The wisdom of Larry Summers
Tyler Cowen directed me to a recent interview with Larry Summers:
The real crime is not that we miscalibrated on some economic versus public health trade-off. The real crime is that we have not succeeded in generating far greater quantities of testing, far greater mechanisms for those 40 million unemployed people to do contract tracing, far more availability of well-fitting, comfortable, and safe masks, and that we’re under-investing in the development of new therapeutics and vaccines.
When something costs $10 to $15 billion a day, you need to make decisions in new ways. We should not be waiting to see which of two tests works best. We should be producing both of them. We should not wait for vaccines to be proven before we start producing them. We should be producing all the plausible candidates. Remember, one week earlier in moving through this is worth a hundred billion dollars: two months’ worth of the annual defense budget.
While you might emphasize different solutions, he’s absolutely right that there was never a tradeoff between public health and the economy. The trade-off was between laziness and the economy. We could be lazy, or we could have a good economy. We chose lazy.
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23. May 2020 at 11:55
“We chose lazy”? No, you did not choose lazy, nor did I nor any of your other readers. The United States “chose” lazy; the scare-quotes are justified, because this collective event is not real choice, but just something loosely analogous.
23. May 2020 at 13:25
Scott,
If you blame Trump for this, which I think is partially justified, than you also have to blame the sociopathic decision of Democratic governors to force nursing homes to accept COVID 19 positive patients.
I will vote in this election who I hate the least.
P.S.
Scott, At least Trump pressured Jerome Powell to ease policy. One good thing about Trump at least in terms of monetary policy, is his willingness to buck the party line especially in terms of hard money neoliberal fetishism.
Obama thought monetary policy had “shot its wad!”
23. May 2020 at 14:20
Excellent Sumner post, indeed we chose laziness for the same reason we chose to produce too many liberal arts majors and not enough engineers and we chose not to reform our patent system so ordinary people would be incentivized to work inventing useful things instead of providing liquidity on Wall Street (except when you need liquidity the most). We chose the easy way out, and now, dependent on China for our manufacturing, we are at their mercy. Not to mention SARS-CoV-2 is a WIV virus. Had to add that.
23. May 2020 at 14:27
“we should not wait for vaccines to be proven before we start producing them”.
What a brilliant remark. Yes, let’s produce millions of products BEFORE we test the efficacy. I suggest he volunteer himself for a medical study. We’ll cook up a few different concoctions, and prepare the needle.
Economists are perhaps the dumbest people on this planet. I’ve met 2 intelligent economists in the last 25 years (Robert heilbroner and lestor Thurow. The rest of you are absolutely worthless.
23. May 2020 at 14:39
There is nothing wrong with liberal arts. A good liberal arts program can provide a very well rounded education.
Our patent laws allow 20 years of monopoly. I think that is a pretty big incentive.
The reason China has become so powerful, is because of the “Davos” agenda. Over the past 30 years, countries have sent their jobs to China for cheap labor. Now you have a rich, authoritarian regime, on your doorstep.
23. May 2020 at 16:40
Jason, You said:
“If you blame Trump for this”
I blame America and Europe for this, including myself. And I’ve been crystal clear on that point from the beginning. Don’t know how often I need to say that. I guess even a few more times.
greg, If you have nothing intelligent to say, it’s better to just keep quiet.
23. May 2020 at 16:59
I find it interesting that you support Summers on this one.
Correct me if I’m wrong but isn’t he a well-known, fairly crude Keynesian who’s always looking for reasons to dig pointless holes with fiscal policy and debt? His ideas, for example on the production of vaccines, are nothing else.
How many vaccines does he want to have mass produced at the same time? Even if he has 10, 20, 30, 40 vaccine candidates mass produced, there is no guarantee that even a single vaccine will get through.
Who has recently linked this interesting study here? At the moment, we have a 40% probability that a vaccine will be found at all. Let it be 50% or 60% with Summers’ debt ideas, but the odds won’t get much better just because of all this debt, you should know this better than anyone.
The obvious way would be massive deregulation, for example get rid of all these ethics committees full of church people and bureaucrats. This would be very effective and doesn’t cost a cent, it even saves money.
