It would appear that Larry Summers was right

We tend not to talk or worry too much about macroeconomics around here, thinking as we do that getting the microeconomics of market structure, incentives and voluntary cooperation right is more important. Hugely more important, meaning that getting that important part right obviates the need for much concern about the other.

Others disagree with us, as with Larry Summers. Who recently pointed out that the American economy is indeed a little inside its potential production capacity envelope. There are economic resources lying unused. He goes on to recommend some Keynesian pump priming to bring them back into use. Not our favoured policy but it is, within the models being employed, sensible enough.

Summers goes on to point out that there’s only so many of those unused resources. So, if they’re brought back into use by simply spraying money over the economy - sorry, stimulus checks to American voters - then the available room for spending on the infrastructure he thinks it necessary to revitalise is constricted. In fact, trying to do both will mean all those unused resources get used, and more, meaning that interest rates will have to rise to choke off excessive demand for them.

This has, of course, been entirely laughed at by the political class. They’ve got the societal chequebook and they’re going to enjoy their control of it. Even the sometimes sensible - Paul Krugman for example - have been insisting better to do too much rather than too little.

American interest rates might need to rise to ensure that the world’s largest economy does not overheat, the head of the US Treasury has said.

Ah, there appears to be more than just a modicum of truth to the Summers view.

We would take a larger lesson from this. That Modern Monetary Theory for example. It states that politics can spend as much newly created money as it likes the limitation being good sense and taste. The good sense to not spend too much and the taste for restricting the spending when it is too much.

We do think that fails, not on economic grounds but upon human ones. Taste and sense, let alone good versions of either, seem not to be all that evident in politics.