The Wall Street Journal’s Seib & Wessel Breakfast, June 4, 2013

June 5th, 2013

 The Wall Street Journal 

Seib & Wessel Breakfast


Lawrence Summers

Location:  St. Regis Hotel (Magnolia Room),

Washington, D.C.

Time:  8:30 a.m. EDT

Date:  Tuesday, June 4, 2013 

Transcript by

Federal News Service

Washington, D.C.

JERRY SEIB:  OK.  So let’s get started.  Thanks for coming.  Let me do a few housekeeping details as usual.  The usual ones were on the record.  We’ll go for one hour.  We’ll end right around 9:30.  But no tweeting, texting, Facebooking, calling your – calling your brother-in-law until 9:30 when we’re done so everybody’s on an equal footing.  There will be a transcript, which we’ll email around to you all later today – you know, usually early afternoon – (inaudible).


MR.     :  All right, so why don’t we say five minutes after we end


MR. SEIB:  Five minutes after we end.


MR.     :  Embargoed for five minutes.




You all know Larry Summers.  I won’t spend a lot of time introducing you to the former Treasury secretary, former Harvard University president, former head of the National Economic Council and all that.  But you can all introduce yourselves to Larry, because I think he knows everybody, but just to get started – Jon, why don’t we start with you.  And we’ll go around, and then we’ll launch into it.


JON HILSENRATH:  Jon Hilsenrath, chief economics correspondent, Wall Street Journal.


ERIC PIANIN:  Eric Pianin, Fiscal Times.


CLIVE CROOK:  Clive Crook, Bloomberg View.


NEIL IRWIN:  Neil Irwin, Washington Post.


DAMIAN PALETTA:  Damian Paletta, Wall Street Journal.


RICH MILLER:  Rich Miller, Bloomberg.


JOE MINARIK:  Joe Minarik, Committee for Economic Development.


MR.     :  (Off mic.)


MS.     :  (Off mic.)


MS.     :  (Off mic.)


EZRA KLEIN:  Ezra Klein, The Washington Post.


MS.     :  (Off mic.)


MR.     :  (Off mic.)


MICHAEL DUFFY:  Mike Duffy, Time.


MR.     :  (Off mic.)


GREG IP:  Greg Ip, The Economist.


ROBERT GUEST:  Robert Guest, The Economist.


RICHARD MCGREGOR:  Richard McGregor, Financial Times.


ANDREW TAYLOR:  Andrew Taylor with AP.


MR. SEIB:  All right.  Well, thanks for coming.


Larry, you know, you’re here – aside from the fact you wanted to have breakfast with us, you are here to talk about – to talk in Congress I guess later today about the great austerity versus no austerity debate.  So maybe we can start in that neighborhood, if you don’t mind.


So let’s see.  Unemployment’s down.  The deficit is dropping.  Health care costs are slowing.  Things seem to be pretty good.  Should we just forget about reducing the deficit in the short term given that all those things are happening?


LAWRENCE SUMMERS:  In short term, we brought the deficit down faster than would have been optimal, and as a consequence, we’ve suffered slower growth than we needed to suffer.  And the acceleration of recovery has been postponed more than it needed to be postponed.


In the medium term, a reasonable judgment is that a significant – medium and long term – significant, perhaps a substantial fiscal challenge remains.


If one operates with a forecast that assumes no major shock or disruption to economic activity looking out over 10 years, then in such a period, the aspiration should be to reduce the debt-to-GDP ratio, conditional on it being good times for 10 years, and so one should not be satisfied with rough stasis.  And on the current forecast, out beyond 10 years, the likelihood is of a gap between expenditures, forecast expenditures and forecast revenues.


So the deficit challenge remains a challenge for the country.  But addressing it too rapidly is not wise.  There is the possibility that the adverse consequences on the economy, as they feed back through revenues, as they lower the level of GDP, which, of course, is the denominator of the debt-to-GDP ratio, may actually be counterproductive in the sense that the debt-to-GDP ratio goes up rather than down.


