Or maybe not.
From Project Syndicate, September 4:
Secular Stagnation Revisited
The right way to respond to financial crises is not with expansionary fiscal policy, but with policies that restore the value of private assets. And the right way to prevent financial crises in the first place is to intervene in the financial markets to moderate swings in asset values and to head off recessions before they happen.
WARWICK – The public spat between Nobel laureate Joseph Stiglitz and former US Treasury Secretary Larry Summers is remarkable for the personal animosity that it reveals between two economists who essentially agree about the economics. Stiglitz levels a not-so-subtle attack on Summers for failing to insist on a larger fiscal deficit when he ran the National Economic Council under the Obama presidency. Summers responds that the politics made a larger fiscal stimulus infeasible. But while they agree that the Great Recession could have been overcome with a big fiscal stimulus, neither has laid out the economic model that underpins their confidence in this outcome.
Summers reinvigorated the work of Alvin Hansen, who introduced the concept of secular stagnation in the 1930s. But I have not seen Summers lay out a fully articulated dynamic general equilibrium model that supports his advice. And in his written work on this topic, he has seamlessly shifted between a definition of secular stagnation that involves permanently lower growth rates as a result of low investment and permanently lower employment as a result of deficient aggregate demand.
Uh oh.These are not the same thing. In his rebuttal to Stiglitz, Summers comes down in favor of the latter definition. In his words, “left to its own devices, the private economy may not find its way back to full employment following a sharp contraction.”I agree with this assertion. And I have provided an internally coherent theory whereby secular stagnation arises naturally as a consequence of low expectations on the part of households and firms about the future value of their assets. This theory integrates Keynesian economics with general equilibrium theory in a new way. Higher persistent unemployment has nothing to do with sticky prices. It is a consequence of missing factor markets.Summers is well aware of my work. We discussed it when I visited Harvard in 2011 and again when he gave a lecture at the LSE in 2012. Initially, he was supportive in private email correspondence. But when I pointed out that the theory does not unequivocally support fiscal expansion as the appropriate response to a recession, he became disinterested in my work. New ideas are often difficult to accept, and they require investment in a different way of thinking that can be difficult to absorb, even for people as smart as Stiglitz and Summers....MORE
When public intellectuals say something nice such as the above "...even for people as smart as Stiglitz and Summers." you know the knife is about to flash.
For example, from a 2010 post, the author of Against the Gods-The Remarkable Story of Risk complimenting Boston University's master of pension finance and pension economics:
William Bernstein (No slouch either, M.D. Neurologist, PhD. Chemistry, dabbler in Modern Portfolio Theory, bestselling author, etc.) in one of his Efficient Frontier pieces, "Zvi Bodie and the Keynes’ Paradox of Thrift" described the professor as:
"Academician, raconteur, and all-around good guy Zvi Bodie...".
Then he rips his lungs out. Very typical in the academy:...
