Larry Summers.
Discusses where we are, what we lack and where we're going.
On Thursday night, I had the privilege of “moderating” a conversation with Harvard Professor Larry Summers, whose official “bio” starts as follows:
Former Treasury Secretary Lawrence H. Summers is one of America’s leading economists. In addition to serving as 71st Secretary of the Treasury in the Clinton Administration, Dr. Summers served as Director of the White House National Economic Council in the Obama Administration, as President of Harvard University, and as the Chief Economist of the World Bank.
The title of Thursday’s “Forum” at the Institute of Politics at the John F. Kennedy School of Government at Harvard was “Economic Policy Before and After the 2024 Election.”
We (meaning he) talked about that at some length. But he also talked about the gathering storm in Europe, the spirit of public service, the crisis of the academy, the 350-foot bridge that took five years to fix, and the perils and promise of artificial intelligence (Prof. Summers is on the board of OpenAI).
I’ve always thought the best podcast or YouTube video interview was one that featured a very smart person talking about very interesting subjects. By that standard, this is a great podcast/YouTube video.
Here’s the link:
YouTube (video and audio): Larry Summers, Institute of Politics, Harvard University, 14 November 2024.
For those of you who prefer reading to listening, here’s a transcript of our conversation. The time codes track (more or less) with the YouTube video.
12:19
Wyeth Renwick
Good evening and welcome to the John F. Kennedy Jr. Forum at the Institute of Politics. My name is Wyeth Renwick. I'm a first year studying government at the college, and I'm a member of the JFK Junior Forum Committee. Before we begin, please note the exit doors, which are located on both the park side and JFK street side of the Forum. In the event of an emergency, walk to the exit closest to you and congregate in the JFK Park. Please take a moment now to silence your cell phones and join me in welcoming Harvard College undergraduate Daniel Zhao.
12:58
Daniel Zhao
Good evening, everyone, and welcome to the JFK Junior Forum. My name is Daniel Zhao and I'm a first year studying math at the college and a proud member of the JFK Junior Forum Committee. It's my honor to introduce our guest this evening who will be discussing a topic on all of our minds: economic policy before and after the 2024 election. Our guest speaker today is Lawrence H. Summers. He's the Charles W. Eliot University professor at Harvard, where he's made significant contributions as an economist, educator, and public servant. During the past four decades, he has served in a series of senior policy positions: 71st Secretary of the Treasurer for President Clinton, Director of the National Economic Council for President Obama, and the Chief Economist of the World bank. From 2001 to 2006, Summers. notably served as the 27th President of Harvard University.
13:51
Daniel Zhao
Currently, he serves on the Board of Directors of OpenAI. Moderating the conversation tonight is John Ellis, the co-host of the Night Owls podcast. Mr. Ellis has an extensive career in journalism. He's worked at NBC, the Boston Globe, CNBC, Fox News, and News Corp. Most recently, Mr. Ellis is the founder and editor in chief of News Items, a newsletter that seeks to insert objectivity and clarity into discussions around politics, finance, and tech. Mr. Ellis has become well known for breaking down complex issues for a broad audience through his podcast, Night Owls, where he enlightens the public on critical issues related to economics and governments. Please join me in giving a warm welcome to John Ellis and Lawrence Summers.
14:57
Lawrence Summers
I should just say that if I could only read one news summary each morning, it would be John's Substack News Items, which tells you what happened and links you to the best things that happened in politics, in science, and in much else. It's good to be with you, John.
15:19
John Ellis
Great to be here. And I guess that sums it up. And thank you for the endorsement. You've heard Larry's resume. It's impossibly impressive. We don't need to go any further, but I wanted to tell a brief story which was after the 2022 midterm elections, I was invited to speak to a hedge fund in Connecticut to give my analysis of what happened and what it might mean for the 2024 election. And what I said to them was, the 2024 election is the Larry Summers election. If Larry is right about inflation, President Biden cannot possibly win. If he's wrong, or somewhat wrong, then Biden has some chance of winning. So, I thought we'd start by going back to the beginning. Stimulus package is passed. $1.3 trillion stimulus package is passed.