That – whether that is literally the case or not, in the short run, while the economy is still depressed, while monetary policy is still constrained by zero bound and multiplier effects are likely to be large, seems to me that any reasonable cost-benefit judgment suggests that further steps into austerity have growth costs that very substantially exceed any debt reduction benefits, a consideration that would be reinforced by hysteresis effects, through which slower growth means lower GDP – slower growth today means lower potential tomorrow.  So the right path – and this, it seems to me, has been the right view for several years – has been that relative to the path we’re on, we need more action with respect to the medium and long term, and less action with respect to the immediate horizon than has been pursued.  And it seems to me – and this is one of the points I stress in my testimony – that if you accept that diagnosis, the ideal fiscal policies are measures which pull subsequent expenditures forward.


The example I always like to use is Kennedy Airport is going to be repaired.  It is going to be repaired at some point.  Potholes in roads are going to be filled. The question is whether we’re going to fill them now, when we can borrow to fill them at zero in real terms, and when construction unemployment is near double digits, or whether we’re going to do that years from now, when there will no longer be any multiplier benefits to those expenditures and when the deficit problem will be a more serious problem.


So it seems to me that we need to recognize that burdening future generations is a crucial issue, but that you burden future generations when you accumulate debt; you also burden future generations when you defer maintenance; you also burden future generations when you underfund pensions or you undercompensate the civil service or you underinvest in research and development and education or public institutions.


Now, the challenge, of course, in this view is that it has a St. Augustine character.  You’re urging the more pleasant steps today and deferring the more painful steps.  But the track record going back to the Greenspan Commission of commitments made at one point that kick in some years hence is that when those commitments are made – not always, but with very substantial probability, they in fact are kept when the time comes.  And the observation that the retirement age increases in Social Security have been implemented for some time now without substantial political disruption suggests to me that appropriate measures focused, in my view, on containing health care costs through improved reimbursement procedures is a critical priority; and on mobilizing revenues with appropriate phase-ins, I think we’d make an important fiscal contribution.


MR. SEIB:  Just one quick follow-up.  I guess it follows from what you just said that you would argue the sequester has done more harm than good, not only in growth, but on the deficit itself?


MR. SUMMERS:  If you take the CBO calculation of the impact of the sequester and you ask how the debt-to-GDP ratio compares at the end of this year with and without the sequester, it’s just about a wash.  On the one hand, less debt was accumulated.  On the other hand, the economy grew more slowly, which meant less revenue collection; and less GDP growth means a lower GDP, which makes the debt-to-GDP ratio higher than it would otherwise be.  So if you take the CBO’s calculation, you make no allowance for any subsequent hysteresis effect and you just do the calculation at the end of this year, it comes out a bit of a wash.


I wouldn’t want to push the claim that it was literally counterproductive in – with respect to the debt-to-GDP ratio it might be that it turned out to be constructive by some margin.  But it seems to me on some overall cost-benefit test, we would have been much better off with a kind of expenditure reduction that was back-loaded rather than front-loaded.


MR. SEIB:  Larry, you use the phrase mobilizing revenues, which is a new euphemism.  One of the focuses recently has been on the behavior of big, multinational corporations.  Apple has become the poster child for companies that find very creative ways to avoid paying U.S. taxes, and in some cases any taxes.  Are these companies doing something wrong?  And how would you redo the corporate tax system, if at all?


MR. SUMMERS:  I haven’t studied or audited the corporate tax returns – I don’t have access to them or the capacity to do it effectively – of major corporate – of major corporations.  The last thing I would want to do is accuse any particular company of legal wrongdoing.  If you look at the share of U.S. corporate profits earned abroad, they’re earned in jurisdictions like Ireland, the Cayman Islands and the Netherlands, that are conspicuous for their low tax rates.  It obviously bears no relation to any real sense of economic activity.


And that seems to me to be something that is quite problematic, whether – it may well be, mostly likely it is something that reflects mostly unfortunate aspects of the law.  It probably also reflects the failure to effectively enforce rules on transfer pricing and the allocation of income that are hideously complex.  There’s no question that there is a huge quantity of cash that is sitting abroad, held by U.S. corporations.  And in a sense, right now public policy is in the worst possible place with respect to that cash.


Let me give an analogy.  If you’re a library and you have a lot of overdue books out, there’s an argument that you should have an amnesty, there’s an argument that you should make clear that you’re never going to have an amnesty.  But the single worst policy is to have everybody think there’s a reasonable chance of an amnesty next month and have the amnesty never come because then no one will ever return any books.  And that is essentially where our corporate tax debate has been for some time.  So this is a case where lack of clarity is clearly inimical to bringing the cash home.  Clarity in either direction would magnify the incentive for the cash to come home.


