Economic History Lesson

Lawrence Summers, the president�s chief economist, wants to make current crisis a footnote

1999timeI have always been fascinated by political and economic history. No matter how painful the era, it can prove to be both instructive and constructive in shaping our nation, our world, and our lives. We’re living through such a period.

Lawrence H. Summers, President Obama’s chief economic guru, offered his view of the current economic crisis as well as historical spin at yesterday’s meeting of the Economic Club of Washington. Ten years ago, he appeared on the cover of Time magazine with two officials who were considered the sharpest economic problem solvers of our times – Clinton Administration Treasury Secretary Robert Rubin and then-Federal Reserve Chairman Alan Greenspan. The triumvirate were hailed as the “Committee to Save the World,” having contained financial catastrophes in Russian, Asian, and Latin American financial markets. What a difference a decade makes. Rubin would have his reputation soiled after being forced to resign from the board of Citgroup this year. He was cited as being responsible, in part, for the once-powerful financial institution racking up a whopping $20 billion in losses due to the subprime mess. And Greenspan, once the economic oracle who could move markets by clearing his voice, now has to defend his record as a number of economists blame his monetary policies for wrecking the American economy. As for Summers, who served as Treasury Secretary when Rubin left the Clinton Administration in late 1999, he is now one of the architects of what one can characterize as Obama’s “Committee to Save America.”

He admits that “the challenges we face now are, frankly, much greater than the challenges we faced then … Then, the financial crises were in other countries. Now the financial crisis is here.”

What’s curious about Summers’ assessment of the Obama administration’s policies is the intent to make today’s economic tsunami a footnote instead of a volume in American history. “When my kids studied U.S. history, they learned a lot about the 1930s and what happened in the economy then. They learned almost nothing about what happened in the economy over the last four or five decades. [Events like] the fluctuations of the 1982 recession just wasn’t something that made it into a history lesson. I think our challenge now is to make sure that we do everything we can to contain what we inherited so this serious economic downturn will not be looked at a generation from now as a historic event.”

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  • Cogito Ergosum

    Some people have wondered whether Summers is the right guy to be fixing the economy, since he’s (as the charges go) too cozy with Wall Streeters and too much a part of what created the problem to help with solutions. Bill Moyers recently ripped Summers in a blog
    (http://www.counterpunch.org/moyers04082009.html)

    I think it’s a bit unfair. Summers is exactly the kind of guy Obama needs on his team. He’s a good economist, who “knows where all the bodies are buried”, as they say.

  • Christopher

    There is an important difference between “knowing” where the bodies are buried and “finding” where the bodies are buried when it comes to correcting problems that arise from past practices and actions.

    “Knowing” where the bodies are buried gives you the opportunity to more quickly assess the damage and propose solutions. It, also, gives you the opportunity to avoid the bodies that makes it uncomfortable for you and others that you are beholding-to to face. Whether warranted or not, critics of the insider’s results will question the veracity and completeness of the reports out of fear that the results are self-serving.

    “Finding” the bodies lengthens the time it takes to complete the search for answers and holds the possibility that some bodies will never be found. This means that wrong conclusions can be drawn from the results and ,therefore, solutions may miss the target. This result, may lead to failures in correcting the immediate problems and/or lead to unintended consequences that cause significant problems in the future. Provided that the person or team involved in finding the pbodies are viewed as competent by the consumers of the reports, however, the results will at least be viewed as trustworthy and well intentioned.

    Mr. Summers is being cast in the group of “knowers” by Mr. Moyers and rightly so. He has been an insider and the risk mentioned above are real. Only time will tell whether the risk were worth taking. And, that evaluation will be made by history, not current cheerleaders or critics.