CAMBRIDGE – The need to stimulate demand in the United States and other developed economies has provoked a debate that goes beyond economic technicalities to questions about government’s overarching responsibilities. Like the great economist John Maynard Keynes before them, Larry Summers and Paul Krugman have advocated a greater role for public spending to compensate for weak private-sector demand. But the justification for such a policy must transcend economic logic if it is to win political support. A greater role for government requires an overriding mission.
At an IMF Conference last November, Summers invoked the specter of “secular stagnation,” a condition in which aggregate demand persistently falls short of potential supply, generating under-employment and slow, if any, growth. Summers suggested that a speculative and unsustainable financial bubble had been required to create even a simulacrum of full employment in the decade or so before the crash.