I am inclined to think that reforms are available that would make the treasury better off and make multinational corporations, as a whole, better off as well, which would take the form of an adjustment of tax rules to place a tax on global income, including global income earned in the past and not yet repatriated, at a rate that is considerably lower than the existing corporate rate but considerably higher than the rate that’s now being not paid because of deferral.  The corporations that really want to bring the money home are being burdened by the current system.  And they’re being burdened by the current system, and they’re being burdened in a way that doesn’t show up as revenue collections for the government, to state that premise in a slightly clearer way.


In general, in tax policy, when you see a tax provision that is, on the one hand, experienced as a substantial burden by taxpayers, and on the other hand, not generating revenue for the Treasury, it is natural to ask whether there’s a way of adjusting that provision so that more revenue is received by the Treasury and taxpayers feel better off.  I believe that the very heavy tax on repatriated profits is such a provision.


To be crystal clear, I am not advocating the repatriation holiday proposals that many advocate.  Those would represent a loss in revenue to the Treasury without commensurate economic gain.  I am certainly not advocating a move to a pure territorial system that would also represent a loss to the Treasury as well as an increased incentive to locate economic activity abroad.  Rather, I am advocating clarity with the clarity taking the form of a tax rate earned – tax rate levied on income earned abroad that does not – critically, that does not discriminate based on whether that income earned abroad has been repatriated or has not been repatriated.  Ideas of that kind are implicit in – although not framed in quite that way – in some of the proposals that have been discussed by the administration and in some of the proposals that have been discussed by Congressman Camp.


I think there is also a case – probably a fairly strong case for reform of provisions that have allowed erosion of the corporate tax base as companies have moved out of – business activity has moved out of corporate form.  I think there is a non-neutrality there that is quite substantial.  And there are a range of special interest provisions that almost certainly should be addressed as part of a reform.


Unfortunately, the really outrageous ones – certain kinds of chandeliers in particular – the rifle-shot ones that are most easy to muster indignation about are not, in aggregate, large amounts of revenue, and so the task is more difficult than it is sometimes made to seem.  But yes, I think there are corporate tax reforms, particularly with respect to global companies, that would be constructive and would improve matters for both – have the potential to improve matters both from the perspective of taxpayers, economic performance and the Treasury.


MR. SEIB:  We can open this up to questions from you all if somebody wants to jump in.  Eric.


Q:  What is your general economic forecast for the rest of the year, and do you expect any economic headwinds this fall when the debt ceiling renewal comes up again?


MR. SUMMERS:  I’m better at economic prognostication than political prognostication, so I’ll leave you guys to make the judgment as to how much drama is going to surround the debt ceiling this fall.  I think there are big headwinds from the sequester and the payroll tax increase are likely to constrain growth over the next several quarters, juxtaposed with substantial growth benefits from the (churn ?) in housing and from the increased investment in energy and the wealth effects of a stronger stock market and, you know, generally, the repair of consumer balance sheets.


So I think they are going to struggle with each other, and growth for the next couple of quarters is likely to remain in the general range that it has been.  I would expect that after that, as we get towards the end of the year, you will see a significant acceleration in growth, towards or perhaps beyond going into next year – 3 percent, as the economy is no longer absorbing substantial further blows from fiscal policy and the growth benefits accelerate from the factors that – the factors that I cited.


Obviously, there are risks to that forecast from what happens with respect to the rest of the world, geopolitical shocks, confidence (ephemeral ?), but that would be my best guess.  And I think we are now in a period, which has not been my dominant view in – over the last years, when there really is two-sided risk.  One can certainly conceive of risks to a forecast to the downside, but one can also conceive of risks to a forecast to the upside as well.


Q:  What about Europe?  How would you describe the outlook for Europe and the quality of their economic policy?


MR. SUMMERS:  In that order.  (Laughter.)


Q:  Or reverse order.  (Laughter.)


MR.     :  Without even looking at her, I can see that Kelly is giving me that “don’t be too political” look.


