Larry Summers is on the tape on Saturday and his comments (from the Institute of International Finance event in Washington) are worth noting.
Sure, you probably harbor a healthy skepticism towards Larry and that’s fine because after all, Larry is Larry and all that comes with him. But as I am fond of reminding market participants, there’s still some utility in considering what the ostensibly “smart” people have to say.
Between the financial crisis and, more recently, the war on truth and experts (led by Steve Bannon and Nassim Taleb, respectively), we’re living in a world where stupid people have become convinced that because news is spun and because experts very often say and do dumb stuff, there are no longer things called “facts” and there are no longer people who are “smart.”
Clearly, that’s dangerous and it also makes no sense to the extent that nothing has actually changed. The news has always been spun and smart people, by virtue of being human, have always said and done dumb things. So the news is no more “fake” now than it was before Steve Bannon and experts are no less experts today than they were before Nassim Taleb starting writing bestsellers.
Similarly, retail investors with their E*Trade accounts are no more gurus in the post-crisis world than they were prior to 2009, and the amusing nexus in all of this is that the very same average Joes who are buying into the whole Bannon/Taleb post-truth, post-expert narrative are completely oblivious to the fact that the reason their E*Trade accounts look like they do is precisely because the smart people and the experts have willed it.
Finally, when you hear bloggers and random people on Twitter making fun of Larry for something other than all of the myriad things which you can very fairly make fun of him for (and there’s no shortage of those), you might consider that no one asked those bloggers and tweeters for their opinion on economics. Now, those bloggers and tweeters will contend that the reason why no one asked for their opinion is because they are purveyors of inconvenient yet incontrovertible economic truths in a world populated by idiots whose policies have failed. Of course there’s another, far simpler explanation for why you don’t see those bloggers and tweeters on panel discussions or on TV: namely that those bloggers and tweeters don’t know what they’re talking about. Occam’s razor.
So with that as the backdrop, consider the following bullet point summary of Summers’ remarks via Bloomberg…
Former Treasury Secretary Larry Summers says markets are complacent, rejects rule-based monetary policy, and says Donald Trump’s tax framework is headed in the wrong direction.
- “There’s an element of complacency, via self-denying prophecy, or to paraphrase FDR, an important thing we have to fear is the lack of fear itself” in markets
- Calls markets “one of the confirming facts for the secular stagnation hypothesis”
- In the absence of great investment opportunities, in era of high savings, makes sense that asset prices would be high — so secular stagnation predicts elevated asset prices, Summers says
- “I worry that there’s going to be a kind of band-wagoning” and that there’s a growing number of people whose experience in market dates from 2008, so they haven’t seen anything but up, he says
- “It would be a grave era to turn American monetary policy over to a three-variable feedback rule,” Summers says
- “The idea of monetary policy is that it’s supposed to be reactive to conditions” to stabilize the economy
- On Trump tax plan: “It’s a different level of bad than we’re accustomed to”
- The Bush tax ideas were “honest” attempts to strengthen the economy, but “I am not able to say this about the current melange of ideas that is labeled as a tax plan”
- “No credibility whatsoever” to the claims that it will pay for itself
- “Yes to corporate tax reform, but no to this corporate tax reform”