Sunday, June 12, 2011

Lump of Larry

Thus Spake Professor Summers:

A sick economy constrained by demand works very differently from a normal one. Measures that usually promote growth and job creation can have little effect, or backfire. When demand is constraining an economy, there is little to be gained from increasing potential supply. In a recession, if more people seek to borrow less or save more there is reduced demand, hence fewer jobs. Training programmes 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.

A sincere welcome to the real world, Dr. Summers! In other words, abstract doctrine is bunk when conditions on the ground are not ideal. Meanwhile, back at the White House, President Pivot and his CEO choir is puffing... training?

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