16:17
John Ellis
And you wrote a famous column for the Washington Post that sort of set in motion this whole discussion about team transitory-inflation would abate because supply chains would become unclogged, et cetera-against your position, which was that it was going to be a lot more difficult than that.
16:39
Lawrence Summers
So three times in the last 75 years, a Democratic administration has prioritized things other than inflation more highly than inflation. And the result has been a major lurch to the right. That's what happened with Richard Nixon's election in 1968. That's what happened after Lyndon Johnson and the Vietnam War. That's what happened after Jimmy Carter, with Ronald Reagan's election in 1980. And inflation, higher prices and higher interest rates were on almost every reading of the exit polls, the single most important reason why people were unhappy with the Democrats this time. There's a technical argument that you can have about just how much of the inflation related to the stimulus package, just how much of the inflation related to monetary policy, how much of it was kind of inevitable given the pandemic?
17:48
Lawrence Summers
I think any reasonable judgment would be that the price level today is significantly higher because of the extent of expansionary policy in 2021. I think that if there had not been hyper-expansionary policy in 2021, it would have been easier for Democrats to escape blame for whatever inflation took place. So, I think inflation is a substantial part of the problem. You can debate how bad it really is. There's a psychological problem which is that if people get a 7% raise and there are 7% in price increases, they don't say to themselves, well, there's kind of zero real wage. They say to themselves, I did a fantastic job and I got a 7% increase, and it all got taken away from me by inflation, even though that's not the reality.
18:52
Lawrence Summers
So there's a psychological aspect where people overstate how bad inflation is, and there's a distributional aspect that if you have extra unemployment, it's 2% of people who don't have jobs. And if you have extra inflation, it's 100% of people who see higher prices. But inflation is deeply toxic for the progressive project, and progressives need to understand that. And they did so insufficiently. And that's one of the important factors in this election. It's not the only one. By the way, John, this is also an important issue going forward. If President Trump does what he said he would do during his campaign, the inflation shock administered to the economy would be substantially larger than anything that happened at the beginning of the last administration. He's vowed huge deficit increases through continuation of his tax cuts and new tax cuts.
20:10
Lawrence Summers
He has trashed the idea of the independence of the central bank. He said that we should want to have a less highly valued currency, which means less valuable money, higher prices. And that's just on the demand side. The more important part is he's talked about a big tariff on every good that we import, which means higher import prices, also means higher prices for everything that competes with imports. So, when you raise the price of imported steel, that means bigger profit margins for all the domestic steel producers. So, that's substantially inflationary. And it's clearly the right thing to do. It's clearly something we have to do for our polity to tighten the borders. But if you're talking about sending millions of people out of the country who are here now, that's a prescription for large scale labor shortages.
21:23
Lawrence Summers
And we've seen in the past what that does to inflation. So, if the policies are implemented in the way they have been talked about, it's going to be more inflationary than what we saw before, and that will be very politically toxic and will raise cynicism and disillusionment in the country. There's a lesson there for policymakers going forward.
21:56
John Ellis
You had before we did this, we had talked about the role of the Fed during the Biden administration. I wonder if you could give us your views on that and then talk about if Trump actually goes through with what he says he's going to do. What in the world would the Fed do in those circumstances?
22:16
Lawrence Summers
Look, I think in some important ways the Fed missed the plot. In 2021, when two and a half trillion dollars of stimulus were being applied to the economy and the economy was booming, the Fed put out the so-called dot plot, its statement of intentions, and it said that interest rates were going to stay at zero till the summer of 2024. That was not a plausible belief at that time for several reasons. For the first year and a half of the Biden administration, and for a year or so before that, at a time when every corporation in America was terming out its debt, issuing longer term debt instead of shorter term debt, when every smart homeowner was getting rid of their variable rate mortgage and issuing a long mortgage, the Fed was doing exactly the opposite.
23:30
Lawrence Summers
It was buying back in all the long-term Treasury debt by issuing what was in effect floating rate short term debt. The loss, if you calculate it like a trade looking at the market value of the assets, was certainly half a trillion dollars and on some estimates a trillion dollars. So, the good news is that after the first year or so the Fed figured out that they were on a wrong track and they changed it. And all things considered, the change worked out better than I think most people expected. We didn't have the hard landing that's often occurred after inflation and that I certainly said I thought was more likely than not. But we did lose that half a trillion dollars which would pay for a lot of Head Start or a lot of anti-poverty programs.