Unfortunately, governments in the US and Europe have already launched massive debt plans, but still not enough for his taste?
The classic Summers’ “way of debt” is probably the laziest way to go in any case.
23. May 2020 at 17:01
Yes, if one accepts the need for lockdowns than one must accept the need for extraordinary government actions.
I am mildly disappointed in the macroeconomic community in regards to this pandemic, including Summers.
Economists will be moved to gutteral roars to protect the US economy from protectionism, grimly reciting the Great Depression and global wars as probable outcomess, while bellowing indignation at government clampdowns on personal freedoms.
But lockdown the economy and unemploy 50 million Americans and the profession has gone mute, or promotes the production of masks which evidently we no longer have the capability to do.
An interesting question: if the US had responded somewhat in scope and scale to the 2008 Great Recession as it has to the 2020 Great Recession (in terms of fiscal and monetary stimulus) would the prior recession been much smaller or briefer? I think so.
Is there a sentiment that we had to endure the previous recession for moral reasons, but we are absolved from moral reasoning due to the pandemic, in 2020?
23. May 2020 at 17:24
Scott,
That’s why government is ineffective (and why I’m a liberal in the classic sense.) Governments only try one solution, or if they try more than one solution, they ALWAYS do it serially with a very long lag that’s needed for people to admit they were wrong.
Firms and individuals compete with one another so many solutions are tested in parallel, and the one in a hundred (thousand) solution that actually works is quickly found.
Expecting a government to try multiple solutions in parallel is like expecting the sun to rise in the west.
23. May 2020 at 17:38
Scott,
And BTW, testing is way over-rated because of the lags between infection and being able to identify an infection and the high rate of false negatives means that all contacts need to be isolated regardless of test results (or whether or not they had a test.)
Basically there are two options.
– Don’t test and require all contacts to isolate, or…
– Do test and require all contacts to isolate.
Testing doesn’t change anything except give pundits something to talk about.
(That said, if there was a cheap simple test with 100% specificity and 100% sensitivity that produced instant results, it would be different story, but we are nowhere near that and in the early stages of pandemic we (and every country) were light years away from having that ability.)
23. May 2020 at 19:35
I just want to point out that I was banned from a liberal macro blog for making the exact same point Summers makes about UBI and Keynesian economics.
23. May 2020 at 23:29
Wow Summers is in such good form lately. Especially liked his observation that politics is becoming decreasingly attractive as a career option in America, even just in terms of wages. Incidentally, I think that’s one big up-shot of Andrew Yang’s campaign. His arguments were often surprisingly bad, but he did show that a normalish person can come forward with sensible arguments/new ideas and gain something of a following. Somehow it’s not completely inconceivable to me that in 10-15 years all candidacies will look a lot more like his.
24. May 2020 at 08:35
@Scott, this is so true, and it is so sad that our election will be based on whether Biden wouldn’t gotten tough on China sooner.
@dtoh, I agree that trace and isolate should be the highest priority, I think you are downplaying testing too much. Germany and South Korea achieved their success with a lot of testing, and particularly early testing. BTW: There have been some recent attempts to explain Japan’s success using a cluster based approach. Seems kind of trivial, but certainly worth considering.
https://thediplomat.com/2020/04/covid-19-strategy-the-japan-model/
24. May 2020 at 20:14
Greg,
Yes, let’s produce millions of products BEFORE we test the efficacy
Yeah we should. It will take time to scale up the production of products. Time is more valuable than money. This is just common sense, which you dont need to be an economist to have.
Suppose testing takes 9 months and, once proven, scale up takes 3 months. If you scald up during testing, you just saved 3 months. The risk is that the vaccine might not work and those doses you throw out. That is an expensive risk, but not more expensive than staying locked in for another 3 months.
I suggest he volunteer himself for a medical study. We’ll cook up a few different concoctions, and prepare the needle
I’d be willing. Human challenge studies should be undertaken. I love how you are sarcastically mentioning good policies.
25. May 2020 at 03:31
@bb
Not to get too political, but there is a huge bias in progressive circles to believe that the only way to solve any problem is through government policies.
