“During the depression, John Maynard Keynes compared Britain’s economic woes to a ‘magneto’ problem, referring to the fact that a car might have many infirmities but if its electrical system did not work the car would not go. If that was fixed, the car would run, even with other problems. So it is today. Moreover, to a greatly under-appreciated extent in the policy debate, short-run increases in demand and output would have medium to long-term benefits as the economy reaps the rewards of what economists call hysteresis effects….The most important structural programmes for raising Britain’s potential output in the future is raising its output today.” Lawrence Summers, ‘Britain risks a lost decade unless it changes course’, Financial Times, September 17, 2012
Lawrence Summers displays his shirt-tails in this column. Chancellor of the Exchequer, George Osborne, will do well while doing good if he looks closely at the disheveled intellectual attire of this supposed heavy-weight economist. Heavy in weight surely does not imply heavy in intellectual capacity.
First let us us remind ourselves about the nature and use of a magneto. A magneto is an electrical generator that uses permanent magnets to produce periodic pulses of alternating current. Hand-cranked magneto generators were used to provide ringing current in early telephone systems. Magnetos adapted to produce pulses of high voltage are still used in the ignition systems of some gasoline-powered internal combustion engines to provide power to the spark plugs. For the most part, the magneto is now confined to engines where there is no available electrical supply, for example, lawnmowers and chainsaws. Magnetos were rarely used for power generation.
Magnetos are inefficient owing to the weak magnetic flux available from their permanent magnets. This has always restricted their use for high-power applications. Magnetos are not used in highway motor vehicles which have a cranking battery and which require more control over ignition timing than is possible with a magneto system.
Readers by now will understand the thrust of this analysis. Magnetos are as outdated with respect to motor vehicles as Keynesian economics is for the modern advanced economy. Lawrence Summers has simply confirmed just how out of date he is with respect both to modern technology and to modern economics. One cannot efficiently ignite a modern V6 engine with a magneto, just as one cannot ignite a modern economy with shovel-ready stimulus packages that effectively suck all the oxygen out of the economy.
Lawrence Summers may not claim expertise with respect to the modern internal combustion engine. From his own now-evident failure as economic adviser to President Barack Obama, he should clearly understand that he has no valid expertise as a macro-economist.
If Lawrence Summers has not learned that hard lesson, then surely George Osborne should, and, hopefully, will do so.