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- [Announcer] Welcome to the Wiener Conference Call Series. These one-hour on-the-record phone calls feature leading experts from Harvard Kennedy School who answer your questions on public policy and current events. Wiener Conference Calls recognize Malcolm Wiener's role in proposing and supporting this series, as well as the Wiener Center for Social Policy at Harvard Kennedy School.

- Good day, everyone. I'm Ariadne Valsamis from the Office of Alumni Relations and Resource Development at Harvard Kennedy School, and I'm very pleased to welcome you to this Wiener Conference Call. These calls are kindly sustained by Dr. Malcolm Wiener and his wife, Carolyn, who support the school in so many vital ways. Today, we are joined by Lawrence Summers, who is President Emeritus of Harvard University, the Charles William Elliott University Professor, and the Frank & Denie Weil Director of the Mossavar-Rahmani for Business and Government at Harvard Kennedy School. Professor Summers has served in many senior policy positions, including as Vice President of Development Economics and Chief Economist of the World Bank, Undersecretary of the Treasury for International Affairs, Director of the National Economic Council, and Secretary of the Treasury of the United States. Just last month, he joined the Board of Directors of the artificial intelligence company, OpenAI. We are so fortunate to have him to share his thoughts on what's next for the U.S. economy and take questions with the Kennedy School's alumni and friends. Professor Summers.

- Thank you very much, and it's good to be here. It's good to be here with all of you. I mostly wanna answer the questions and engage in discussion with whatever's on everybody's mind. So let me make four telegraphic observations, if I could, just to set the table. One, I still think the U.S. economy is more likely than not to have a hard landing, simply because the lesson of economic experience is that soft landings are what Samuel Johnson said about second marriage, the triumph of hope over experience. And we've essentially never had a time in the industrialized world when inflation was above four, unemployment was below four, and there was a soft landing. There's a proposition for the American economy known as Psalm's rule, that when unemployment goes up by half a percent, it usually goes up by 2%. So I think the idea of a soft landing is less likely than not, and I think there are meaningful risks on both sides of a soft landing that a recession dynamic is not yet actualized, but is coming into place is I think one kind of concern. And I think the other kind of concern is that the plane may overfly the carrier and we may not get to durable 2% inflation. I think there's a tendency to assume that if inflation comes down, it will automatically stay down and I'm not altogether sure that that assumption is correct. So I'm probably less optimistic about the economy than consensus opinion has it. Second observation, the out year US fiscal situation is more serious than is generally imagined. The CBO baseline for the year two, for the early 2030s is in the 7% range. To put that in perspective, the out year deficits when Bowles-Simpson was started were more like 5.5%. The out year deficits when Bill Clinton did his budget deficit reduction program were more like 5.5%. So you start with the CBO forecast that is well above that in the low sevens, then you add to that the fact that the CBO forecast assumes that defense spending will fall as a share of GDP. Very likely it won't. You add to that the CBO forecast assumes that the Trump tax cuts will not be extended when they come up for renewal in 2025. That's probably a bad assumption. And the CBO forecast assumes a three month treasury bill rate in the low twos. And that's probably not a very good assumption either. So I think we're more likely looking at a double digit budget deficit as a share of GDP. And that will raise questions about sustainability and will risk a vicious cycle of rising interest rates, rising deficits, rising interest rates and around again. So I think this is gonna be a larger issue for the United States in the time ahead than is generally supposed. And I think ultimately is a potential national security issue just because of our financial dependence to sell debt and limits on our capacity to mobilize resources to serve national purposes. Third, I'm not gonna speak to anything that's going on at OpenAI just because I'm still making my way through my onboarding packet. And even if I knew more, there'd be limits on what was appropriate to say. I will say that I think that there's a still unresolved question as to whether artificial technology is a once a decade, once a half century, once a century or once a millennium kind of technological development. But on the most pessimistic views of those things, it is very important. And I'm glad to have an opportunity to be close to it, to learn more about it, to play some role in assuring that it's pushed forward in a safe way. I would say it is a general lesson about technologies that they take longer to happen than you think they will. And then they happen faster than you thought they could. Think about the Kindle as an example. It was kind of nothing. People were talking about electronic reading for a long time and nothing much happened. And now we live in a world where many of us don't look at a paper newspaper any more. It turns out that there was a very long lag from the discovery and implementation of electricity to its widespread impact on the economy's productivity. Autonomous vehicles have been two years away for the last 10. So on the one hand, you can say that. On the other hand, if you think about the medium and longer term, almost everything is shaped by what the basic conditions of production are and what the nature of the economy is. If you think about it, the industrial revolution drove everything from the nature of families to the development of cities, to the necessity for social insurance, to the pressures for democracy and radical transformation, again, in the conditions of production will have very, very far reaching implications. And the last thing I'll say, just because I'm in the news, just because it's in the news and I've been relatively vocal about it, I have very considerable concerns about the relationships between leading universities like Harvard and the larger society. And I think it's very, very important that universities find ways of maximizing their key and core values around academic freedom and free speech. And at the same time, project themselves in the face of massive injustice and massive violence as pillars of moral clarity. And I think that for whatever reason, leading universities have had considerable difficulty doing that and finding a formula to do that effectively in the last couple of months. And that is quite costly, both for universities and for the larger society. Why don't I stop there and see what's on people's minds.

