In an interview with CNBC’s Squawk Box on October 21, 2015, Summers said, “the economy is caught in a vicious cycle, incomes are too low, therefore investments are too low.” Summers called for smart tax reform and rules to discourage the kind of activism that strips cash out of companies. Watch the full interview here.
In an interview on October 7, 2015, Summers told BloombergTV that “a pre-emptive war against inflation now would be a serious policy error.” Read more
On September 18, 2015, The Lancet published a declaration endorsing universal health coverage, signed by 267 economists in 44 countries. With the United Nations set to launch the bold sustainable development agenda, this is a crucial moment for global leaders to reflect on the financial investments needed to maximize progress by 2030. Read more
On September 15, 2015, Summers talked with Chris Arnold of NPR’s All Thing’s Considered about the Fed’s upcoming decision on interest rates. Read more
In an interview on CNBC’s Squawk on the Street on September 10, 2015, Summers said a rate hike isn’t a prudent risk to take. He told CNBC, the Fed can reverse course in seven weeks if it regrets its decision not to raise rates. Read more
In an interview with Charlie Rose on June 24, 2015 to discuss the debt crisis in Greece, Summers said, “Both sides are going to get more of what they fear if they aren’t able to reach a deal.” Read more
Summers talks about TPP and international economic diplomacy with CNBC’s Squawk on the Street on June 15, 2015. Summers calls Congress’ action “bad geopolitics.” Read more
Summers talks with Bloomberg’s Hans Nichols from the G7 Finance Summit in Dresden on May 28, 2015 about the situation in Greece. Summers says, “Ultimately debt problems are solved through growth.”
On May 20th, 2015, Summers said on CNBC’s Squawk Box he expects the U.S. economy to expand at a quicker pace than in the first quarter, but there are still hurdles. Summers predicted growth in the low to mid 2 percent range for 2015. “That’s not inspiring performance,” he said, “but that’s hardly reversion to recession.” Read more
On May 4, 2015, on the 40th anniversary of Okun’s Equality and Efficiency book, Summers provided remarks at a Brookings Institution celebration. Summers wrote, “Art’s capacity for well rounded wisdom regarding the most important issues of the day was nowhere better illustrated than in Equality and Efficiency: The Big Tradeoff, the book whose 40th anniversary we celebrate today. I still remember the excitement with which I read it as a first year graduate student.” Read more
Former Treasury Secretary Larry Summers said regulators should make a priority of addressing the problems of bond market liquidity, brought on by their very efforts to make institutions safer after the financial crisis.
Summers, speaking Thursday on “Squawk Box,” responded to comments made by JPMorgan CEO Jamie Dimon who said recent volatility in the currency and Treasury markets was a “warning shot across the bow.”
The drumbeat about liquidity questions in the corporate bond market but also Treasury market has gotten louder, and Dimon used his annual letter to shareholders as soap box to warn about the issue.
Bond market participants blame post-financial crisis regulations aimed at making the activities of financial institutions safer by restricting capital use. In the Treasury market, they point to the fact that the Fed holds a massive amount of Treasury supply on its more-than-$4 trillion balance sheet, keeping it off the market. Another issue often discussed by traders is the reduced head count at Wall Street’s primary dealers.
In an interview on April 19. 2015, with CNN’s Fareed Zakaria, Summers said, “This is a moment for us, as a country, to do what a business would do, which is to take advantage of low borrowing costs to invest in our future.” Summers told Zakaria, “This is not the right moment for a lurch to austerity.” Read more
Can government actually make us less innovative?
That may be what’s happening, according to former Treasury Secretary Larry Summers. “The most important scientific discoveries tend to get made by people who are young and at their most creative stage. And the average age when people get their first grant from the National Institutes of Health is now above 40.”
Summers, who also directed President Obama’s National Economic Council, says anemic funding from federal sources may be restricting promising scientists – and depriving America of once-in-a-generation breakthroughs.