DAVID WESSEL:  Kelly, I think you have a phone call outside.  (Laughter.)


MR.     :  Somebody stand in front of her.


MR. SUMMERS:  I think it’s a very – I think it’s a very, very long road for Europe.  Even assuming the avoidance of financial accident, the euro system imposes a brittleness that increases the risk of – increases the risks of slow growth, and it is very difficult to see where the major impetus for increased growth is going to come from.


I think there has been a – some failure in at least some European circles to recognize what economists call the fallacy of composition.  If one person stands up in a theater, they can see better.  If everybody stands up in a theater, nobody can see better.  Any one country can improve its economic performance by saving more, suppressing its wages and becoming more export-competitive.  But that can’t happen across the planet because the one thing that all economists can agree on is that the total level of exports is equal to the total level of imports.  And so the – though it’s not – (inaudible) – (laughter) – official statistics, the measures do not support – do not – do not support that view.


So it seems to me the idea that going through the kind of difficult adjustments that Germany went through five to 10 years ago is a universal salvation for Europe is quite misguided.  Those kinds of structural adjustments are very important, but they need to be coupled with measures that would promote demand.  And it seems to me that more effort to provide common support and common approaches to the recapitalization of the European banking system, more mobilization of Europe’s overall fiscal capacity in support of growth, further intensified structural reform and a clear bias of monetary policy towards supporting growth are all important elements in the European situation.  And while the last few numbers have been a bit more favorable than had been supposed, I think that Europe remains the major worry area in the global economy.


MR.     :  Greg (sp).


Q:  Larry, in your paper with Brad DeLong, you said that one of the downsides to a scenario that –


MR.     :  Can you grab the mic?  It’s in front of Rob (sp).


Q:  In your paper with Brad DeLong, you said that one of the downsides of austerity in a depressed economy is that it puts more of the burden on unconventional monetary policy to support demand, and that one of the risks of unconventional monetary policy is the asset bubbles and financial instability, more generally.  Do you see that risk right now?  Do you think that’s happening right now?  And more broadly, do you think the benefits of quantitative easing right now exceed the costs?

MR. SUMMERS:  Old treasury – old treasury secretary habits die hard, so I’m going to respect the independence of the Federal Reserve system and not make a – not make a statement about the posture of policy right now.

I do think that the argument – the argument Brad and I made has to be – almost has to be directionally valid, that if you rely more on monetary policy you’re going to have more liquidity and lower rates and pressures that are going to drive risk premium down, and that that’s going to be an environment that’s going to increase the risk of – going to increase the risk of bubbles, as well as having the benefit of increasing confidence and stimulating investment.  And I don’t think there’s any question that if you look at fixed income markets, risk premiums have come down substantially in recent – in recent months.  Some credit spreads are at or below historic lows.  Those patterns are present with respect to corporate borrowing, are present with respect to sovereign borrowing.  And there’s certainly anecdotal evidence of yield chasing by investors who are seeking to earn greater than completely safe rates of return.  To what extent that reflects desirable increases in confluence and to what extent that reflects movements towards bubbles is a judgment that the investors individually will have to make and that monetary policy authorities will have to make over time.  But those tradeoffs would, in my judgment, have been eased if in greater part of the burden of supporting demand had been placed on fiscal rather than monetary policy.  And I further believe, just to emphasize the link that I made earlier, that if the greater fiscal policy came in the form of frontloading surely necessary expenditures, it would be possible to increase fiscal policy impacts without any impact on long-run debt accumulation.

MR. SEIB:  Ezra, then Michael.

Q:  My question’s actually related to Greg’s.  There’s been a discussion lately about whether or not the reliance on monetary policy with the absence of fiscal policy has led to a worsening of inequality through boosting asset classes that are largely held by more affluent folks and by taking away (things like ?) payroll tax cut that are more progressive.  Do you have any thoughts on that, and if so, what the magnitude of it might be?