- That's terrific. I wanna give some instructions. We're gonna open up the session for questions to Professor Summers. And to ask a question, please use the virtual hand raising feature on Zoom. And please, in good Kennedy School fashion, keep your question brief and end it with a question mark. You'll be notified via Zoom's chat feature when it's your turn to speak. And please be sure to unmute yourself when you hear from the staff. And finally, all of us on the call would appreciate it if questioners can state their Kennedy School affiliation. And I'll start things off by asking a pre-submitted question. We had a lot of these and many were on this topic. This one is from Chandra Kumar. Chandra has an MPA in international development from 2004. And she would like to know, can the Fed and Treasury work together to provide an amenable global environment for the robust economic growth of developing countries? And will climate change policies find traction?

- Well, I don't know the answer to either question. I hope climate change policies will find traction. I just co-authored with N.K. Singh, a very prominent Indian civil servant, an experts group report to the G20 on the multilateral development banks and climate change, arguing that they could do much more, but that it would take changes in their policy and increases in their funding. And that is caught up in the United States and behind in the queue, the funding for the Israeli war and for the Ukrainian war. So I'm concerned about the world's ability to mount a sufficient effort. As some of you will have seen, I've worked with Belfer fellow, Bob Zoellick and Phil Zelikow to push the idea that Russian reserves should be mobilized and should be mobilized for the benefit of Ukraine. One of the many benefits of that proposal is that it would free up traditional foreign assistance for sources to go to help developing countries. So I think the most important thing that the United States can do is be much more aggressively supportive of the international financial institutions for the developing world. Given what I just said about the fiscal picture, I'm not hugely optimistic that interest rates are gonna come down quite as far as many people would hope. And that's gonna be complicated and make the situation more complicated for many developing countries.

- Thank you for that answer. We have a question from Dwight Hutchins. Dwight, I think you can unmute.

- [Dwight] Okay, I think I'm unmuted. Does that work?

- [Both] Yes.

- [Dwight] All right, fantastic. Thank you, President Summers. What, if any, lessons learned or things that we can take forward from kind of a bottom of the pyramid stimulus effect from all of the COVID and related monies? It seemed like that money, unlike monies in the past, went out to the working class and below. Is there anything novel or interesting to learn from that experiment?

- Well, I mean, I have a feeling you and I may have slightly different views. I think we massively overdid it. And that's why we had the inflation we did. And so a lot of what workers got coming in from the various tax credits and the like, they lost coming out as prices went up. So I think the approach was, in retrospect, excessive and not especially well-designed. And I'd add parenthetically that some of the things that people hoped would be very successful politically weren't. Some of the parts of it, like the child tax credit, that I supported and was enthusiastic about at least the refundable part of the child tax credit, not some of the more upper middle class parts of the child tax credit. The Republican Congress wouldn't go along with them in the winter of 2022. And not a single Democrat mentioned it as a campaign issue during 2022. So the idea that by getting those in place, they would be enormously popular didn't pan out. I think the lesson actually is that the experiment with the PPP, with the whole idea of giving loans with the assurance that they would be forgiven. I think as we learn more and more about how large a fraction of those loans were fraudulent in one way or the other, I think that's a fairly skeptical lesson that we learned about what was being done. So I would say the main lessons have to do with calibrating the macro scale of stimulus to the GDP gap in a kind of macroeconomic way before you fill in the details of what's gonna be in the program. And being careful about the distribution of cash and writing checks. I think it was not a good idea to be giving people unemployment insurance payments that were 120% of what they were being paid when they were working. So whereas I would give a high grade to the infrastructure bill, at a reasonably high grade to the IRA, I would not give it an especially high grade to the design of the stimulus act.

