Larry Summers: Competent Old-Time Macroeconomist

I have a pretty high regard for economist (and former Harvard Prez), Lawrence Summers - see here, for example, but then again see here. In a recent piece (h/t to MA) Summers writes that he expects a fairly serious recession soon.

Four vicious cycles are simultaneously under way: falling asset prices are forcing levered holders to sell, driving prices further down; losses at financial institutions are reducing their ability to finance investment, which in turn reduces asset values, causing further losses; the weakness of the financial system is reducing growth, which in turn weakens the financial system; and falling output is hitting employment, which in turn leads to reduced demand for output.

Without active efforts to interfere with these mechanisms, there can be no basis for confidence that the American economy will recover even in the medium term.

The entire article is very long, and it seems quite detailed in addressing these four topics from an aggregate demand side. But it is also disappointingly old-time Keynesian, emphasizing almost exclusively aggregate demand issues and showing no understanding or even awareness of the important aggregate supply issues affecting the US economy (and about which I have written recently). So far as I could tell, this is about all he says that shows any recognition of the aggregate supply issues:

It is certainly true that product price inflation has ticked upwards, though this seems to be heavily commodity-related. Even if commodity prices do not fall but only stop rising, the result will be an improvement in standard inflation measures. Moreover, if the principal problem is commodity price inflation, there are surely better ways to address it than increasing unemployment and reducing capital utilisation. ...

On balance, in the US at least, the risk that output will be too low over the next several years seems considerably greater than the risk that it will be too great and cause the economy to overheat or overborrow.

Nope. There are no easy (or even difficult) solutions to an economic downturn when the economy suffers from an aggregate supply shock, and stimulating aggregate demand is certainly not one. Summers may allege "that surely there are better ways..." but if those problems stem from a supply shock, he never even considers them in this piece. Instead, he focuses only on how gubmnt policy might be used to stimulate demand. And I'm pretty sure that's no way to deal with a supply-side problem.