24:38
Lawrence Summers
Going forward, I think the risks right now are of the Fed making directionally similar errors. Let's look at the facts right now. People think the economy in normal growth of its potential grows at 2% a year. Growth has been running much closer to 3% a year for the last six to nine months. People say we have a 2% inflation target. The core CPI, the consumer price index that takes out the volatile parts, John, was running at about 3% for the last year and at about 3 and a half percent for the last three months or the last month. So above target and not falling. The stock market is on fire. So, thestock market on fire, inflation well above target, economy growing faster than normal. Why is this a moment to be hitting the accelerator hard? I don't really understand the logic.
26:08
Lawrence Summers
I don't see what the rationale was for the 50 basis point cut that the Fed delivered. Markets have moved a long way towards this view. Two months ago, people thought the Fed was on a path to cutting interest rates to 2.8% from their current level around 5. Now people think, now the markets think, the Fed's going to cut interest rates to 3.8%. So, there's already been a big adjustment. I think if President Trump goes through with his program and my analysis is right, that there won't be nearly that much interest rate cutting as things play out. But we'll have to see and maybe there will be a set of adjustments to the plans that President Trump has.
27:04
John Ellis
Do you know any of the people under consideration in the Trump economic world?
27:11
Lawrence Summers
I know a few of them casually. But you're not going to draw me out into... I'll be very direct on policy questions. If you work at it, I probably won't be able to contain myself with respect to some who have been appointed to non-economic positions, but with respect to the people in the economic area, I don't want to get into commenting on specific individuals.
27:48
John Ellis
Right. No, I was just curious if there were people that you thought were particularly strong so we can pass on that and move right along. When we talked before, you said that you had been reading John F. Kennedy's book Why England Slept, and I wondered why you were reading it and what you were taking away from it.
28:11
Lawrence Summers
So since not everybody here may be familiar, let me set a little context for that. As I suspect everybody here does know John Kennedy was a Harvard undergraduate. John Kennedy wrote an undergraduate thesis in government. It wasn't quite the usual undergraduate thesis. If your father is the ambassador to London and your family is close friends with roughly every prominent journalist in America, it's kind of easier to write your thesis, easier to turn your thesis into a book, which is what John Kennedy did as a 23- or 24-year-old. And the subject of his book was why as the threat from fascist Italy/Mussolini and fascist Hitler/Germany, grew, why England didn't spend and rearm, didn't prepare itself for conflict, what were the political dynamics that accounted for that set of choices. And he analyzes a variety of factors.
30:01
Lawrence Summers
Exhaustion after a long period of international responsibility, worries about fiscal prudence with substantial deficits and debt, a desire to stay out of the problems of the world and to focus on concerns at home. And I'm reading the book because I'm mindful of the possible gathering threats facing the United States. The President of the United States and the Prime Minister of England have met each other something like 20 times in the last 12 years. The premiers of Russia and China have met each other something like 42 times in the last dozen years. And we are contending with a set of authoritarian powers who have a very different concept of the world than ours and who give increasing evidence of willingness to act on their concept. And the question is, how will we contend with that threat?
31:50
Lawrence Summers
If one looks at the last budget that was proposed by the White House, or one looks at the budget path for the next 10 years, embodied in the Congressional framework as reflected in the Congressional Budget Office, it shows defense spending as a share of GDP declining significantly from about 3 and a half percent to below 3% of GDP. To put that in perspective, the average during the post World War II period has been close to 6% of GDP. Given the threats that we face, given the trajectory of military spending in Russia, China, North Korea, Iran, is it responsible for that to be our trajectory of defense spending? I think not. Is it responsible for us to be taking highly nationalist and adversarial postures with respect to many of our major allies on issues relating to trade through tariffs?