- [Dwight] Thank you, very helpful.

- Thank you. I wanna note with pride that Dwight has an MPA, 1996. And I wanna introduce our next questioner, Adnane Meziane. You can unmute, please.

- [Adnane] Yes, hello, good afternoon, Professor Summers. This is Adnane, mid-career class of 2016, based in Paris, France. You were a professor during my year. Thank you for your remarks. Very quick question. What is the impact of the current tragedy in the Middle East on the US economy? And what do you see as the worst case scenario, again, if things escalate even further on the US economy?

- I think as yet, the effects have probably not been terribly large, just given that there's a limit to the quantitative magnitude of trade flows. And the US-Israeli trade, for example, just is large relative to the Israeli economy, but not large relative to the American economy. I think the principle decisive variable for questions of US economic impact is what happens to oil prices. And if the Straits of Hormuz are closed, a lot will happen to oil prices, and that will have potentially substantial impacts on the US economy. Though it's important to remember that as a share of GDP, oil is only about half of what it was during the 1970s. But as long as there's this degree of tension in the Middle East, and as long as there's an important role of Iranian proxy organizations, one has to have a concern about some major disturbance in the oil market. But again, that's not something that has materialized to date. Actually, relative to what most observers expected at the beginning of the period after October 7th, oil has been in larger supply relative to demand, and oil prices have been softer than many people would have expected. But I think oil is the principle channel.

- Thank you for that. I wanna turn to our next questioner. Please unmute yourself and introduce yourself. Ralph Bradley.

- [Ralph] Thank you, Ralph Bradley, MPP 1978, an old man. Larry, thank you for your remarks. My question is, are you concerned about the measurement challenges that we have? And I'll just give an example of Consumer Price Index. If we get the Consumer Price Index wrong or price index is wrong, we get output wrong, and then we get productivity wrong. So you know that with the Consumer Price Index, the weights are lagged, the expenditure weights. So in May 2020, there was no inflation reported by the Consumer Price Index because we over-weighted price drops like airline prices and gasoline prices. No one was flying, no one was using their cars, but we under-weighted the 16% increase in beef and the items that people were consuming. Thank you.

- Look, I think measurement errors always are an issue, and there's plenty of room to improve our economic statistics. Probably I'm most impressed by the problems around new products and the problems around quality improvements when I think about the measurement errors. But if you ask me, were measurement errors an important part of the policy error the Fed was making when it was saying in June of 2021 that it was gonna keep interest rates at zero through mid 2024, I don't think measurement error was central to that error. So I think absolutely we need to keep working to improve our economic statistics. I think that's an important function of academic work which ultimately feeds into the official statistics that are used. At the same time, I think that prudent policy makers always take an eclectic approach and don't fixate on a single statistic, but look at a suite of indicators for whatever phenomenon they're considering. Thank you.

- Thank you for that question and answer. I wanna call on our next questioner, Daniel Saletto, who is a National Security Fellow from 2022. Daniel? You should be able to unmute yourself. There. Daniel can't unmute. So we may have to fix that on our end. I apologize. I'm gonna go to a pre-submitted question from Rudy Brioche, which we have... Rudy, if you are there, we can possibly have you ask this yourself, but if not, I can ask it for you. I just have to find it. Forgive me for one moment for some reason. Rudy wanted to ask a question about the state of the economy and... Oh, Rudy, you're there. Please ask, and please introduce yourself.

- [Rudy] Great. Thank you very much, Professor Summers. It's a pleasure. Rudy Brioche, currently serving, well, graduate MPP 2000, and currently serving as the president of the ÌÇÐÄvlog¹ÙÍø Black Alumni Association. I wanted to ask you a question about the current Biden administration's policies as it pertains to particularly African-Americans in light of the plummeting poll numbers in that particular cohort itself. What are the policies that you think that the administration could implement to help better articulate the president's support of that particular community? Is it areas of economic policy, criminal justice, what are the areas that you think that the Biden administration can be helpful in your sense of whether or not the policies of the administration, which ones have been in fact helpful, supportive to the African-American community?

