Larry Summers, director of President Obama’s National Economic Council, gave a speech at the Brookings Institute on Friday morning, outlining the Obama administration’s approach to the economy. I don’t think he broke any news, other than to make the highly questionable assertion that that the minimal stabilization in retail spending documented earlier this week could be a sign that the stimulus rollout is already working. But Summers did make one point that bears repeating. Stock prices have fallen so far, he believes, that they now represent a great “opportunity.”
One striking statistic suggests the magnitude of the opportunity that is before us in restoring our economy to its potential. Earlier this week, the Dow Jones Industrial Average, adjusting for inflation according to the standard Consumer Price Index, was at the same level as it was in 1966…
While there could be many ways to question this calculation, that the market would be at essentially the same real level as it was in 1966 when there were no PCs, no Internet, no flexible manufacturing, no software industry, and when our workforce was half and our net capital stock was a third of what it is today, may be regarded by some as the sale of the century. For policy-makers, it suggests the magnitude of the gains from restoring sustained economic growth.
By “sale of the century” I think Summers means that right now intrepid investors can grab a piece of the profits that American public companies will eventually earn in a newly expanding economy at bargain basement prices.