33:21
Lawrence Summers
Is it responsible, in a world where there must be some limit to how long the world's greatest debtor can be the world's greatest power, for us to be accumulating debt far more rapidly than we ever have before in peacetime? And, so I do wonder whether in important respects, we as a country are repeating some of the mistakes that-in a very different context, and you know, history never repeats itself, but sometimes it rhymes-that Britain did. And that's why it seemed to me that trying to understand the work as a very young man that President Kennedy did that shaped his vision of the world was a useful and instructive thing to go back and do. And look, it's a very broad thing. As a somewhat perhaps curious and precocious six-year-old (and maybe I'm really just projecting childhood memories back on.
34:48
Lawrence Summers
from when I was 12 to when I was 6) I was inspired by John Kennedy saying, ask not what your country can do for you, ask what you can do for your country. It seems to me that kind of spirit is not what has imbued the political competition that we have had, which is kind of a struggle in competitive giveaways. I'll cut taxes on tips, you cut taxes on tips, and so forth. And, so I think there's a lot to learn from studying history.
35:36
John Ellis
One thing that we talked about was patriotism. And I wondered, you talked to me a little bit about this on the phone, but I wondered if you would expand upon it, how you perceive patriotism in the Kennedy era vs patriotism today.
35:58
Lawrence Summers
Look, I think I'd like to see it more widely embraced. I'd like to see it more widely embraced by my political party. I frankly like to see it as a value embraced more in our university, where it's not something we talk about or celebrate or think about. There's an academic field called American Studies. If you look at its flagship journal, you can go years without finding any article that says anything fundamentally positive about America. There's a lot that's wrong. God knows there's plenty that we have done wrong in our history. But there's something odd about the degree to which the history that is received in our educational system is as negative about our country as it is. I think that institutions like ours. I talked about this during the time that I was president of the university.
37:42
Lawrence Summers
It was not received with unanimous enthusiasm, to put it mildly. Need to think very hard about how we approach these kinds of issues. In 2001, actually, in 2002, I attended the ROTC commissioning ceremony for the Harvard students who were then doing their ROTC at MIT that took place. I was the first Ivy League president to attend an ROTC commissioning ceremony in 30 years. Now that's changed, but it's mostly changed-changed some because there's been some change in attitudes, and it's changed because the military have done a very important and right thing and changed the policy with respect to gays in military service. And so now it's in accord with what I have always supported and what Harvard prefers.
39:01
Lawrence Summers
But was it really right for Harvard to not allow the military on campus because it disagreed with the policy of our commander in chief and successive commanders in chief of both political parties, successive Congresses? I don't think so. I think we need to find a way of re-embracing patriotism in part because I think there are real differences in the world and real threats we face, and I think in part because it is an alternative to each subgroup of Americans embracing a particular identity, which leads to a great deal of divisiveness.
39:56
John Ellis
I think there's a great deal of interest in where you think the Democratic Party is going, where you think it should be going, in the wake of the election results of two weeks ago. I, of course, want to ask you about Germany and China, but I think there's probably greater interest in where you think the Democratic Party is going and where it needs to go.
40:18
Lawrence Summers
So I will leave you, as a distinguished political journalist, the task of political prognostication. And I'll warn everybody that while I hold myself out as an economic expert, nobody's ever voted for me in an election. So, I'm not sure it's for me to say what the political platform should be of my party, the Democrats. But I think it's fair to say that in too many ways, Democrats have lost sight of the common man and woman in favor of the attitudes and philosophies of the faculty common room. And adjusting that means a number of things. It means putting emphasis on economic growth and containing inflation. It means celebrating our country and its strengths and the things that we do right. It means ideologies that put more emphasis on opportunity and less emphasis on identity because they're more unifying.
42:00
Lawrence Summers
It means recognizing that order is a basis for comfortable and secure lives and therefore embracing the notion of reducing crime in all of its forms as a central responsibility of government, recognizing that just as each of us cares more about members of our family than we do about others, that our ability to be a national community depends upon there not being universal, effortless access to that community and maintaining strong policies at our borders. And I think it means something else. And it's a Democratic thing, but it's also a Republican thing. I think it's a very important, broad issue for our country, which is we need to be a place that can get things done again. Everyone in this room, I suspect, has walked across the Larz Anderson Bridge, connecting where we are now with the business school.
