prices, doing the same thing but with a nifty fig leaf for left wing economics.

    1. Re: Mick,

      Right on – deflation is nothing more than the adjustment due to the PREVIOUS INflation by the Fed. The Fed’s anti-deflation actions (or forlon hope) are akin to stubbornly pumping air to an inflatable kiddie pool that has several puncture holes.

  2. He makes Thomas Friedman sound like Walt Whitman.

    And considering the *ss raping he gave to the Harvard endowment, instead of calling him a genus, maybe we should call him Ted Bundy.

    1. I like the notion of Summers wearing an armcast to lure the Harvard endowment into a VW by him asking it to help him look for a lost dog.

      1. I had a picture of Summers breaking into the Harvard endowment’s sorority house and, suffering “performance anxiety”, giving them the old in-and-out with a tree branch.

        1. At least Summers is too rotund to escape through an air vent once we do catch him.

    2. Is Steve Smith aware of this?

      1. STEVE SMITH KNOW ALL! STEVE SMITH PEER DEEP INTO THE ANUS OF EVERY AMERICAN!

        1. You work for the TSA?

          1. STEVE SMITH IS TSA!

            THE
            SASQUATCH
            ANALRAPIST!

  3. I thought a synapse and a neuron were two different things. The synapse is where electrical energy is converted to chemical energy, then back again as a signal travels from one neuron to the next.

    But perhaps not.

    1. The synapse is where signals travel from one neuron to the next. That doesn’t invalidate the headline.

      Reality has already done that.

      1. “Synapse to Synapse: the possibility’s thin.
        I’m dressed up for free drinks
        and family greetings on your wedding,
        your wedding,
        your wedding date.”

    2. put me down as another who thinks it doesn’t make sense. a synapse is between two neurons, it’s not a part of any one neuron

  4. Moynihan’s Corollary to Baumol’s Disease is the observation that there is a tendency in activities in which Baumol’s disease is most pronounced to migrate to or be located in the public sector.

    I think we may (just possibly) be seeing an erroneous assumption of causation.

  5. Although I actually like Larry Summers–shockingly, I think he knows more about economics than, say, Tim Cavanaugh–I’m amused by his obsession with “Baumol’s Disease.”

    Larry sez, “It always has and always will take 8 teachers to teach 96 students for one hour in classes of twelve.” So you’ll always have a job, is that it, dude? I don’t think so. You can totally be replaced by a machine. Totally. And I’ll bet your students are counting the days.

    1. Who is Cavenaugh to criticize Sumners. I mean it is not like Cavenaugh has ever done anything significant like destroy the endowment at Harvard or anything.

      1. If not for those meddling honor students…

        1. And the dog. Nobody EVER credits the dog!

          1. I can remember when 1 teacher taught 30 students, and this is before SATs started their decades long decline.
            Could it be that a larger class means that it moves at a pace of the group that learns, and is not disrupted by the slowest or most rowdy?
            Nah, and besides, the more teachers the bigger your teachers union.
            And the other amusing thing is – how many students does a Harvard professor lecture to at a time? Of course, I would concede that the Harvard professor doesn’t teach the students anything.
            I remember my immunology professor – who had us buy a textbook, and than lectured (or more accurately read verbatim)from another textbook. I guess this was his way to make it appear that he was “adding value”
            Of course, I think all my professors did that – they just didn’t read verbatim though.

    2. At a deeper level, we risk a vicious cycle in which an inadequately resourced government performs badly leading to further demands that it be cut back, exacerbating performance problems, deepening the backlash, and creating a vicious cycle.

      The biggest problem of a government that has had more wealth lavished on it for his purposes than any single entity in human history with nothing being in a close second is not having enough resources. Have you ever fucking checked your premises even once, Vanneman?

  6. That is why President Obama committed to health care cost reduction in the context of the recently enacted health care legislation.

    Again, I must protest.

  7. You know what would be good? A Suzanne Somers thread….

  8. Excellent work on the Commander McBragg reference, by the way.

    1. Total Television Productions was pure genius

      Khyber Pass

  9. It’s funny he uses Baumol’s Disease as an example and completely ignores that this usually occurs because of some sort of government intervention. He even goes so far as to toss the corollary out there that ties it to government, but then completely ignores the solution of getting government the fuck out of the situation.

    Fucking douche nozzle.

    1. And Baumol’s Disease seems only to infect the careers of the perceived cognitive elite thus insulating their careers from change or competition. Odd how that works isn’t it?

      1. It is odd how the cognitive elite, such as teachers and nurses, are the ones most subsidized or protected by gubermint. Odd how all those other service jobs, like delivery, are a thousand times more efficient than 20 years ago. Or sales, where you can do it all the intertubes, get the most obscure record (WHOOPS! I meant CDs, cause I am not too prehistoric…double whoops, I meant mp3…) or book that you want in a fraction of the time, and usually cheaper.
        Oh, if only we could make our service sector more productive…
        or even haircuts
        http://www.google.com/products…..CEcQ8wIwAg
        Damn Baumol to hell!

        1. Oh Dan. You don’t understand. It is not government protection. It is Baumol’s disease. You need those guild regulations for your own protection. You just can’t rush greatness.

  10. People like Summners and Roamer seem completely incapable of any kind of self criticism or self reflection. If a normal person had presided over economic policy at a time when millions of people lost their jobs and don’t seem to have hopes of getting new ones, I would feel pretty bad. Even if I still thought my decisions were the right thing to do, I, and any moral person I think, would still kick myself for not doing more and not being smart enough to come up with a better solution even if the solution wasn’t obvious. But not these people. Romer and Sumners just pat themselves on the back and tell the world how lucky it was to have them. They seem incapable of self reflection or accepting moral responsibility for anything. Whatever bad happened was either someone else’s fault or unavoidable. They are the best and brightest after all. Their credentials say so.

