Don’t Get Cocky

In a Financial Times op-ed Lawrence Summers issues five warnings to “world leaders”. At least three of the five (and maybe all five) can be summarized as “don’t get cocky”.

Here are his five warnings:

1. You can’t fine-tune:
   

   First, programme announcements that are vague and try to purchase stability on the cheap are more likely to exacerbate problems than to resolve them.

   or don’t get cocky.

2. The second was stated cannily by Abraham Lincoln as “You can fool some of the people all of the time, all of the people some of the time, but you can’t fool all of the people all of the time:
   

   Second, dubious assertions by policymakers end up undermining confidence.

   or don’t get cocky.

3. So far they’ve been successful at preventing a meltdown of the financial system. That’s the first step in the mission rather than its completion:
   

   Third, containing systemic financial risk is not enough to restore growth.

   or don’t get cocky.

4. Slow growth and deflation are worse than profligacy and debt.
5. Fiscal contraction leads to economic contraction.

I think that Dr. Summers is getting a little cocky himself on those last two points. What happens when you don’t know how to increase growth or, for political reasons, are incapable of taking the steps necessary to do so? On that last point I’ll have more to say in a later post. Suffice it to say for now that my experience in life has been that when you identify something that’s not working, you know how to fix it, and you do so, you’re frequently amazed at how many other things that helps.

But don’t get cocky.