43:36
Lawrence Summers
That bridge, after a century, needed to be repaired a few years ago. The bridge is 350ft long. It's a historic bridge. It needed to be repaired. One lane of traffic was closed for 62 months in order to repair that bridge. To put that in perspective, it took 45 months to win the Second World War. That is not an isolated example in our country. The Second Avenue subway in New York cost 10 times as much per kilometer as the subway in places that I hadn't previously thought of as paragons of efficiency. Paris and Ankara in Turkey. I could go on like this forever. I'll just do one more. There was a proposal. I think it was a very good and sound proposal to place nets under the Golden Gate Bridge because of a feeling that it would reduce suicide risks.
44:57
Lawrence Summers
It's a good project. It took 30% longer and cost 80% as much to put suicide nets on the Golden Gate Bridge as it did to construct the Golden Gate Bridge in the first place. And that's after adjusting for inflation. Elon Musk is a great guy. He's got a lot of capacity. He's really completely remarkable. But isn't something wrong when a guy with a company can put four times as much tonnage every year into space as the National Aeronautics and Space Administration of the greatest country on Earth? Is there something wrong? And that's just a problem that we need as a country to figure out how to solve. And if Democrats are the party that believes in a strong government to build a strong society, we have to figure out how to enable government to get things done effectively and quickly.
46:17
Lawrence Summers
And that is the key to almost everything. There is no path to renewable electricity replacing fossil fuels without greatly enhanced transmission facilities from the places where it's windy and sunny to the places that need the electricity. Yet it's almost impossible to site a high-speed transmission line in today's America. There is no path to affordable housing for middle class families without building a lot more starter homes. But that means that these people called developers need to be able to develop and they need to not have to spend many years filing permits before they do that. So, a focus on making the society able to work and work quickly, I think is another part of the answer.
47:25
Lawrence Summers
Look, you may think that I'm making sense, you may think that I'm not making sense, but I would hope that most of you would agree that if I wanted to teach economics in a Massachusetts public high school, I should be permitted to if a high school wanted to hire me. But actually, unless I acquired some credentials that I don't have, a special waiver of some kind would be required. Doesn't seem like that's how we ought to be functioning as a society. So, I think all of those things, though, go to embracing what are a kind of common sense values. They're not reflective in any way, shape or form of critical theory. But I actually think that's okay.
48:33
Lawrence Summers
And it's probably better in terms of the policy consequences, and I rather suspect it's better in terms of the resonance with a large swath of the population. So those are my general thoughts as to where I would hope that the Democratic Party moves.
48:57
John Ellis
Before we get to questions from the audience, you're on the board of OpenAI. There's a lot of discussion about the potential risks, the potential benefits of OpenAI. I know you can't talk specifically about what the company is doing. But as sort of just a quick overview, what is your take on AI and what is the promise of it?
49:25
Lawrence Summers
John this is... I always try, when I think about something to use as a way of getting perspective, I say to myself, when historians look back at this time or this institution or this place, what will they say? And it's a way of getting a broad perspective. My guess is that when historians look back at the late first quarter of the 21st century, the most important thing that will have happened will not be the election of a populist in the United States or a war between Russia and Ukraine. It will be the sharp evolution that was taking place with artificial intelligence. I don't know how quickly it will happen. And in general, with respect to technologies, things take longer to happen than you think they will, and then they happen faster than you thought they could.
50:40
Lawrence Summers
But my sense is that you're talking about a massive acceleration of scientific progress. I'm not sure it's an exaggeration to suggest that artificial intelligence will be to the Internet as the computer was to the calculator. And if that's right, that's a very large thing. Here's a 60 second economic history of our planet. From the beginning of time until Pericles, there was no economic growth. It was just like rabbits. When there was more food, there were more. When there was fewer food, there was less. And there was no growth. As best anybody can tell, from the time of Pericles till the time a bit after the Renaissance, there was growth at a rate of a few percent a century. From about 1500 till about 1800, mid-1800s, there was growth of a few tenths of a percent a year. So perhaps 30% a century.