MR. SUMMERS:  I think it’s important – I’ve not yet seen a careful, full evaluation of that hypothesis.  There’s certainly the effect you described, that asset prices have gone up and assets are held by wealthy – assets are disproportionately held by the wealthy.  There are two other aspects, I think, to thinking about the question fully that need also to be recognized.  And where the balance would come out, I don’t know, Ezra.  One is that some of the wealth increase reflects a – reflects the economist’s way of saying it would be a change in the price of future consumption.  Maybe the point – maybe the way to make the point is this.  Imagine that you are an individual who is going to live forever, and you own a 5 percent perpetuity.  You are 5 percent perpetuity, so you own a bond that pays a coupon of five dollars a day – five dollars a year.  Your perpetuity would then be worth $200, and so in a sense, you would be twice as wealthy; its asset price would have gone up.  But if you actually thought about your consumption stream, you would continue to be able to finance a consumption stream of $5 a year forever, the same consumption stream you were able to finance before.


And so the wealth effect that is generated by the mirror effect of a lower required rate of return is actually quite different in terms of what it means for well-being than a wealth effect that was generated by that coupon going from $5 to $10.  So that operates in the – that consideration operates in the other direction.


Second consideration that operates in the other direction is that on average, creditors are more affluent than debtors and higher interest rates are paid from debtors to creditors.  So what the on-balance effect is, I think, is not easy to fully calculate.  I think it’s very likely that proper fiscal policies, having maintained somewhat longer the payroll tax cut, support for infrastructure investment, would be quite egalitarian in their impact.  And there wouldn’t be much scope for debate that they were operating to favor the wealthy.


And in that sense, I think the conclusion that you’re likely to be operating more fairly with most forms of fiscal action than with reliance on monetary action is valid.  But I think the full distributional impact of monetary policy is actually a really quite complicated subject to fully trace through.


MR. SEIB:  Michael, then John and then Joe.


Q:  Larry, if you can talk about energy – go back and talk about energy a little bit and isolate for us, if you can, the role it plays specifically in the prognosis you did for Eric (sp) a minute ago?


MR. SUMMERS:  My guess is that when history is written 15, 20 years from now, the huge change in the fossil fuel environment, in fossil fuel potential in the U.S. economy will be judged to have been somewhat more economically significant, though perhaps slightly less geopolitically significant, than the current conventional wisdom has it.  I say more economically significant because it looks to me like this is going to attract very substantial volumes of direct investment, perhaps approaching half to two-thirds of a percent of GDP a year, investment that’s going to tend to take plane in areas like western Pennsylvania with relatively high unemployment and that’s going to create types of jobs that are going to involve people using physical strength and working with their hands that have been in particularly short supply in the United States, and that those investments are likely to continue for some quite substantial and sustained period of time.


Then in addition to that, even – almost regardless of what policies are pursued, the very low price of natural gas in the United States relative to the rest of the world is a gap that will not be closed within a – or close to closed within a decade, and therefore, will operate to support a variety of energy-intensive activities in the United States, which will operate to stimulate further investment in manufacturing.  So I think the cumulative impact is likely to be quite important.


The reason I say it’s a little bit less geopolitically important than is often supposed is because it seems to me that some of the discussion makes an error in conflating the United States achieving net fossil fuel in – United States and North America – achieving net fossil fuel export status, which is likely to take place by the end of this decade, with an absence of dependence on the Middle East, which I think is not likely over any horizon.  It’s extremely unlikely the situation will ever obtain where the price of oil differs by tens of dollars between the United States, Europe and Japan.  And as long as they are substantially dependent on the Middle East, and as long as, broadly speaking, obviously, with adjustments for grade and transport costs, there’s one world price of oil, the day when we achieve so-called energy independence is not a day when we will achieve insulation from the world oil market, which will still fluctuate and will still be very sensitive to supply developments outside of the United States.


So I think the economic impact is somewhat greater and the geopolitical impact is somewhat less than is often suggested.


MR. SEIB:  Jon.


Q:  I wanted to ask follow-up questions, two follow-up questions, one to Eric’s and one to Greg’s.  You see the prospect for acceleration in growth by year end.  It seems like throughout this recovery, economists and policymakers have been talking about an acceleration of growth just around the corner, and it hasn’t happened.  So I wanted to hear first your explanation for why growth keeps disappointing and why this next corner should be different than the last few corners we’ve turned around.  That’s the follow to Eric’s questions.


To Greg, I want to hear from Larry Summers the economist, not Larry Summers the former Treasury secretary, about your assessment of quantitative easing as a policy tool and the costs and benefits.  What have you learned as an economist about how effective that tool is and what the potential drawbacks are?


