Introduction
Macroeconomics can often feel monotonous and uninspiring. Amidst the barrage of economic data and reports, it’s challenging to see how this information translates into real-world decisions. Yet, these statistics form the backbone of government intervention, raising questions about their utility and authenticity.
Modern macroeconomics often feels like a tedious exercise. The frequent updates on GDP, unemployment, inflation, and other economic indicators can seem monotonous. How can such reports influence decisions that might genuinely enhance your life?
Should rising Consumer Price Index (CPI) figures compel you to stockpile toothpaste? Would a climbing unemployment rate dissuade you from changing careers? Should a booming GDP induce you to invest in an S&P 500 index fund?
For the most part, economic reports fail to provide clarity or guidance for informed decision-making. Nevertheless, these reports serve as the bedrock for governmental central planners, justifying their interventions in the economy to “improve” these indicators.
The ultimate aim for planners is to manipulate the data to reflect a more favorable picture, typically characterized by steady growth, low inflation, and low unemployment—a scenario once dubbed a “Goldilocks economy” by Alan Greenspan.
Yet, reality often contradicts the official narrative. Moreover, government statisticians frequently alter the data to align with the prescribed story.
Anyone with a modicum of interest can discern that the numbers often don’t align with real experiences—leading many to view them as mere propaganda. When actual conditions diverge significantly from the official story, the situations can become quite entertaining.
For instance, just a few months ago, the Federal Reserve stated it would maintain a near-zero federal funds rate through 2023. However, rampant consumer price inflation driven by aggressive fiscal and monetary interventions became too evident to overlook, indicating that interest rates would need to rise long before the end of 2023.
As the official narrative began to fray, Treasury Secretary Janet Yellen took to Bloomberg to assert:
“If we ended up with a slightly higher interest rate environment, it would actually be a plus from both society’s and the Fed’s perspectives.”
How Yellen has determined society’s viewpoint remains a mystery. As the official line strays from reality, once-influential central planners start to turn on one another.
Larry Legend
Among the notable figures in mainstream economic discourse is former Treasury Secretary Larry Summers, who seems to enjoy portraying himself as the smartest person in the room.
There’s very little he doesn’t profess to understand, and his confidence often borders on arrogance.
Back in 1999, according to TIME, Summers famously claimed credit for saving the world alongside Alan Greenspan and Robert Rubin. Not long after, however, he faced criticism for overseeing a $1.8 billion loss for Harvard University.
Since then, Summers has adopted a quieter lifestyle within the ivory tower of academia at Harvard, although boredom seems to have set in.
Summers has long harbored aspirations of becoming the next Fed Chair. However, after three successive appointments, he remains in wait, hoping for his moment to return and save the day once more.
In March, shortly after President Biden’s $1.9 trillion American Rescue Plan Act was signed into law, Summers, a member of the Democratic Party, mentioned in an interview:
“These are the least responsible fiscal macroeconomic policies we’ve seen in the past 40 years.”
Last week, TIME featured an interview with Summers in which he reiterated his criticism of Biden’s economic strategies, specifically targeting excessive stimulus and warning that raising interest rates to control inflation could lead to a painful recession. Furthermore, he cautioned his fellow Democrats:
“I think another important consideration is that when governments lose control over currency, they risk losing public trust. The inflation of the 1970s significantly contributed to Jimmy Carter’s defeat. Conversely, the inflationary issues of the 1960s were instrumental in Richard Nixon’s victory. Progressives must recognize that failing to manage inflation effectively could entail severe political repercussions.”
Is President Biden heeding these warnings?
Will Larry Summers Save the World Again?
Fed Chair Jay Powell’s term concludes in early 2022. Given the current trajectory of consumer prices, it seems unlikely he will be re-nominated. Regardless of whether Summers or another candidate steps in, the damage across the economy has been done.
We’re likely entering a decade—or even two—characterized by unpredictable consumer price inflation. Wage earners, savers, and retirees will feel the impact through diminished purchasing power. Additionally, public services will become increasingly expensive while offering less value, and our infrastructure will continue to deteriorate.
Years of self-serving politicians, promising unrealistic gain through excessive monetary expansion, have led us to our current predicament. Debt and dependency have proliferated, reminiscent of homeless encampments accumulating along the fringes of society. No single policy or legal maneuver can erase these accumulated missteps.
Sound monetary practices combined with the discipline to maintain them might have prevented this turmoil. Moving forward, a period marked by mass bankruptcies, liquidations, pension failures, and the need for personal responsibility is essential for rectifying the current chaos. This moment may serve to trim the bloated nature of our government.
Summers likely understands what awaits. So, why would he be angling for another shot at the Fed Chair position when the next appointee may face the daunting task of raising interest rates and potentially triggering financial turmoil?
Though Larry Summers is a learned man, he too is human, susceptible to the allure of ego, admiration, and the desire to play the hero once more.
Perhaps he is simply eager to jump into the fray, even as the storm clouds gather. If fortune smiles upon him, he may find himself overlooked for the role of Fed Chair for a fourth time.
Conclusion
In navigating the unpredictable economic landscape, the lessons from prominent figures like Larry Summers serve as a reminder of the complex interplay between policies and their real-world consequences. As we ponder the future, it becomes increasingly crucial to critically assess the motives and implications of economic decisions at the highest levels.
Sincerely,
MN Gordon
for Economic Prism
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