Former American treasury secretary and former Harvard University PresidentLarry Summers has reached some very progressive conclusions about American stimulus and how to finance it. He appeared this Sunday on MSNBC‘s Fareed Zakaria and clearly and forcefully explained what economists like myself have been explaining for decades that there is nothing to fear about allowing the central bank to finance a large chunk of the debt through the purchase of Treasury bills and medium and longer term debt in order to finance a series of recovery stimulus packages at historically low interest rates. He also produced a detailed accounting of the size of damage that the COVID 19 pandemic has inflicted on the United States over the past 9 months. He argues that the total is over 16 trillion US dollars which is likely to be an understatement of the damage which Americans who have caught the virus will suffer because of lasting negative health effects associated with the virus. Currently after 9 months of the pandemic the ratio of debt to the GDP has risen from 106.7 % of the GDP in 2019 to over 135.6 % of the GDP in 2020. This is a shocking rise but the pandemic is the one of the greatest shocks since the Crash of 1929 and the Great Depression which followed it.
Good for Larry Summers to appreciate accurately the situation and prescribe the appropriate policy option. There is nothing to fear in the debt, inflation or exchange rate data and much work to be done .
I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
It is now 2022 and the Bank of Canada and the US fed have announced higher rates as a near certainty in the months to come . In my view they are acting prematurely, in both countries. They risk plunging North America into a slump. In Canada unemployment is still elevated at 5.9 percent and inflation is much less due to any excess aggregate demand as opposed to supply chain bottlenecks and oligoPoly price maker pressures.these would be better treated by competition policy reforms than by unleashing a slowdown and a spike in unemployment while we still are in the midst of the pandemic.
Canadian inflation is 4.8 % above the Bank of Canada‘s 2 % target. but once we strip global supply chain and oligopoly influences out the rate is much lower, Crunching the economy is the wrong way to go about reducing the rate and the weary population after more than two years of Covid pandemic is in no shape for austerity.