MR. SUMMERS:  On the second, I think that we will know so much more after this cycle has been completed and after the experience of different countries has been observed, that it would be premature to try to reach a judgment on the basis of what has been – on the basis of what has been observed so far.  But it’s a good attempt.  (Laughter.)


I have learned – I have learned, painfully – and you just made the mistake of giving me the cue, because I have learned painfully in life that whenever a question is asked in the form I would like to know what Larry Summers the economist – (laughter) – as opposed to Larry Summers the whatever, thinks, I’m being invited to say something that I will regret.  (Laughter.)


Have this – having said –


MR. SEIB:  But that hasn’t always stopped you, as – (laughter) – I’m just noting –


MR. SUMMERS:  Yes, not always stopped me – (laughs) –


MR. SEIB:  – just – I’m just noting here.


MR. SUMMERS:  – but we always can get wiser with age, and perhaps the old – perhaps someone will find a way to ask a question again – (laughter) – and elicit – and elicit more.


On growth – on growth, look, these estimates, first of all, I would be the first – I’d be the first to recognize that all these forecasts have uncertainty.  I don’t think I have been as robustly optimistic the last several years as many others in predicting that the acceleration is around the corner.  So this is not a(n) entirely recurrent cycle for – cycle for me.


I have in the past felt that yes, there were processes of private sector repair, but they were slow, and that there were going to be continuing substantial fiscal obstacles interposed.  It does not appear to me likely that between 2013 and 2014 there will be anything like the degree of fiscal contraction that has been observed yearly for the past several years as the stimulus program phased out and as various other budget measures were implemented.  So the combination of the private sector recovery gaining momentum and the public sector headwind losing momentum – both, it seems to me, at faster rates than was the case in the past – leads me to think a growth – a significant growth acceleration is more likely now than it was in the past.


MR. SEIB:  Joe.


Q:  Nice tap-dance, Larry – (laughter) – on quantitative easing.  Could I take you back to the infrastructure solution for a moment?  Two premises.  Number one, we’ve got lots of unemployed construction workers out there.  And number two, we can borrow at near zero rates.


Premise number one, as I see the employment statistics, within the category of construction, employment has declined by orders of magnitude more in residential construction than it has in heavy construction.  And it may be that the guys who hang drywall and string electrical cable are good candidates to run earth-movers and pour concrete, but that’s not necessarily the case.


We can borrow money at zero rates, premise two.  The Treasury can borrow money at zero rates for 90 days.  The Treasury cannot do 100 percent of its incremental borrowing from a substantial infrastructure program all in 30s and 10s.  Some of that money is going to be in bills.  So the opportunity to in fact borrow at zero rates is finite.  As I look back at the stimulus program, I think there are a lot of questions as to whether the emphasis on construction was in fact constructive – pardon the pun – in terms of getting economic activity moving quickly.  I just wonder, if you put all those things together, whether infrastructure is really the ticket to accelerating economic growth in the near term.


MR. SUMMERS:  So you’ve got – you made three – there are three points in what you just said, Joe (sp).  First, on interest rates, I may have – I may have slipped and failed to use the word “real.”  If you think about real interest rates, real interest rates are, as measured by TIPS, literally negative out at any horizon short of 15 years and are negligible even out to 30 years.  And from the point of view of doing an analysis like this, it’s the real interest rate that’s appropriate, and the consequent – again, I’m talking about pulling forward infrastructure investment and maintenance, and it seems to me that while we could debate just what the debt capacity is, the debt capacity is pretty large relative to feasible increases in infrastructure commitments over the next five years.


So the place where I’m most confident is on the fact that this is a moment when borrowing costs are relatively low and you could conceive in a variety of different views about duration and the – of course, in thinking about the duration of the public sector’s debt, quantitative easing would come into that calculation, since the Fed is in effect transforming the duration structure of the Treasury’s borrowing.  But I don’t think you’re going to get away from the conclusion that debt costs are low.


