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147 4 CONCLUDING OBSERVATIONS Lawrence H. Summers Policymakers in political environments are most constructive when they find approaches that are appealing from a variety of perspectives and command widespread support. Academics, on the other hand, are most useful when they provoke thought, and you only provoke thought by saying things with which people disagree. For an academic, the number of people who find what you say surprising, unsettling, or irritating is a correlate of success. I am today an economics professor, not a government official, and so my hope is that my concluding comments here will be surprising and unsettling to many. My work with Greenwood, Hanson, and Rudolph in chapter 1 of this book presents both my views about how debt management policy should be thought about, and about current controversies in debt management policy. Here I offer a number of observations coming out of that research, the various reactions to it, and other reflections on debt management policy, notably those of John Cochrane in this book. Whether or not one agrees with these observations, it seems to me imperative that debt management policy receive much more attention from the policy community than it has in recent years. Central bank balance sheets are much larger than has been the case traditionally. The payment of interest on reserves Adapted from comments made at the U.S. Treasury 2014 Roundtable on Treasury Markets and Debt Management, December 5, 2014. 148 L. H. Summers means that reserves are essentially the equivalent of Treasury bills, blurring traditional distinctions between monetary policy and debt management policy. And whether or not one accepts the ideas about secular stagnation that I and others have advanced, the zero lower bound seems likely to be a much more active constraint on monetary policy over the next generation than it has been over the last generation, compelling more consideration of quantitative easing policies that very much overlap with debt management policies. Debt Management in Context If war is too important to leave to generals, debt management is too important to leave to debt managers, and especially too important to leave to their private sector counterparts. Debt management decisions are far reaching in their effects. As the enormous controversy over quantitative easing reminds us, debt management decisions have implications not just for government borrowing costs but also for the level of economic activity, the credibility of government efforts to achieve low inflation, the maintenance of financial stability, and the development of capital markets. Given all these ramifications of debt management decisions, they should not be delegated to technocrats who conceive the problem only in terms of maximizing the ease of government borrowing. A narrow focus on the part of debt managers can and has led them to regard their central constituency as financial institutions that deal in Treasury debt. This in turn reinforces their narrowness of focus as the interests of dealers are, in important respects, divergent from the national interest. Indeed, I sometimes wonder whether the interests of the dealers and Treasury are as much misaligned as they are well aligned. While both have a stake in wellfunctioning markets, larger bid-ask spreads are profitable for the dealers and expensive for the Treasury. Securities that come in an inconvenient form and need to be financially transformed by the financial community are good for the financial community and an expense from the perspective of the Treasury . Securities that provide a basis for financial innovation are attractive for financial firms but may be threatening to financial stability. Of course, Treasury needs inputs from market participants, but Treasury debt managers will go seriously wrong if they confuse the interests of the Treasury debt community with the national interest. As important as any of the particular arguments made in this book is the permeating recognition that debt management policy needs to be set in the Concluding Observations 149 context of broad macroeconomic policy—certainly in an economy where the zero lower bound is an issue and probably much more generally. How to Think about Treasury Borrowing Costs For reasons explained more fully in chapters 1 and 2, I believe that considerable confusion attends most discussions of the maturity structure of Treasury debt, even taking as given their narrow perspective. It is often baldly stated that the objective of the Treasury is, or ought to be, minimizing expected cost over time. I would have thought that the objective of the Treasury was to minimize risk-adjusted costs. There are any number of actions that...


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