“If you look back, the Internet came out of federal government efforts to connect physicists. The semiconductor was a product of federal government research. Going back a long time, Abe Lincoln provided the necessary support that made a transcontinental railroad possible.”
But with companies like Apple and Google sitting on mountains of cash, why not let private industry bankroll great ideas? Summers balks at the prospect. “No private company would have ever supported Watson and Crick when they discovered the structure of DNA. And yet the fact that life expectancies continue to rise is a reflection of biomedical research.”
“A Long Way to Go” on Women’s Progress
Summers also looked back with us on the media maelstrom that surrounded him a decade ago, when he asked why there aren’t more female professors in elite science departments.
He had considered possible answers during an off-the-record session at the National Bureau of Economic Research. But soon The Harvard Crimson, The New York Times, and others began reporting that some female professors walked out of the room when he said that aptitude or unwillingness to work long hours might factor in.
The next year, Summers stepped down as President of Harvard. But the question he was trying to answer still nags.
Now, he says that hidden biases – “unconscious patterns that many of us engage in” – may be at the root of the problem.
“I think it’s incumbent on all of us,” Summers insists, to send “signals of maximum encouragement to every person of talent and drive to do everything that their talent and drive permits.” He notes that “there’s been a great deal of effort in that regard, and there have been some results,” though “the results are not as favorable as many would like them to be.”
But the former Treasury Secretary and Director of President Obama’s National Economic Council believes that mandating behavior wouldn’t provide an adequate solution. “I’m not a person who believes you make progress on issues like this with quotas or with absolute requirements. I’m a person who believes you address this by changing attitudes and by creating opportunities.”
To that end, he points to a woman who might be his most famous former student: Sheryl Sandberg. Sandberg took Summers’ class on public economics as a Harvard junior, and made a lasting connection. “I was lucky enough to have Sheryl work with me at the World Bank and then at the Treasury. When I was Treasury Secretary, she served as my chief of staff… Perhaps most remarkable of the things she has done is the kind of leadership she has provided to so many other women with the set of concepts in her book, Lean In.”
This fall, a book by the writer Eileen Pollack will mark will mark the tenth anniversary of Summers’ divisive comments by delving into the sorts of subtle slights and assumptions that Sandberg often says cripple women on their rise to the top.
Summers has already read Pollack’s book, from which he “learned a great deal.”
“I think things are moving and they have a long way to go,” he says. “I don’t think any of us have any ground for complacency. I don’t think any of us should believe that all that can be accomplished has been accomplished.”
Hear our full interview with Larry Summers, including his concerns about inadequate federal funding for innovators and his look at higher ed’s moment of great transformation. Click here.
In an interview with NPR’s All Things Considered on April 16, 2015, Summers discusses the new China-backed Asian Infrastructure Investment Bank. Summers says, “We’re contemplating a major institution in which the United States has no role, that the United States made substantial efforts to stop — and failed.” Read more
Summers talked with Joe Kernen from CNBC’s Squawk Box on Thursday, April 9, 2015 saying, “Pre-emptive wars don’t work and pre-emptive wars on inflation would be a big mistake.” Summers also told Kernen, “We need to be all over the inflation data.” Read more
In a paper published by the Hamilton Project on March 30, 2015, Brad Hershbein, Melissa S. Kearney, and Lawrence H. Summers analyzed what increasing education will and will not do for earnings and earnings inequality. Mainstream labor economists as well as several public commentators have argued that trends in the economy over recent decades—including technological developments, globalization, and trade, among others—have weakened the relative earnings power of those with lower levels of skills, especially those without a college degree. Read more
In an exclusive interview with Prof. Summers and Prof. Edmund Phelps, Thought Economics looks at the story of modern capitalism, the benefits it has brought, and the challenges it has created. The series explores the ‘post crisis’ economy, the role of government in society, the relationship between capitalism, conflict and inequality and looks at what needs to be done to ‘fix’ our global economy, and the science of economics itself. Read more
Thomas Edsall
New York Times
March 4, 2015
Larry Summers, who withdrew his candidacy for the chairmanship of the Federal Reserve under pressure from the liberal wing of the Democratic Party in 2013, has emerged as the party’s dominant economic policy strategist. The former Treasury secretary’s evolving message has won over many of his former critics.
