If you want to understand why the Obama administration's heart is in the right place but it suffers from a chronic lack of political nerve, you need look no further than former chief economic advisor Larry Summers.
On Sunday, Summers published a piece in the Financial Times warning that the recovery was at risk of sputtering out. His analysis was spot-on. But his proposed solutions were feeble, bordering on pathetic.
Summers declared boldly:
The problem in a period of high unemployment, as now, is a lack of business demand for employees... After bubbles burst, there is no pent-up desire to invest. Instead, there is a glut of capital caused by the over-investment during the period of overconfidence - vacant houses, malls without tenants, factories without customers.
Exactly so. And Summers went on to debunk such usual remedies as training programs, tax cuts, and deficit reduction for its own sake. Increasing the supply of qualified workers, he added, may even make things worse:
Training programs or measures to increase work incentives for those with high and low incomes may affect who gets the jobs, but in a demand-constrained economy will not affect the total number of jobs. Measures that increase productivity and efficiency, if they do not also translate into increased demand, may actually reduce the number of people working as the level of total output remains demand-constrained.
So, what's solution? A big infrastructure program, or Stimulus II, right? Surely, that logically follows. Well, no.
Summers very cautiously, and in tortured language, says: "Substantial withdrawal of fiscal stimulus by the end of 2011 would be premature..." and he calls for an extension of the cut in the payroll tax. Continuing the ultra-cautious and syntax-challenged language of double-negatives, he adds:
At the same time we should recognize that it is a false economy to defer infrastructure maintenance and replacement and take advantage of a moment when 10-year interest rates are below 3 percent and construction unemployment approaches 20 percent to expand infrastructure investment.
Translation: Interest rates are cheap, infrastructure is falling apart, unemployment is high -- so let's have a big public investment program. But Summers can't bring himself to say that in so many words. And so the charade goes on, in which the fiscal hawks preach the end of civilization of we don't slash and burn federal spending, and serious, moderately liberal economists of the sort who advise Obama are all wind-up and no pitch.
