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A posting from a Dartmouth classmate regarding a Summers' presentation:
A Dartmouth classmate - S...y A...r - asked a question at minute 46 in the video.
The quite reasonable question was asked as to what businesspeople should do now, if they are NOT the recipients of government aid/stimulus/subsidy, and therefore completely voluntary agents.
A...'s question was only partially, and perhaps misleadingly, answered by Summers although it gave him an opportunity to mention, and to attempt to extract some benefit from, Obama's preternatural calm ( idiots are also calm as are brighter people who just don't give a damn). His on-point answer, that good long-term plans and current lower costs ( the lack of availability of credit notwithstanding ) should cause business people to, for the example of home builders, build now. This is misleading in that "good" long-term plans either beg the question or assume some facts about the market that are not in evidence at the moment. You might well construct homes now at lower cost than possible two years ago but you still have to sell them at PRICES higher than your costs by enough to give you a return on your money.
More useful were the facts quoted by Warren Buffet in his Annual Statement to shareholders and the inference to be drawn from them. The only one of his businesses that was doing really well in this environment was GEICO; jewelry, furniture et al being in the tank. The clear inference is that things that people MUST do, they will prefer to do at lower cost and the 10% savings claimed by GEICO for auto insurance looks more worthwhile now than it did a year ago. That is, there are always "switching costs" due to inconvenience, loss of a long relationship with a broker ( even at a mutual company like State Farm ), transition fears, etc and a meaningful lowering of costs is required before one switches. That threshold gets lowered in times like the present ones. Similarly, people who fix, or provide parts for, used cars are likely to do better at present than new car dealers.( Indeed, we might look forward to being like Cuba where 1955 Buicks still ply the roads.)
That's the right answer to A...r's question, not the pious hope that Summers is holding out on the off-chance that people will recklessly start things up again without market signals.
Of course, total objectivity is not the proper posture for someone in Summers' position where restoration of confidence is a preferred function over sincere analysis. Obama's Chicken Little pronouncements, designed to get his programs passed, have not otherwise been helpful and he has changed his rhetoric to being more upbeat in recent days. Of course his advice to consider buying stocks was not taken as well as intended since it was couched in terms of some ignorance of Wall Street. People were reminded of Jimmy Carter's exhortation to the effect that, were he not President, he would be buying stocks. Alan Abelson of Barron's rejoined that "if Carter were not President, I (Abelson) would also be buying stocks."
The quite reasonable question was asked as to what businesspeople should do now, if they are NOT the recipients of government aid/stimulus/subsidy, and therefore completely voluntary agents.
A...'s question was only partially, and perhaps misleadingly, answered by Summers although it gave him an opportunity to mention, and to attempt to extract some benefit from, Obama's preternatural calm ( idiots are also calm as are brighter people who just don't give a damn). His on-point answer, that good long-term plans and current lower costs ( the lack of availability of credit notwithstanding ) should cause business people to, for the example of home builders, build now. This is misleading in that "good" long-term plans either beg the question or assume some facts about the market that are not in evidence at the moment. You might well construct homes now at lower cost than possible two years ago but you still have to sell them at PRICES higher than your costs by enough to give you a return on your money.
More useful were the facts quoted by Warren Buffet in his Annual Statement to shareholders and the inference to be drawn from them. The only one of his businesses that was doing really well in this environment was GEICO; jewelry, furniture et al being in the tank. The clear inference is that things that people MUST do, they will prefer to do at lower cost and the 10% savings claimed by GEICO for auto insurance looks more worthwhile now than it did a year ago. That is, there are always "switching costs" due to inconvenience, loss of a long relationship with a broker ( even at a mutual company like State Farm ), transition fears, etc and a meaningful lowering of costs is required before one switches. That threshold gets lowered in times like the present ones. Similarly, people who fix, or provide parts for, used cars are likely to do better at present than new car dealers.( Indeed, we might look forward to being like Cuba where 1955 Buicks still ply the roads.)
That's the right answer to A...r's question, not the pious hope that Summers is holding out on the off-chance that people will recklessly start things up again without market signals.
Of course, total objectivity is not the proper posture for someone in Summers' position where restoration of confidence is a preferred function over sincere analysis. Obama's Chicken Little pronouncements, designed to get his programs passed, have not otherwise been helpful and he has changed his rhetoric to being more upbeat in recent days. Of course his advice to consider buying stocks was not taken as well as intended since it was couched in terms of some ignorance of Wall Street. People were reminded of Jimmy Carter's exhortation to the effect that, were he not President, he would be buying stocks. Alan Abelson of Barron's rejoined that "if Carter were not President, I (Abelson) would also be buying stocks."
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