Ezra Klein's interview of Larry Summers

[Recursion]

I found it very interesting.

Ezra Klein: You were in the uncommon position of actually having to deal with the exact sort of generational economic crisis that Keynes described in his writings. What did you learn?

Larry Summers: ... A second broad Keynesian lesson, which was a deep Keynes conviction, is that macroeconomics policy is about filling in the gaps, not smoothing the cycle. Prevailing economic theories employed in the the ’80s and ’90s held that policy could aspire to smoothing out the cycle, but for every trough in output that was avoided you would shave off a peak level of output. The belief was that macroeconomics was about reducing the variability of output over time, not raising its average level. Keynes on the other hand focused on raising the average level of output through time by raising demand. Our current predicament makes the relevance of his ideas apparent. No one supposes that the output losses suffered by the American economy over the last five years will ever be made up.

EK: But whether Keynesians were right, it doesn’t look to me like they’ve been vindicated. It looks to me like Keynesian is under attack.

LS: Yes, and the attacks echo things that were said in the late 1930s before military mobilization lifted the American economy out depression. There are two ways to understand the backing away from Keynesian ideas. In the first speech I gave and almost every subsequent speech I gave, I included the sentence that “the central irony of financial crises is that they’re caused by too much borrowing, too much confidence and too much spending and they’re solved by more confidence, more borrowing and more spending.” That is profoundly counterintuitive. It makes it difficult to persuade people of the need for more fiscal policy. That’s one element.

Lots more there. Worth reading.