Second question you raise is about categories of employment, and you’re of course – you’re of course right that if you look narrowly enough, you will find that it is not precisely the occupation titles that are involved in – that are involved in infrastructure that were involved in residential construction.  On the other hand, if you look broadly at the characteristics of the workers involved, the truth is that the vast majority of categories of labor in the United States are experiencing relatively high unemployment and relatively high vacancies, and the categories of labor that are disproportionately employed in infrastructure, men with relatively – with less rather than more education, are experiencing even more of that phenomenon.  It is as good a time labor marketwise to be making infrastructure investments as we can reasonably expect we will see again in the next 10 to 20 years.


I do think there is – there are important issues around timing.  I think we have made a – I think we have a bit of a problem as a country that we tend to want to do infrastructure quickly as stimulus.  It tends to be hard and especially hard to do well when it is being done quickly.


So I think the optimal formulas, though they’re not politically easy, involve long-term commitments to infrastructure payment – infrastructure investment with financing allowed to fluctuate on cyclical grounds with financing triggered in at moments of cyclical strength and triggered out at moments of cyclical weakness.  But I think the difficulty is that if we always reason that we need stimulus now and it takes time to gear up infrastructure, then we’ll never do infrastructure.  And that can’t be the right – that can’t be the right approach for us to take.


I also think that it’s important to distinguish as between fundamental visionary infrastructure investment and maintenance.  The former is much more glamorous.  It also takes much longer and is much more complex.  The latter probably has a higher rate of – social rate of return, as best one can judge these things, and can be geared up much more rapidly.  And there are very substantial maintenance investments that could be geared up in the country quite quickly.


And that requires more emphasis than I think it has received.  It doesn’t have the same salience.  You can’t really name a filled-in pothole.  But you can’t name an uncollapsed bridge that has been reinforced.  And so the – it’s hard – it is hard for a non-decaying school to be somebody’s legacy because of a repair job.  And so around the world, one finds within infrastructure investment, a tendency toward overinvestment in the new and undermaintenance of the existing.  And that’s been important for us to address as well.


MR. SEIB:  Well, if you share some – if you share some of your wealth in filling in a pothole, we will declare it the Larry Summers filled-in pothole.  And we’ll put – we’ll collectively pay for a little plaque.  (Laughter.)


McGregor (sp).


Q:  Thanks.  There’s a – (inaudible) – U.S. summit on in California on the weekend.  Somebody who used to, I guess as Treasury secretary chair the CFIUS process, I want to ask a question about Chinese investment.  In theory, there’s a – you know, a large amount of Chinese money ready to come into, not just the U.S., but around the world.


What kind of reasonably boundaries can and should the U.S. set for Chinese investment coming into the U.S. on national security grounds, particularly at a time when there’s a wave of accusations from the White House down about theft of IPR by cyberhacking – in other words, a great display of bad faith on the side of the Chinese?  You would be in favor of investment, but what boundaries would you set for it?


MR. SUMMERS:  I’m not sure I know how – I’m not sure I know how – it’s a little bit like Justice White on pornography.  Confronted with particular fact situations I tend to have instincts, but I’m not sure I can articulate rules that will – rules that would guide me – would guide me through.  Is it Justice White or Justice Stewart on pornography?  I’m not sure.


I think the answer is that where – I don’t know how to say it much more than to repeat back to you.  So let me just say, in asking – in answering your – in answering your question – where the industry involved has substantial national security sensitivity in the form of possessing technological knowledge of a kind that is not otherwise available, and it could be used in ways that are adverse to our national security, where the industry involved in sufficiently sensitive – is sufficiently central to networks that a decision by those who control it could have substantial adverse impacts on the U.S. economy or – well, those two – in those two cases, I think it’s appropriate for the very serious scrutiny and protection of national security interests.


I think we have to be very careful in making sure that we are realistic about when technology is otherwise available and when it isn’t, and there’s some tendency to restrict access to investment on technological grounds when the technology and technologies involved, in fact, are not hard to learn about from open sources.  That makes one cautious about protection, and I think we have to be cautious about tit-for-tat strategies where we don’t really have an objection to the investment in question or see danger from the investment in question, but there are other aspects of Chinese policy, including the policy towards U.S. investment, that we don’t like, and the proposal is to retaliate.  And I think we just need to be very careful in the way in which we execute those kinds of – those kinds of strategies.