    What awful creatures they are.

  11. It always has and always will take 8 teachers to teach 96 students for one hour in classes of twelve. Productivity improvement simply is not possible in the way that it is in other activities.

    Er, it is possible, and not terribly difficult, to increase teaching productivity. Teaching effectiveness is not a matter of hours of lecture but a matter of ideas imparted.

    Of course, it’s not surprising that the former prez of Harvard sees it as essentially a glorified form of babysitting.

    1. Not sure if my point here is clear: productivity can be gained in Summers’ example by teaching more ideas during that hour and/or using better techniques to enable students to retain more of that information.

      The same is true in nursing and the other examples he gives; if you define effectiveness (the numerator of productivity) as proportional to time spent, then obviously productivity can never increase since that’s also the denominator. But in very few cases is this a reasonable thing to do.

      1. It is a little ironic that a guy who was President of a school famous for having huge lecture classes now claims that one teacher per twelve students is some kind of iron law. Did he tell Larry Tribe about this law I wonder.

    2. He gave a bad example. Of course you could change class sizes or productivity or so on, but if you were to divide the students into that exact number of classes and teach them for that exact number of hours, it would require that exact number of teachers. He’s just saying that 96/12 = 8. It’s a fundamentally worthless observation.

      A better example would be something like a teacher needing to spend just as much time marking an essay nowadays as fifty years ago. Regardless of how the school system is reformed, that limitation will remain true for at least the near future. So productivity gains in education probably won’t be as extreme as those in IT or manufacturing.

      But it ties in poorly with the following statements in the excerpt. If the Baumol Effect applies to health care as he’s implying, it means that low productivity gains amid rising costs are unavoidable, and the only way to curtail costs is through artificial controls. But then again, I didn’t and don’t plan to RTFS.

  12. “The third and final thing we must do is renew the public compact between the present and the future.

    How can you make a compact between the present and the future, if the future is not yet here?

    Budget deficits are a tax on our future, unless used to finance productive investments.

    Well, that’s the trick, isn’t it? If all it takes is to call all spending “financing productive investments,” then deficits become less burdersome, wouldn’t they? Economic magic by semantics.

    By the way, spending is not the same as financing. Clearly, the man is NO economist.

  13. Summers somehow manages to be a smart guy and a complete idiot all at once.

    Must be something he learned at Harvard.

    1. education and knowing the vernacular does not equate to smart. Even knowing how somethings like theories doesn’t make you smart. Applying them and succeeding or recognizing why you failed makes you smart. Otherwise you’re about as smart as a text book.

      1. Text book is too generous here. Phone book, maybe. Coloring book, more likely.

        1. He’s knowledgeable, just like Krugnuts. The problem is there is no real world check against their theories and they are generally so arrogant that they refuse to recognize the faults in their theories, often for political reasons.

    2. Maybe not that localized. What school did MNG attend?

  14. But unless we change our course, we are at risk of a profound demoralization of government.

    At one level this means a decay of essential public functions and a loss of our national self-confidence.

    Because there’s nothing that can boost people’s self-confidence than a government that can build ROADS!!

    This is the “Patriotism through Bling” theory of spending, by Larry Summers.

    At a deeper level, we risk a vicious cycle in which an inadequately resourced government performs badly[…]

    Larry, dear, it is not like feeding only 24V to a 120V DVR. The DVR WILL perform badly. Government, instead, will simply STOP MEDDLING WITH US!

    That is why while recovery is our first priority, it is essential that we establish long-run parity between revenues and expenditures.

    That’s what my wife says: That I should get a graveyard job to achieve long-time parity between our house income and her spending. Never mind that I don’t want to work a graveyard job, it is the parity that matters.

    This guy is so in love with himself, isn’t he??? Oh, and he’s no economist.

    1. You get bonus points for sorting it out and finding the point he was trying to make. All I saw was a cacophony of really stupid shit streaming through a series of phrases without any connection to one another.

      1. Re: alan,

        All I saw was a cacophony of really stupid shit streaming through a series of phrases without any connection to one another.

        Larry seems to really want to land a job as the Fed chairman, as he is getting the “Fed-speak” (invented by Greenspan) to a tee.

  15. If productivity spurs growth, I guess a stimulus funded by the most productive directed at the least productive isn’t really a good idea? And the entire “pay people to dig holes”, aggregate monetary theory doesn’t hold water? Who goofed, I’ve got to know!

  16. “At a deeper level, we risk a vicious cycle in which an inadequately resourced government performs badly leading to further demands that it be cut back, exacerbating performance problems, deepening the backlash, and creating a vicious cycle.”

    Or worse, we could increase spending while seeing little improvement in government services, and realize that if a lazy, surly asshole works for you, doubling his pay makes him a really well-paid lazy, surly asshole. Then we might discover a tool that the ancients used to combat this problem called “firing squads”.

  17. “It always has and always will take 8 teachers to teach 96 students for one hour in classes of twelve.”

    Well, I have to give Larry Summers credit — he might not know a single fucking thing about logic, but he knows his arithmetic word problems like no one’s business (well, not really, since time is still a degree of freedom there. But we’ll pretend he meant 8 teacher-hours.). You can put that man up against your typical third grader any day. Although when it comes to managing investments, you might want to give the third grader the reins.

  18. Let me be clear: Even with our deficits, the amount of extra debt is less than the amount of reduced borrowing in the private sector.

    Oh, Larry, please don’t go!

  19. What’s the difference between an imminent horizon and a horizon?

    Imminent Horizon is the horizon you see after reaching the horizon, while A horizon is simply a horizon.

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