52:06
Lawrence Summers
And it is only in the last 150, 175 years that growth has been fast enough that standards of living were different at the end of a human lifespan than they were at the beginning of a human lifespan. So there have been these four ratchets in the rate at which progress is being made. And if you imagine scientific progress taking place much more rapidly than ever before, and you imagine that our tools are intelligent in the way that we are, and more importantly, our tools can improve themselves in the way that we improve ourselves, it's perfectly possible that we're looking at another big ratchet in the rate of progress. So, I think this is an event with immense significance. I think that the opportunities exceed the risks. But there are very large risks and we're going to have to be very thoughtful about them.
53:33
Lawrence Summers
But I think that the time in which the students in this room are going to be alive is going to be a time of immense change and progress in the human condition. Certainly much more than has taken place in my 70 years will take place over your lifetimes, and quite possibly more than took place in the remarkable period from 1900 to the 1970s that saw the telephone, saw electricity, saw indoor heating and air conditioning, saw the flush toilet become ubiquitous, saw the airplane, saw the automobile, and saw so much else happen. I think it's very possible that kind of dramatic change is going to be what's going to happen during the students in this room's lifetime.
54:48
John Ellis
Let's Start with questions. Are we on the left side? Here is one of the mics.
54:54
Guest
Okay, well, thank you for that masterclass. So question is: what would you do to fix the economy so that it works for more people? What would you do to fix the government budget so that it's not the runaway train that it is? And after 40 years, what do you think of trickle-down economics?
55:16
John Ellis
Three easy questions.
55:20
Lawrence Summers
Trickle-down economics has never been my approach. I think you got to build the economy on every dimension. You've got to build it on human capital, you've got to build it on physical capital, you've got to build it on intellectual capital. You need all investments of more of all sorts and you need the best systems for putting the investments together. I think Bill Clinton got it right when he said that I want there to be more millionaires because if there are more millionaires, there are going to be more successful businesses employing more people. So no, I don't believe that prosperity trickles down. But I also don't believe in the economics of envy. I ask myself, if we had more people like Bill Gates and Steve Jobs and Jeff Bezos in our economy, would that better or would it be worse?
56:29
Lawrence Summers
And yeah, there would be more people who had very high standards of living, but I sure think it would better for the economy as a whole. But we need to make sure that everybody's ready to take advantage of that opportunity. The budget. Look, I think ultimately people aren't ready to hear this yet, but here's the fact. We've got a big budget deficit right now. The government. What's the government do? Government does four things. Government pays interest. We've got more debt than we used to, a lot more. Government does defense. We talked about that. We've got bigger national security challenges than we used to. Government takes care of people who are aged. Social Security, Medicare, Medicaid, that's half the federal budget.
57:26
Lawrence Summers
And the share of the population that is aged is twice what it was when I started out as an economist 40 years ago. And the government buys and performs services. And the nature of the economy is changing. My friend Marc Andreessen, the venture capitalist, said that we're headed towards an economy where a flat screen TV bigger than all the walls in your living room will cost $100 and a college education will cost a million dollars. We're not there yet, but the relative price is changing fast. And the government does a lot more things that are like paying for college educations than are like buying flat screen TVs. So, I think it's inevitable that we're going to have a larger government and that means we're going to need to find ways to raise taxes substantially.
58:29
Lawrence Summers
And of course the place where that should start, but it's not the place where it can end, is with taxing those with the greatest ability to pay. And there's a whole agenda from the corporate tax side to carried interest to simply enforcing against tax shelters that's required there.
58:56
John Ellis
Question from here.
58:58
Guest
Professor Summers, welcome back to HKS. My question is about China. So President-elect Trump has threatened to raise tariffs on China to 60% and revoke permanent normal trade relationship with China which was what you personally advocated 20 years ago before China's joined the WTO. So, do you truly believe that he would implement a 60% tariffs and revoke the PNTR with China? If so, how do you assess the potential inflationary impact, the likelihood of the subsequent trade war, and the broader effects on the global economy?
59:39
Lawrence Summers
I want to start answering that question by saying that I'm somebody who, before I became a Harvard professor in 1983, I've spent my life talking about the benefits of trade, the benefits of open markets, the benefits of nations getting together, international integration. It sometimes seems like China is doing its level best to make it hard to make those arguments with a lot of the things that they are doing with their policies. Not just in, not even primarily in the economic area, but in the security area as well. But no, I don't think it's a good idea to impose 60% tariffs on all Chinese goods. What strategic purpose is achieved by making it twice as expensive for every parent in America to buy toys for their children? And that would be the effect of that policy.
