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Bretton Woods Blogging: Larry Summers

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I missed this--stuck on the ground in Philadelphia in a U.S. Air jet whose engine would not start. But S.D. of the Economist was there:

Economics: What the economists knew: [S]adly (or perhaps reassuringly) for the vanishingly small subset of conspiracy theorists who know and care about the conference, that is about where the resemblance ends. (Certainly, there is nobody here to rival Lydia Lopokova, who, as the IMF's resident historian James Broughton recounted last night, drove American Treasury Secretary Henry Morgenthau and his wife, who were in the room below her, to distraction by practicing her dancing at all hours.)

The highlight of the first evening... wa... Larry Summers... and Martin Wolf of the Financial Times. Much of the conversation centred on Mr Summers's assessments of how useful economic research had been in recent years. Paul Krugman famously said that much of recent macroeconomics had been "spectacularly useless at best, and positively harmful at worst". Mr Summers was more measured, refusing to be drawn into making blanket statements for the sake of being controversial.... But in its own way, his assessment of recent academic research in macroeconomics was pretty scathing.... [H]e talked about all the research papers that he got sent while he was in Washington. He had a fairly clear categorisation for which ones were likely to be useful: read virtually all the ones that used the words leverage, liquidity, and deflation, he said, and virtually none that used the words optimising, choice-theoretic or neoclassical (presumably in the titles or abstracts). His broader point--reinforced by his mentions of the knowledge contained in the writings of Bagehot, Minsky, Kindleberger, and Eichengreen--was, I think, that while it would be wrong to say economics or economists had nothing useful to say about the crisis, much of what was the most useful was not necessarily the most recent, or even the most mainstream. Economists knew a great deal, he said, but they had also forgotten a great deal and been distracted by a lot.

Even more scathing, perhaps, was his comment that as a policymaker he had found essentially no use for the vast literature devoted to providing sound micro-foundations to macroeconomics.... He was sceptical, too, of those who put too much faith in regulation, while conceding that it was clear regulation was needed. It was refreshing to hear someone who had been in the thick of policymaking acknowledge a problem others have pointed to: that when it came to stuff like financial regulation, there was "basically no one" who is both knowledgeable enough about what is sought to be regulated and is not, in some way, co-opted. Which made his touching faith in Dodd-Frank, which he defended stoutly, a bit less than convincing.

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