• Former Treasury Secretary and frequent Financial Times columnist Larry Summers has a good piece this morning reminding policymakers to keep an eye on the very big picture as they craft a response to the financial crisis. While short-term fixes may be necessary, he writes, it’s important to remember that the foundation of the last two booms has been remarkable U.S. productivity growth, which in turn fueled consumer spending and investment. A drop in productivity, then, is the real problem underlying the crisis. And, indeed, according to the Bureau of Labor Statistics, productivity grew 2.64 percent annually between 1995 and 2004, but it has grown just 1.4 percent annually since then. Summers is, for lack of a better word, a productivity progressive, and like his cohort--Bernard Schwartz, Gene Sperling, Rob Atkinson—he believes the government has to take an aggressive stand on infrastructure, innovation, education, and other factors that boost productivity if the country is going to return to its past, glorious growth rates. Should Obama win, let's hope this becomes a major theme in his economic policy.
  • One mystery yet to be unraveled is why the precipitous drop in oil prices--who would have predicted, nine months ago, that it would ever reach $63 a barrel again?--hasn’t buoyed the markets. Of course, oil prices are largely predicated on expectations of future demand, and the drop in price is a reflection of investor fears of reduced global growth rates. Still, it’s a lot of extra coin in consumer pockets. (For what it’s worth, I think the price will go back up in the next few months; right now investors are trying to disambiguate the drop in demand due to high prices from the drop in demand due to the financial crisis. I think they’ll find that underneath it all is a surprisingly high level of rock-solid demand, and at that point they’ll start pushing the price up again. Not to the $120 range, but still.)
  • The New York Times has done a great job bird-dogging the details of the $700 billion bailout--in particular, that banks are likely to use the money for acquisition sprees, not lending, and that this was the government’s unspoken goal all along. Joe Nocera has an absolutely must-read column this morning in which he regales us with comments from a JP Morgan Chase conference call, including this nugget from an unnamed executive: “What we do think it will help us do is perhaps be a little bit more active on the acquisition side … we would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” As Nocera concludes, archly, “It is starting to appear as if one of Treasury's key rationales for the recapitalization program--namely, that it will cause banks to start lending again--is a fig leaf, Treasury's version of the weapons of mass destruction. In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation.”

--Clay Risen