Larry Summers is the poster child for what has happened to the economics profession. He is a celebrity first, an economist second. To Summers, truth takes a back seat to preserving your fame and fortune. Summers spends far more time sipping wine with wealthy celebrities and Democratic politicians than in the halls of academe. And it shows.
Summers, one of the key architects of the current, oppressive financial service regulatory regime is now saying that it hasn't worked. No, Larry, you're wrong. It has worked. It has reduced the once, most powerful economic engine on the planet to a pitiful, hand-wringing European look-alike. You succeeded Larry. The US is no longer a pre-eminent economy with a powerful financial service industry. Congratulations!
But, Larry wants more, it seems. Using stock price variance measures, intellectually discredited as a risk measure for the past half century, Summers charts his course. His intended landing spot. Of course. More regulation! That is the cure for what ails us.
Why doesn't Summers just cut to the chase? How about outlawing banks? Maybe that would eliminate the risk of banking.
Here's a different path: get the government out of banking entirely. Abolish the FDIC guarantee. Does middle America need a $ 250,000 guarantee of their checking accounts? Let banks fail like any other business. As long as the government guarantees bank liabilities, it is axiomatic that banks must take on much larger risks. Wouldn't you?
The argument for bank regulation is predicated on the myth that bank depositors need government's help. No they don't. Money markets loaded with US treasury bills can provide all the protection depositors need without the heavy hand of government.
The price paid for the Summers agenda is no economic growth. That's too big a price, Larry. You're right, you're plan creates too much risk. Get the government out of the way. Let markets work. Let economic growth return and not be stifled by folks like you.