For weeks, the western media ignored Japan because it wasn’t following the “scientific” and “obvious” policy prescriptions like massive testing and government mandated shutdowns.
All the while, Japan was basically doing nothing except simple contact tracing (Epidemiology 101.) Now that it’s impossible to ignore the success of Japan (Darn a million Japanese didn’t die to prove the “We Must Test” mantra), the pundits are trying to concoct some new narrative about the success of Japanese policy, and soon we will have whistle blowers in Washington claiming they were fired because of a memo they wrote four months ago about a cluster based approach to containing the pandemic.
25. May 2020 at 08:39
I feel like the world drifted in a semi-comatose state, staring at death counts and never focusing on whats “not seen”. The fact that Summers wrote what he wrote when he wrote it makes me even more ill than I already feel. I don’t care what Larry Summers thinks.
I and most of us share our own small corner blame for this fiasco. We collectively blew it. When all (or almost all) deaths are from one demographic group, one would have thought we would have used the presumably great amount of brainpower we have to try and focus on the core definition of the bad “output”—-old people are dying at huge rates.
But no one did that—not Trump and his advanced group of “science experts”; not the “loyal left”, not the mediocre media, not our presumed great university system. One also cannot help but blame the grotesque extra introduction of partisan politics across the board.
One can be somewhat self-forgiving–as in the beginning who didn’t think it was not just another one of those 2003,2009 style events?
But as data came in—and it became clear who was dying and it became clear that shutting down an economy was extremely dangerous—-did our collective brains lose their fog? Far from it—we simply dug in
But its not too late–far from it. But I see no willingness to change anything.
It really is the president’s responsibility—although it would be nice if there were some help—which there will not be—and he so far is unable to be persuasuive–nor are his minions.
to repeat, Summers was and is part of the problem—and now what does he do? repeats a standard list of crap—even if he is right he does not want to help but blame.
We are all to blame—again–in our own little minion way—But we need to work backwards from death and try to open the economy fully without restrictions–while simultaneously offering intelligent safety measures for the older among us—I will try to think of some things myself –my guess is it may be less difficult than it seems
25. May 2020 at 09:30
@dtoh,
“Not to get too political, but there is a huge bias in progressive circles to believe that the only way to solve any problem is through government policies.”
I don’t think that’s a fair statement. First, there is plenty of bias on the right. Second, I think you’ve seen me adjust my priors as more information has become available, so I think it is wrong to paint me as bias because I think you are undervaluing testing. And third, The GOVERNMENT of Japan is leading the response. Who do you think is the leading the “cluster based approach”, Toyota, Sony? Contact tracing is a government lead solution.
I do not believe that problems can only be solved by government policies. I do believe that government should solve problems related to public goods. And I believe that pandemic response is a public good in the classical definition, non-exclusionary and non-rivalry.
What solutions do you advocate for a pandemic that don’t require government response at some level? I just don’t see a Crassus fire brigade solution to Covid.
And while lots of testing is not an absolute requirement for contact tracing, it can make contact tracing at least marginally more effective. And in a country like the US, which has lower levels of trust in government and higher levels of resistance to government mandate, a positive test result can convince people to isolate who might not otherwise do so.
And testing gives us more information which can help communities and individuals make better decisions. I suspect I’ll be comfortable sending my kids back to school in the fall, not because of herd immunuty, but because we will have a much better understanding of the risks and which precautions are effective.
As for western media, they’ve ignored other success stories too. I think trying not to cancel the Olympics distracted a lot from the story
25. May 2020 at 09:53
Christian, As usual, you mischaracterize my views. I never supported fiscal stimulus. As to this:
“there is no guarantee that even a single vaccine will get through.”
There are never any guarantees in life. So let’s just close down all the hospitals, so that we never make a mistake.
dtoh, Tests are key to the success of many countries. It is a crucial tool, along with mask wearing and avoiding big crowds.
You said:
“Not to get too political, but there is a huge bias in progressive circles to believe that the only way to solve any problem is through government policies.”
