Economists Lawrence Summers and John Taylor Ph.D. ‘73 debated the implications of federal economic policy Wednesday afternoon as part of an event hosted by the Stanford Institute for Economic Policy Research (SIEPR) in Cemex Auditorium.
Summers, who served as U.S. Secretary of the Treasury from 1999 to 2001, president of Harvard University from 2001 to 2006 and director of the National Economic Council for President Barack Obama through November 2010, addressed the topic “Are Government Interventions an Important Cause of Our Recent Economic Problems?” along with Taylor.
Wednesday’s event was the second of two debates, after a February meeting by the pair at Harvard.
During the debate, moderated by SIEPR director John Shoven following 10 minutes of opening remarks from each speaker, Taylor argued for the affirmative and Summers asserted the negative, that government interventions are not an important cause of recent economic woes in the United States.
Taylor, a government economist during multiple administrations, including those of George H.W. Bush and George W. Bush, began the proceedings by rebuking the actions of an “interventionist” government, which he claimed led to America’s anemic recovery, in which unemployment lingered and job creation remained stagnant.
Taylor argued that the Obama administration’s initiatives created a grim picture, claiming that they exacerbated, rather than softened, the fallout from the 2008 financial crisis.
Taylor said that the “on again, off again” actions of the federal government created an economic climate of “uncertainty and unpredictability,” and that actions that deviated from established norms, historical precedent and “sound rules” were one of the key causes of our recent economic predicament.
In a reference to his personal research, Taylor said he had found that governmental fiscal policy created a “quantitative drag on growth” and that pertinent historical evidence showed that government transfers and purchases had only a limited effect on economic recovery.
Taylor closed with the ominous statement that “failed” administration policies have “forced us to relearn what we should have learned 30 years ago, causing enormous pain to people and the economy.”
Deferring to Taylor’s expertise on monetary policy, Summers focused on the area of fiscal policy, defending its implementation and efficacy.
Summers argued that the stimulus was a sensible and necessary measure, and one that prevented an even greater crisis.
Noting that the origins of the crisis “lie not in the stars, but in the failure of the government to regulate financial firms adequately,” Summers emphasized the need of smart government “activism” when approaching problems as calamitous as those faced at the beginning of the economic crisis.
Summers touted the stimulating effect of fiscal expansion at a time when interest rates were effectively at zero. He grounded his argument in the counterfactual scenarios that could have emerged without government intervention, and in comparative assessments of places where fiscal expansion had or had not taken place.
Taylor and Summers found areas of consensus in the need for predictability, long-term approaches to pressing economic problems and intelligent banking regulation, but they diverged on a greater number of topics.
Taylor criticized the Obama administration’s use of unpredictable and unprecedented governmental actions during the crisis, to which Summers responded, “Battlefield medicine is never perfect,” underscoring his steadfast position that the magnitude of the recession required strong government activism.
Taylor maintained his emphasis on data and historical evidence.
The debate audience asked a diverse array of questions, engaging in topics such as healthcare, real estate, bank capital limits and bailouts.
Students and organizers of the event said it was well received.
“It’s just great to have so many students interested in such a debate,” Shoven said. “This was the largest SIEPR Associate event ever, with 500 people in attendance, and the debate was a good balance of agreement and disagreement.”
Otis Reid ‘12, chair of Stanford in Government, agreed that he enjoyed watching the debate, but had a complaint about the substance of some of the arguments.
“It was fantastic to watch two great figures in a such an honest debate,” Reid said. “I just wish there had been more hard evidence on their parts, more show and a little less tell.”