01:00:54
Lawrence Summers
What strategic purposes served by causing a lot of production to relocate from China to Vietnam? I think we have a very difficult challenge in crafting a relationship with China. And I think we cannot suppose that being a supplicant is going to be an availing strategy. But I think we need to calibrate our policies with precision with respect to our strategic objectives. And at a time when the Chinese economy is struggling, when there are very difficult economic problems, the worst thing we could do would be to make it completely easy for the Chinese government to scapegoat us for their own economic failings. And so, we need to be very careful that we are focused on our own security but that we not pursue policies that can be interpreted as reflecting a generalized desire to suppress the Chinese economy.
01:02:27
Lawrence Summers
And that's going to require subtle choices about policy and it's going to require not bluster, but very careful communication.
01:02:40
John Ellis
Do we have another question?
01:02:41
Lawrence Summers
Why don't we do the.
01:02:43
John Ellis
Oh, the top. There we go.
01:02:44
Guest
Yeah. Thank you. Thank you for this evening, Professor. So, I also have a question about the national debt. Currently we have about $2 trillion in annual deficits and largely a debt fueled growth agenda in our government. So, what do you see as the implications of and the solutions to the US debt crisis?
01:03:35
Lawrence Summers
So as far as the answer, there are three ways you can reduce the deficit. We should do everything we can to try to grow faster. And if we do grow faster, that will give us a larger denominator with respect to the numerator, which is the debt. It will also enable us to collect more revenue and it will make us need to pay less in benefits to those who are left behind. But primarily the adjustment, as I said, is going to have to come on the tax side because I just don't think there are a lot of parts of the government that are there for spending. I mean, the President-elect and Elon Musk are sort of posturing around like we're going to be a really tough cost cutter like a corporation would be, and they're going to take $2 trillion out of the budget.
01:04:00
Lawrence Summers
Here's the problem. If you fired every single federal worker, you wouldn't come close to saving $2 trillion because most of what the government does is transfer money in various ways. So, it's tax increases, it's setting priorities, perhaps with more precision with respect to spending. If we don't do it, we are surely having lots of money flow into government paper that instead could be flowing into new technologies and new factories and new buildings that would be tools for American workers. We are surely reducing our flexibility and capacity to respond if we have a serious contingency arise, which given the security environment is a very real risk. And we are running a risk of a confidence crisis of the kind that happens to countries from time to time. I'm not going to tell you that it's a certainty to happen in the next year.
01:05:21
Lawrence Summers
And certain numbers of my friends have been cry-wolfing on the budget deficit issue for decades. But I think we're in a very different place. I was, I was one of the few people like me who was never willing to say that it was a national imperative that we passed Simpson-Bowles, because at that time, given how low interest rates were and so forth, I didn't think it was a national imperative. But we're now in a much more dangerous place on deficits and debt.
01:06:01
Guest
Hi, Andrew Kingsbury, I'm an extension school alum. I just wanted to see in terms of price levels, do you think. I saw some pundits speaking on a channel earlier today about the price levels, and they're going to come down and everything with the new Administration and what do you think of that? Do you think that is plausible? And then is that even desirable? Isn't deflation bad? So, are the prices here to stay? Can they come down? Would it be good if they came down? Would it be bad if they came down?
01:06:32
Lawrence Summers
Bad news for all of you. Harvard tuition is not going to come down in my lifetime, nor in the lifetime of my granddaughter. On a broader level, you know, some. Could the price of gasoline come down? It's a price that fluctuates. Sure, it could come down. Could the price of some vegetables come down? Yeah, that's the kind of fluctuation that could happen. Is it plausible to believe that the general price level will come, as measured by the consumer price index or something else, will come down or would it be good? No, it's not likely that will happen. If it did happen, it would only be in association with a rip-roaring depression and that would not be good at all.
01:07:22
John Ellis
Thank you. One last question. Anyone?
01:07:26
Lawrence Summers
Yeah, yeah, we'll take yours as well.