Summers’s ascendance is a reflection of the abandonment by much of the party establishment of neo-liberal thinking, premised on the belief that unregulated markets and global trade would produce growth beneficial to worker and C.E.O. alike.
Summers’s analysis of current economic conditions suggests that free market capitalism, as now structured, is producing major distortions. These distortions, in his view, have resulted in gains of $1 trillion annually to those at the top of the pyramid, and losses of $1 trillion every year to those in the bottom 80 percent.
At a Feb. 19 panel discussion on the future of work organized by the Hamilton Project, a centrist Democratic think tank, Summers defied economic orthodoxy. He dismissed as “whistling past the graveyard” the widely accepted view that improving education and job training is the most effective way to reduce joblessness.
“The core problem,” according to Summers, is that there aren’t enough jobs, and if you help some people, you can help them get the jobs, but then someone else won’t get the jobs. And unless you’re doing things that are affecting the demand for jobs, you’re helping people win a race to get a finite number of jobs, and there are only so many of them.
He adds that he is “all for” more schooling and job training, but as an answer to the problems of the job marketplace, “it is fundamentally an evasion.”
This line of thought has strong appeal to liberal economists and policy makers who argue that government must intervene to create more demand for workers, primarily by spending more, especially spending that goes to private contractors who would then start hiring.
Summers dismissed as palliative such relatively modest proposals as supplementing the earnings of low-wage workers by increasing the earned-income tax credit and expanding eligibility for the refundable credit.
Even a 50 percent increase in the earned-income tax credit at a cost of $25 billion would barely address current income inequality, Summers said.According to Summers:
If we had the same income distribution in the United States that we did in 1979, the top 1 percent would have $1 trillion less today [in annual income], and the bottom 80 percent would have $1 trillion more. That works out to about $700,000 [a year for] for a family in the top 1 percent, and works out to about $11,000 a year for a family in the bottom 80 percent.
The lion’s share of the income of the top 1 percent is concentrated in the top 0.1 percent and 0.01 percent. The average income of the top 1 percent in 2013, according to data provided by Emmanuel Saez, a Berkeley economist, was $1.2 million, for the top 0.1 percent, $5.3 million, and for the top 0.01 percent, $24.9 million.
In other words, any attempt to correct the contemporary pattern in income distribution would require large and controversial changes in tax policy, regulation of the workplace, and intervention in the economy to expand employment and to raise wages.
To counter the weak employment market, Summers called for major growth in government expenditures to fill needs that the private sector is not addressing:
In our society, whether it is taking care of the young or taking care of the old, or repairing a lot that needs to be repaired, there is a huge amount of very valuable work that needs to be done. It’s much less clear, to use a modern phrase, that there’s a viable business model for getting it done. And I guess the reason why I think there is going to need to be a lot of reflection on the role of government going forward is that, if I’m right, that there’s vitally important work to be done for which there is no standard capital business model that will get it done. That suggests important roles for public policy.
Earlier this year, Summers co-wrote the Report of the Commission on Inclusive Prosperity, a forceful set of economic proposals released on Jan. 15 by the Center for American Progress.
In order to stem the disproportionate share of income flowing to corporate managers and owners of capital, and to address the declining share going to workers, the report calls for tax and regulatory policies to encourageemployee ownership, the strengthening of collective bargaining rights, regulations requiring corporations to provide fringe benefits to employees working for subcontractors, a substantial increase in the minimum wage, sharper overtime pay enforcement, and a huge increase in infrastructure appropriations – for roads, bridges, ports, schools – to spur job creation and tighten the labor market.
