September 17, 2012

Professor Summers still lives in blissful ignorance about our most urgent “magneto” problem.

Sir, Professor Lawrence Summers writes that “short run increases in demand and output would have medium to long term benefits as the economy reaps the rewards of what economists call hysteresis effect”, and that this calls for more public investment, “Britain risks a lost decade unless it changes course”, September 17. 

I can only understand that as a result of him still being in blissful ignorance of current bank regulations, which artificially favor access to bank credit, solely on the basis of being perceived as not-risky, and thereby makes the access to bank lending to those perceived as risky, like small businesses and entrepreneurs, scarcer and more expensive than normal. 

When will Professor Summers get to know that those regulations represent in fact the most urgent “magneto” problem that needs to be fixed, in the UK, in the rest of Europe and in America for our economies to run? Before that, any public investments based on deficit public budgets, and any lose monetary policy for that matter, can only threaten to further flood the engines and consume what’s left of scarce fiscal and monetary policy space.