01:07:29
John Ellis
Okay.
01:07:30
Lawrence Summers
Yeah.
01:07:31
Guest
So on the topic of AI that you had mentioned earlier, one thing I'm curious about since I'm taking a course about inequality right now, is what effects you foresee in the future of AI having on distribution of income and wealth in the US and what steps could possibly be taken to mitigate any increase in concentration of wealth at the top that results.
01:08:01
Daniel Zhao
Thank you so much for coming, Professor Summers. So you talk a lot about the potential of AI. OpenAI was founded on the principle of helping humanity by open sourcing the research. Right now their algorithms aren't open source and there's a paywall on their newest algorithms. And if you can't comment about OpenAI, then generally about AI more broadly. Do you think it would help accelerate the development of artificial intelligence if these platforms open source their algorithms, or do you think this privatized model is a good idea?
01:08:35
Lawrence Summers
I think I'll answer your question in a minute. I think it's a very complicated question. These models, certain aspects of these models can be used to learn about all kinds of subjects, like how to make a nuclear weapon. And so I don't think you'd want everything to be open sourced and accessible to everyone. There's a subtler point that I learned and didn't appreciate that I learned during my time as president of Harvard, that changed my perspective. We had some intellectual property around medicine, around certain medicines, and the question was what we should do with it. And my instinct was we should make it freely available to everybody who wants it because that would be the thing that would most distribute the medicines.
01:09:42
Lawrence Summers
And then somebody pointed out to me that if we did that, everybody would have it and it wouldn't be possible to earn any profits. And so nobody would think it was worthwhile to do anything. And so actually, if we sold the property and the patent right to a few people who could then earn profits, they would then be strongly incentivized to make the pills and advertise the pills and promote it and distribute it. And that's what we did. And I think the results were. Results were quite good. But what I learned from that was assuming that making things universally available for free is what always will cause them to work best is not a safe assumption.
01:10:34
Lawrence Summers
I do think, and this is very much part of what OpenAI has in its mission statement and is constantly contemplating in its structure, that the mission cannot just be to make the maximum profit for some set of investors and shareholders. It has to best advance a broad set of interests. But assuming that universal everything is always the best way to do that, I think can easily be a naive view. [Addressed the first speaker]. You ask a hugely important question about inequality and artificial intelligence and the only honest answer is, I don't know. There's certainly the sense that all kinds of innovation in the past have often been associated with increases inequality, but it's not clear with respect to artificial intelligence. Most of you have probably seen the TV show House. House is this doctor who's an incredible genius and can diagnose when everything's very hard.
01:11:55
Lawrence Summers
What he does, take in a lot of information, look at a lot of test results, form a hypothesis, say what can happen, what he does, AI can do. The nurse who holds patient's hand when the patient's trying to figure out where they are coming out of surgery and murmurs that it's going to be okay. No AI can do that. So, what's being replaced? The higher priced skill or the lower priced skill? And there are a lot of examples like that. I've said that my guess is that I will come for IQ before it comes for EQ. And if that's right, that could point to quite substantial and potentially quite favorable implications for equality. And so I just don't know how that's going to play out.
01:13:09
Lawrence Summers
My friend down the river, recent Nobel Prize winner, Daron Acemoglu, thinks that it should be government's job to craft policies to cause the technological innovation to be of the form that will make it more egalitarian. Once the government's figured out how to fix the road in less than 62 months, I will be more open to the idea that the government can figure out how to direct the research on cutting edge technologies so that it will have particularly directional effects. But look, I think the other part of what you say I think is absolutely essential, which is that we, it's in many ways the public economics challenge of our time. We want to have a society with a lot more cushions when there's rapid change than the one that we do have, because that's the only way we'll tolerate rapid change without political revolution.
01:14:35
Lawrence Summers
We also don't want to have a society that is ossified, sclerotic, and unable to produce innovation in the way that Western Europe has seemed to be for the last quarter century. And so how we strike that balance is going to be one of the very important questions that my generation is going to leave to yours.
01:15:07
John Ellis
I think we've reached the end of the road here. Larry, thank you very much for discussing.
01:15:11
Lawrence Summers
Thank you all very much.
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