Most of what he said last night was substantively identical to the things economists of similar stature have said on the major issues. Summers is, on the details, to the right of Paul Krugman, but his interpretation of the issues was more or less the same-- the evidence that we have inadequate demand in the economy is overwhelming, there's no better time to repair infrastructure than when construction unemployment is at 20% and the government borrows at a negative interest rate for 10 years, the idea of expansionary austerity is oxymoronic (and, in Summers's terms, "you can drop the prefix"), the gold standard is the "creationism of economics", etc. None of that is surprising. He also mentioned the famous scene from the Facebook movie where he dismissed the Winklevoss twins, who claimed that Mark Zuckerberg "stole their property" while he was creating Facebook ("None of the lines in that movie were actually said. But if you're asking about the tone, that's exactly what happened."). I would say he stopped short of calling the Winklevoss twins arrogant assholes, but he didn't stop short at all.
But what really struck me was an offhand remark he had about the economic policymaking of the Republican Party. Summers, while he's certainly a Democrat, is far from a leftist, and also far from an ideologue. Among economists, if Paul Krugman is on the center-left (which, in the profession, he is), then Summers is very much in the very middle. People forget that he served in Reagan's Treasury Department when he was a younger (but still already tenured at Harvard) economist. Summers suggested that today's Republican Party has canned solutions that it appropriates to "solve" any problem, and this is something that rings a bell because it's, well, true. He talked specifically about capital gains taxes ("No matter what the problem, their solution is to cut the capital gains rate. If the economy is slow, cut cap gains taxes for demand-side reasons. If the economy is fine, we can improve it even more by cutting cap gains taxes for supply-side reasons."). But I think it's a tic that's present in every aspect of the party's public platform, and extends far beyond economics. If there's a problem in an industry, the solution must be to deregulate it. If something's wrong, government is the problem. If there's a solution, the solution is less government and a tax cut.
It's a tic that allows them to ignore evidence and fit the problem to the solution. That attitude has come starkly into focus in the aftermath of the financial crisis. The crisis was an obvious failure-- it's been almost 3.5 years since Lehman Brothers collapsed, and unemployment is still well over 8%. Those who looked at the data saw that the crisis was a very obvious market failure-- regulations in place were insufficient, and regulators charged with overseeing the markets were asleep at the wheel, or were ideologically opposed to any market regulation (Alan Greenspan being the prime example). Nevertheless, in a case of either mass cognitive dissonance or outright dishonesty, there's been a massive effort to recast the market failure as a result of too much government and too much regulation rather than too little. Fannie and Freddie must have been the problem, they assert, ignoring the fact that mortgages backed by Fannie and Freddie substantially outperformed private label mortgages. Barring that, the Community Reinvestment Act must have been at fault (ignoring the absurdity of blaming a housing bubble that began inflating in the early 2000s on a statute passed a quarter century earlier that didn't cover the vast majority of institutions churning out messy mortgages). Point out those problems, and you'll hear a diatribe about how awful government is. That's not to say that Fannie and Freddie were blameless, upstanding institutions-- their very existence in the form they took was a disaster, and they certainly will need to be re-examined and refocused in a significant way going forward. But there's nothing inconsistent about acknowledging both that Fannie and Freddie were poorly constructed institutions prone to crony politics and poor incentives, and acknowledging the simple truth that their existence was neither necessary nor sufficient for the financial crisis.
That's not to say that more government is unabashedly good, or that it's the solution to every problem, or even most problems. Rather, government is one of many tools for solving various problems. There are cases where it's useful for government to play a direct role-- in putting together a military, building roads, and providing education and law enforcement. There are cases where government can play a valuable supporting role-- in making markets more efficient by demanding disclosure of financial information for public companies, ensuring transparency in financial markets, and protecting parties from being taken advantage of by those with more information, and pricing externalities such as pollution and gridlock on roads through targeted minor interventions. There are also cases where government has certainly overreached-- deregulating the airlines in the 1970s has contributed to cheaper air travel by a factor of about 3; New Deal financial regulation likely went too far in a number of key areas; and the welfare system had become ineffective and lacked focus by the 1990s.
The point, I think, is that finding solutions requires an honest assessment of problems. That can mean action by government, it can mean government taking a different approach than it had been taking, or it could mean acknowledging that government involvement is counterproductive. For a time, government was likely too involved in the economy and needed to step back. Over the last thirty years, the trend has gone too far the other way-- the knee-jerk reaction is that government must be the problem and less government must be the solution. I think today's problem is the belief, without regard to evidence, that every problem must involve too much government, and every solution must involve deregulation and less government.
That's kinda an off the cuff reaction, but it's what I took from Summers's talk, and I think it's become pretty true.
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