Wait, you are now becoming a libertarian? For years you’ve been telling me we need big government to solve the problem of international trade. Are you now supporting free enterprise? Are you now opposing all the GOP bailouts of business? That’s great news if true.
25. May 2020 at 12:48
Scott,
Wow! You haven’t read anything I’ve said over the last 10 years.
I am and always have been a proponent of complete free trade and investment. The only things I’ve ever said are a) governments shouldn’t make sudden rule changes which disrupt and destroy people’s lives, and b) we shouldn’t trade with countries who don’t follow the rules….the rules being… no lying, no cheating, no stealing (IP), no censorship, no spying, and no use (or threats of use) against other countries.
And…I’m totally opposed to bailouts (and the creation of regulatory barriers to entry.) IMHO, it’s the second biggest problem in the U.S. (and BTW it is not limited to the GOP.)
As for tests… given a) the lags between when someone is infected, when they can transmit, when they become symptomatic, and b) the high rates of false negatives; please explain in detail how testing reduces transmission. Causality arguments only. Correlation doesn’t count. No ad hominem references to health experts.
25. May 2020 at 13:25
@bb
As usual I think we agree on most points.
Regarding testing, I don’t think the impact on transmission is nil …. just that the impact, to use your words, is “marginal.” Also I agree that testing has other benefits. I’ve always been very careful to talk about the testing only as it relates to transmission.
My guess (and I emphasize guess) is that the major factors impacting transmission: climate, BCG vaccinations (maybe), average household size, population density, use of public transport, etc. are outside of our immediate control.
And I’m not by any means opposed to government action to solve problems. There’s always a spectrum. It just that I’m on the skeptical, small government is better end of the spectrum.
I think contact tracing is important and something which most governments do/did reasonably well until they became overwhelmed. I also think government can play a role in informing the public and providing advice…. wash your hands, avoid crowded places, don’t travel if you can avoid it, etc.
I’m probably most critical of the media, I find it abhorrent that when lives are at stakes they are more interested in generating controversy to increase viewership rather than trying to inform and help. I know they are in business, but every other business I know was bending over backwards biting the bullet trying to do the right thing.
As for the response of the Japanese government, it’s not possible to overstate how inept they were. (I don’t know if you read the stories about ambulances whose occupants were refused admission at over 100 different hospitals.) It was laughable to see Abe bragging on TV last night for doing absolutely nothing. Local health officials were reasonably competent at contact tracing, but the only thing the national government did right was get lucky with a population that had a naturally low transmission rate.
And BTW – I don’t think you’re biased at all. You’re one of the few people posting on this blog who listen to what’s being said and are willing to adjust your views.
26. May 2020 at 09:02
dtoh, You said:
“we shouldn’t trade with countries who don’t follow the rules”
Then you don’t believe in free trade with America, as we don’t follow the rules.
Testing identifies the infected, who can then be isolated. Wuhan just tested 9 million people and found one active case. NYC should have done that months ago.
It’s hard? It’s expensive? So is a Great Depression.
26. May 2020 at 09:50
Scott,
I was writing about Summers, maybe you read the names wrong.
Scott,
I didn’t write that. I was merely pointing out that you seem to support Summers’ ideas, which are nothing more than huge government involvements
in the very high billions, with a very narrow focus on certain technologies and certain outcomes, based on well-known (pseudo-)Keynesian justifications.
A horrible idea, and I expressed my surprise that you seem to support this nonsense – or that seem to have no idea what Summers means.
There is no need for involvements of this kind, it rather hurts. Nor is there a need for this narrow-minded focus on vaccines, or testing, or whatever.
The government could finally dismantle regulations, maybe even support loans, but please stay away with these billions and trillions of government “investments”. The world is turning into a nightmare right now. In the EU, in China, but also in America.
There is no need to push Summers and Co even further, and pretend that they are wise.
On the contrary, it is frightening that there are no more dissenting voices against these people, and that even freethinkers like you and Tabarrok are cracking down.
This is high treason, and even worse, it’s a mistake.
26. May 2020 at 13:30
Scott,
No. Those are the rules for Rome. When you’re not Rome, the rules are different.