In an op-ed in The Financial Times on Monday, Larry Summers sent a wake-up call to Congress: “We averted depression in 2008/09 by acting decisively,” he wrote. “Now we can avert a lost decade by recognising economic reality.”
According to Daniel Alpert, managing partner at Westwood Capital, Summers is a little late waking up to reality.
“The difference between me and Larry Summers is I’ve been saying this for a number of years,” Alpert declares in the accompanying video. “Summers decided he’d get religion over the weekend…the truth is he’s going with the zeitgeist.”
Indeed, just last week Alpert wrote a report entitled The Flight of the Doves, which tackles many of the same themes Summers addressed in his op-ed: Namely, that America is at risk of following Japan’s path toward prolonged economic stagnation.
“Merely not plunging off [a] cliff is not the same as finding a bridge across the gorge between current conditions and renewed prosperity,” Alpert writes. “It is time to engage in the harder work required to build that bridge.”
That hard works includes literally building bridges and other badly needed infrastructure projects that were missing from Obama’s $787 billion stimulus package. “We not only need some additional stimulus, we need to be able to target that stimulus on stuff that actually produces employment,” Alpert says, calling Obama’s stimulus package “basically a pork barrel bill.”
Infrastructure projects will not only put people to work but will help close the competitive gap between the U.S. and emerging economies, which Alpert says is at the heart of the real structural issue facing America. Namely, that the end of the Cold War created a “massive supply shock” of cheap labour as 3.3 billion people joined a global economy previously dominated by the roughly 660 million people of North America, Western Europe and Japan.
“There are very beneficial things about uniting the world into a global economy,” Alpert says. “Long-term, it’s a situation we’ll all be signing kumbaya together but that’s a long way to come.”
In the meantime, “massive imbalances” between the wage rates and standards of living in the developed vs. emerging economies, as well as the huge debt overhang in the G7, will put downward pressure on economic activity and prices.
In other words, deflation.
“Ben Bernanke certainly understand the problem: when he wakes up at 4 in the morning he’s worried about deflation,” Alpert says. “The folks in the White House, certainly the folks on the Hill have a great misconception on the problems we face.”
In the accompanying video, Alpert discusses his policy prescriptions for dealing with these structural issues, which move beyond the ongoing ‘austerity vs. stimulus’ debate in Washington, as detailed in his report, which can be found at his blog on EconoMonitor.
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