Summers also calls for significant increases in the progressivity of the United States tax system. He would eliminate or modify many of the tax breaks that now provide most of their benefits to the affluent, including the conversion of the mortgage interest deduction into a credit. “While deductions deliver a larger benefit to tax payers in higher tax brackets, credits deliver the same benefits to all tax payers, making the tax code more progressive,” the report notes. In addition, the report presses for much tougher rules governing the taxation of corporate overseas income.
I spoke with Summers on the phone last week to get more details about his thinking. One of his central goals, he said, is to make sure that “workers get a larger share of the pie.” He advocates aggressive steps to eliminate “rents” — profits that result from monopoly or other forms of government protection from competition. Summers favors attacking rents in the form of “exclusionary zoning practices” that bid up the price of housing, “excessively long copyright” protections, and financial regulations“providing implicit subsidies to a fortunate minority.”
Signaling that he now finds himself on common ground with stalwarts of the Democratic left like Elizabeth Warren and Joe Stiglitz, Summers adds, “Government needs to try to make sure everyone can get access to financial markets on an equal basis.”
Along with a growing number of Democratic policy advocates, Summers supports looking past income inequality to the distribution of wealth. During our conversation, he pointed out that “a large fraction of capital gains escapes taxation entirely” through “the stepped up basis at death.”Stepped up basis refers to an I.R.S. provision reducing the capital gains tax liability on inherited assets so that the beneficiary’s capital gains tax is minimized. Revenue losses from the stepped up basis amounted, in the 2014 fiscal year, to $36.4 billion according to the Office of Management and Budget.
Summers’s policy proposals have been praised by former critics.
Asked for his assessment of Summers’s views, Lawrence Mishel, president of the liberal, pro-labor Economic Policy Institute, emailed “I very much appreciate that Larry Summers has recently highlighted the need for a ‘high pressure economy’ and the need to ‘expand worker bargaining power.’ ”
Dean Baker, co-director of the Center for Economic and Policy Research, which sponsors the work of liberal economists, replied to my inquiry: “It’s funny you would ask this. I was just writing something praising Summers and others for changing their thinking.”
In his not-yet-published pro-Summers essay, Baker writes:
The idea that an economy could suffer from a persistent shortage of demand is an enormous switch for Summers or anyone who had been adhering to the economic orthodoxy in the three decades prior to the crisis in 2008. Baker goes on to argue that Summers “now recognizes that the financial system needs serious regulation.”
Some economists disagree with Summers. David Autor, a professor of economics at M.I.T., wrote in an email that Summers seems
to presuppose that we have entered an era of secular stagnation with perennially insufficient demand. I don’t share this pessimism, and I think many indicators point in the right direction: employment growth, wage trends, inflation, energy prices, even inequality.
In a follow-up email, Summers took note of Dean Baker’s assertion that Summers had changed his views, replying that John Maynard Keynes
is said to have responded to a similar question by saying ‘when the facts change, I change my mind. What do you do sir?’ Much has changed since the 1990s, including protracted shortfalls in demand, a dramatic decline in labor’s share of income, the pulling away of the top 1 percent, the possible emergence of secular stagnation, and the financial crisis. So of course my policy views have evolved.
Summers has advised Hillary Clinton on economic issues, and a key question looking toward 2016 is how much of the Summers agenda she is prepared to adopt, if she decides to run for president.
Many of the policies outlined by Summers — especially on trade, taxation, financial regulation and worker empowerment — are the very policies that divide the Wall-Street-corporate wing from the working-to-middle-class wing of the Democratic Party. Put another way, these policies divide the money wing from the voting wing.
Summers has forced out in the open a set of choices that Hillary Clinton has so far avoided, choices that even if she attempts to elide them will amount to a signal of where her loyalties lie.
In an March 3, 2015 article in The Washington Post’s Wonkblog Summers talked about technology, inequality and education. Summers reaffirmed the idea that more education won’t solve the inequality problem and called technological change an important fuel for the rising economic share captured by the top 1 percent of American earners.
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