- I'm not sure of the answer to that question. I'm not a political expert who has poured over polling data. I have a sense that there may be a significant cleavage between the average voting member of the African-American community and some of those who are most salient in speaking on behalf of the African-American community in the political process. Some of the data that I have seen and commentary that I have heard suggests that issues of safety from crime loom very large with many African-American voters and that there's some sense in some quarters that the Democrats are the party that no longer does but for a time wanted to defund the police. I think there are a range of gender-related issues in which the question of whether gender is binary or more complex than that, that the feelings in the African-American community in many cases are much more traditional and so I think that one thing, I think that is one area where the Democrats need to tread carefully. There is some real evidence of movement in the African-American community from the Democrats to Donald Trump even if you look at polling data and I don't think that's because there's a perception that Donald Trump is gonna deliver more of the things that some of the strongest African-American advocates in the Democratic Party are supporting. It's because of a different value set where I just gave a couple of examples. So I think those things are very important. Beyond that, we still live in a country where there's a lot to the proposition, first hired, last hired, first fired and a strong economy has benefits for everybody but it has disproportionate benefits for African-American communities. Strong urban policies are beneficial to everybody but the benefits are disproportionate for African-Americans. It's African-Americans who are likely to have more difficulty purchasing a first home, for example. So strong progressive general economic policies are obviously and having them succeed are obviously very, very important for African-American communities as well.

- Thank you for that. We're gonna try Daniel again. I think we fixed the problem. Thank you, Daniel. Please introduce yourself.

- [Daniel] Thank you. Good afternoon, Professor Summers. Colonel Daniel Salado, United States Marine Corps, former national security fellow at the Kennedy School. In the upcoming presidential campaign, the topic of attacking social security and Medicare as possibly reducing a deficit has been posited by some of the Republican candidates. Do you see that as feasible? And if so, in what capacity could that possibly work? Thank you.

- I suspect as we move closer to the election, we're gonna hear less and less of it because it tends not to be very popular. I think there is considerable scope to improve healthcare costs. Somebody told me the other day that the Duke University Hospital has 900 beds and 1,200 full-time billing people. It's just hard to believe that every bed needs its own full-time billing people. And there's a kind of war of attrition between the insurance companies who try to resist every bill and the hospitals who try to pad every bill and they kind of fight themselves to a draw like it's Verdun. And a great deal of resources on both sides are wasted in the process. And so I think finding a way through that is a sort of win-win solution for healthcare people, for patients, for competitiveness of the economy. I think there's gonna need to be some set of further social security reforms. I hope those will be both on the revenue side and on the spending side. I find the spectacle of affluent people like myself talking about how we need to find the courage to cut social security benefits when the maximum social security benefit that anybody can receive is $45,000 in a year. I don't find it to be all that courageous to reduce the benefits of people much less fortunate than ourselves. So that's not something I'm inclined to be quite as celebratory towards, though I think inevitably in solving problems, one always begins with the hope that there's gonna be one large big policy that's gonna do the job. And as one becomes more knowledgeable and more aware of the constraints, one almost always moves towards more complicated, less intellectually arresting, more elements included kinds of solutions.

- Thank you. I wanna go next to Sunit Weling. Sunit, please introduce yourself and ask your question.

- [Sunit] Thank you, Professor Summers for your comments. This is Sunit Weling. I'm a mid-career MPA graduate from 2004. I'm currently based in Mumbai. I'm a managing director with BNP Paribas. My question to you is on US-China economic and trade relations, which seem to be at pretty much an all-time low. And if you're to fast forward a few years ahead, do you see some potential for normalization of this? How would you assess where they are right now? And do you think this is really sustainable?

- I think it's difficult. I wish they were better and closer. I think that you have two offsetting things going on. You have a political push on both sides for the fact that if you can't rely, you need to not depend. And that causes movements towards decoupling on both sides, having seen what kinds of technological restrictions the United States has imposed. I don't see how anybody in China could think that they could be completely confident that there won't be further restrictions imposed. And that means they need to work to develop their own systems. And that's surely a kind of decoupling. And there's certainly increasing emphasis on themes related to resilience and on concerns about Chinese subsidies. So I think on the one hand, you have forces that are pushing towards decoupling. On the other hand, the fact that greater communication, greater ease of interrelation is taking place all the time operates in the other direction. But my guess is that it will continue to be quite chilly for some time and that that will reduce the extent of partnership between American and Chinese firms. And that will tend to reduce the role of China in American firm supply chains and America in China firm supply chains.

