Must-Read: Larry Summers, the Congressional Progressive Caucus Budget, and the Abandonment of Fiscal Policy: “Federal budget season came and went this year without any budget proposal hitting the floor of the U.S. House of Representatives…:
…This was an odd (and ironic) bit of incompetence by the GOP leadership, who couldn’t even wrangle a majority to support their own budget proposal. But it was especially damaging to U.S. economic policy debates because it limited attention paid to the budget of the Congressional Progressive Caucus (CPC)…. The need to resuscitate fiscal policy was usefully underscored in a widely-discussed speech by former Treasury Secretary and National Economic Council Chair Larry Summers earlier this week….
I am here to tell you that the most important determinant of our long term fiscal picture is how successful we are at accelerating the economy’s growth rate in the next three to five years, not the austerity measures that we implement…. What are the crucial elements of changing the fiscal monetary mix I would highlight?
One, the only one I have a slide on, is a substantial increase in public investment. It is insane that [net] federal and infrastructure [investment] is now negative at a moment when interest rates have never been lower and ten-year real interest rates are essentially zero and precious little good is happening at the state and local level either….
Second, strong support for social insurance. When Keynes came to the United States in 1942, he pointed out that an important virtue of Social Security was that it could absorb the excess savings that would potentially hold back U. S. economic growth after the Second World War. Those considerations were not relevant in the succeeding 60 years but they potentially are relevant in our current period of secular stagnation….
The Summers speech has been widely commented-upon, and rightly so—it contains a lot of wisdom. People should know, however, that the ideas in his remarks are embodied in real-world legislation proposed earlier this year, and which sadly disappeared without much attention, all because the Republican-led House could not even organize themselves to have the annual debate on budget proposals.