In Justin Fox’s worthwhile new book “The Myth of the Rational Market” he reports that Larry Summers once showed an informal paper Summers had written to Fischer Black (of Black-Scholes fame) attacking the idea that markets are rational. The paper began with this delicious line:
THERE ARE IDIOTS. Look around.
I have come to dub this “Summers’ Law.” But we learn today that Summers must think there are idiots ALL around. After all, Arnold Kling points to a terrific little nugget in the Washington Post.
“It is clear from the data that there needs to be more fiscal stimulus in the second half of the year than there was in the first half of the year,” White House economic adviser Lawrence H. Summers said. “Fortunately, the stimulus program designed by the president and passed by Congress provides exactly that.”
Kling calls him out on it: “In other words, the delay in spending is not a bug, it’s a feature! Note to Greg Mankiw: when Larry comes back to Harvard, you should invite him to take ec 10. He seems to have no concept of how the multiplier is supposed to work.”