Davos prescriptions for the US economy: Chrystia Freeland

Jan 25 2013, 09:31 IST
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Davos prescriptions for the US economy: Chrystia Freeland. (Reuters) Davos prescriptions for the US economy: Chrystia Freeland. (Reuters)
SummarySummers' most important point was that economic policy is more like medical treatment than religion.

Get ready for a new elite consensus on the US budget deficit. One of the functions of the World Economic Forum - decide for yourself whether this is a virtue or a vice - is to give the plutocrats a venue for figuring out their party line. Think of it as crowdsourcing for the 0.1 percent.

For a long time, the conventional wisdom among this crew has been that the deficit and the debt were the United States' chief economic problems. That's why I wasn't surprised when Martin Sorrell, the head of the global communications giant WPP , referred to the deficit as the country's most important economic issue at a breakfast discussion he moderated at the forum this week. The conversation was off the record, but when I asked Sorrell if I could quote his comment, he happily doubled down: Not only was the deficit the United States' most important economic woe, it was the most important economic issue in the entire world.

"This is the world's gray swan," Sorrell told me, in a play on the idea of unpredictable, powerful "black swan" events, popularized by the financial scholar Nassim Nicholas Taleb.

Most of the panelists (disclosure: I was one of them) at the WPP conversation agreed with Sorrell - but that Davos consensus may be on the verge of shifting. One of the most convincing signs of that switch came from an interview I did here with Lawrence H. Summers, a Harvard University economist.

Summers, as he put it himself, is hardly a radical - his resume includes stints as secretary of the Treasury, president of Harvard, and President Barack Obama's chief economic adviser. He is also an academic economist in excellent standing: Summers was one of the youngest tenured professors at Harvard and a recipient in 1993 of the John Clark Bates Medal, which is awarded every two years to the best economist under 40.

Most importantly of all, when it comes to the deficit debate, Summers is a political protege of Robert E. Rubin, the Treasury secretary under President Bill Clinton whose hawkishness on the deficit was so iconic that it inspired the always quotable political maestro James Carville to muse that he wanted to be reincarnated as the bond market, because it was, in the Rubin world view, omnipotent, a characteristic to which Carville aspired.

All of which is to say that Summers

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