MR. WESSEL:  OK.  So we’re limited for time, so I’m going to suggest that the remaining people who have remaining questions ask them as briefly as possible, and then, if Larry wants to filibuster, he’ll just say, I’m filibustering that one, and answer the ones you want to answer, OK?  Alan (sp), Rich, and Don.


Q:  Just for a quick follow-up – if you were writing the agenda for the – for the summit – you know, it’s the most consequential relationship in the world.  What would you say needs to be grappled with?


MR. WESSEL:  OK.  Rich?


Q:  Abenomics.


MR. SEIB:  OK.  And Don?


Q:  (Off mic) – corporation – (off mic) –


MR. WESSEL:  OK.  You’re not allowed to filibuster any of those; those are all safe.


MR.     :  Lightning round.


MR. SUMMERS:  I’m not an expert on immigration reform, but my reading is that there’s a large space of possible immigration reforms that would be significantly economically beneficial – significantly economically beneficial because of the entrepreneurial talent that would come into the country, significantly beneficial because of the technological talent that would come into the country, significantly beneficial because of the demographic uplift that would come from an age structure that was more felicitous to the federal budget at a time when the – at a time when the population was aging.  And so I think that from an economic point of view, either measured in terms of the country’s aggregate economic performance or measured in terms of the future well-being of the U.S. citizens who are here today, there’s almost every reason to think that some form of immigration reform would make things – would make things better off.


Abenomics – look, I’ve been saying for some time that I think that while it’s unfortunate that the experiment is being carried out, in a sense, in both countries, the contrast between Japanese economic performance and British economic performance when viewed three years from now would be an important object lesson for macroeconomists, because a very different policy philosophy is being pursued in the two countries, and we’ll see how the result – we’ll see how the results play out.  We certainly are in – particularly as regards the monetary policy side, in uncharted territory in Japan, so while my answer to Professor Hilsenrath was, in part, an evasion, it was also expressing a truth, which is that we’re in early stages, and it’s, I think, premature to make an evaluation.


I don’t think that any question that the – that there have to date been salutary benefits for Japanese economic performance from the substantial change in Japanese policy, but even if one had the concerns that one might have about such a large change and such a strong commitment towards expansion, one would probably expect that in the short run, it would work out well.  Experiments of this kind that ended badly in Latin America often had six months of very favorable performance, so I think it really is too early for a definitive – for any kind of definitive conclusion.


I think the movements in yields in Japan are a proper object of concern, but on balance, the move towards a focus on expansion seems to me to have been an appropriate change in Japanese – in Japanese policy.


I think the – I think there are probably three major issues on the economic side that seem to be important in looking at the U.S.-China relationship going forward.  One is the avoidance of a – of a rewidening of imbalances on a large scale as the two – as the two economies evolve, which I think would be quite unfortunate for both U.S. economic performance and the – and the global trading system.


Second, a range of Chinese business practices that are unacceptable at – in terms of what they mean for the competitive position of foreign firms and how that’s going to be addressed – how that’s going to be addressed going forward, and third, the question of American and Chinese cooperation with respect to the global – the global financial architecture, the future role of the IMF, are there going to be – is there going to be a global system?  What is the future of the development banks at a time when China now is lending money larger – in larger quantities?  They added new development banks at a time when the – so many countries have such substantial reserves that the whole question of the role of development banks looms as an important one.  So international financial architecture, business practices, future surpluses would be probably three areas that I would regard as especially central in the economic area.


I do – I do think that no one can – no one can forecast with confidence the future of the Chinese economy.  In retrospect, U.S. alarmism about Japanese growth peaked at just about the same point that the Japanese competitive threat to the American economy peaked.  And not very long after those concerns, Japanese economic weakness became more of a concern for the United States than Japanese economic strength.  And I think that U.S. policymakers would do well to recognize that there’s an enormous range of uncertainty about possible Chinese outcomes and that sustained, rapid growth and greater competitive threat is one of the possibilities, but it is by no means the only possibility.


MR. SEIB:  Larry, thank you very much.  The lightning round worked out well.  And you can email us later today and let us know whether the questions here – how they stacked up in relation to the ones you’ll hear up on the Hill later today.  I’m confident that our group will stand up well in that comparison.


MR. SUMMERS:  I enjoyed being with all of you.


MR. SEIB:  Thanks, appreciate it very much.