Larry Summers stirred a lot of interest with a talk he gave last week at an International Monetary Fund conference. The former Treasury secretary asked an unsettling question: What if the U.S. needs financial bubbles to maintain full employment?
Not for the first time, you might think, life imitates the Onion. The blog Zero Hedge notes that the satirical website got here first. "Recession-Plagued Nation Demands New Bubble to Invest In," it reported in 2008. It quoted the chief financial officer of a "bubble-based investment firm": What the U.S. needed was "a concrete way to create more imaginary wealth in the very immediate future. We are in a crisis, and that crisis demands an unviable short-term solution."
In saying this might actually be true, Summers was indulging his taste for provocation and carrying lines of thought to extremes. This tendency has attracted attention before -- as when Summers seemed tosuggest that pollution should be exported to developing countries or that women's brains aren't wired to doscience. It's an appealing trait in an intellectual, uncommon in eminent officials.
Summers's thinking on the here and now of economic policy isn't the least bit radical, in fact. His ideas on the longer term were more arresting; so was hearing them from the man who was President Barack Obama's first choice for chairman of the Federal Reserve. Would-be Fed chairmen aren't supposed to ask unsettling questions about bubbles.
David Fuller's view Might Larry Summers be bored and the Fed better off for gaining Barack Obama's second choice for Chairman?
His opening comment was obviously tongue-in-cheek. Nevertheless, I am surprised that so few people in the financial community have yet to understand that the accelerating rate of technological innovation means that many jobs are being replaced by smart machines at a faster rate than new jobs can be created.
Consider that new $100 million plant which BMW built at Moses Lake in the state of Washington that I wrote about last Friday. It was described as "nearly autonomous", requiring fewer than a dozen people, according to Bloomberg.
During the informal session following The Caledonian Club seminar Monday a week ago, one of the interesting subscribers told me that a ceramics factory not far from his home which used to employ over 3000 people was now almost fully automated. I am sure that other subscribers can cite many more examples extensive automation that would have been unthinkable only a decade ago.
This is our present and future world. Plenty more blue and white collar jobs are going to be replaced by smart machines. To survive in this environment over the next decade I may have to reinvent myself as a financial therapist.
The rest of Clive Crook's article is interesting, although as investors I doubt we have to worry too much about the "age of secular stagnation" mentioned as a possibility by Larry Summers. Countries may struggle but accelerating technological innovation is fantastic for successful companies, not least the Autonomies which lead their sectors.