- Thank you. I wanna move now to Bob Bixby, MPA 1991.

- [Bob] Good afternoon. And thank you, Professor Summers, Secretary Summers. I very much agree with the scenario that you laid out on the difficulty of the future fiscal outlook. And I was wondering if you would describe what the end result would be. In other words, if we have this unsustainable fiscal path, you didn't use that word, but I mean, you described a pretty dire path. What's the opportunity cost there? And if we don't take some steps to get that in order, what does that do for the economy and the opportunities for future Americans?

- Tim. It means we'll be a poor country. It means we'll be at more risk of financial damage. It means our national security will be more problematic because we'll be more vulnerable to foreign leverage. It means our children will be inheriting larger debts. It means that credit to start a business or to buy a car or to buy a first home will be more expensive. So there is both the risk that life will gradually run down and an enhanced risk that we will go over some kind of cliff.

- Thank you.

- Thank you. I wanna turn now to Nancy Maney, mid-career MPA, 1989. Nancy, please ask your question.

- [Nancy] Hello, and thank you, Professor Summers, for this discussion. It's very, very interesting. Yes, my name is Nancy Maney and I am mid-career master's public administration in 1989. I'm currently retired from New York state government and I'm on the executive board at the Harvard Community School Women's Network. So my question is, it seems like we have a shortage of workers in this country. And particularly in the areas of healthcare, service and labor trades. So for example, right now I'm remodeling my home. I worry that in 15 years, there aren't gonna be people out there to remodel homes because a lot of the younger generation is not moving into those sorts of trades. How will this impact the economy in the short and long-term, particularly in face of increased consumer demand that shows no significant sign of diminishing and how do we fix this demographic disconnect?

- Nancy, it's a good question. I might approach it in a slightly different way and perhaps you'll excuse me for giving you a kind of economist response. Shortages have a lot to do with prices. And I assure you that if you were prepared to pay $120,000 a year, you could get all the people you wanted to come work on repairing or renewing your home. So when people say there is a shortage of labor, in some sense what they really mean is that there's a shortage of labor at the wage they want to pay for that labor. And if there's a shortage of labor in some lesser skilled tasks, working on repairing your home, doing, working as orderlies in a hospital, that's fundamentally a good thing because ultimately what will eliminate that shortage is a rise in the wage and since those are relatively, people with relatively low incomes, that's gonna end up bringing us together in terms of the income distribution. So I think one has to always listen to talk about people who are concerned about labor shortages. You know, when CEOs say we can't attract labor, well, I always say, well, do you really mean that? If you raised your wage 20%, would you still be unable to attract labor? And they go, well, probably could, but that'd be too expensive. I go, well, okay. But maybe that's sort of an important part of what the issue is. So I kind of think in, if you'll permit me a kind of dated analogy, it's kind of better to be a woman in a college where there's 60% of the people are men than it is to be a, or it's better to be a guy in a college where 40% of the students are men. It's better to be a graduate student when there's a lot of faculty and not that many graduate students than it is to be a graduate student when there are dozens, a huge number of graduate students and not that many faculty. Relative scarcity affects bargaining power. And I kind of liked the idea that we're moving a bit towards an economy where people who do trades are gonna have more bargaining power than they did before. I think it's also true that one of the mistakes that have been made, and I think it's been made by policy makers in both parties, but probably more on the progressive side, is that people often extrapolate from their own values and tastes to universal values and tastes. And so I think some of our rhetoric about education has put a little more emphasis on universal college and a little less emphasis on dignity for people who work with their hands than would perhaps be ideal. The reason I was so appalled by the Biden administration's student debt relief proposals is it seemed to me that they were taxing everybody to provide support for people who were largely going to be in the upper half of the income distribution. So I guess my general view about this would be, let's not overdo thinking of these things as a bad problem from a societal viewpoint. And let's think about solutions in terms of dignity and respected paths to careers without quite as much emphasis on the cognitive.

- Thank you. I wanna go to Frank DeRosa. Frank has an MPP, 1982. Frank, please ask your question.

- [Frank] Thanks, Professor Summers. Yeah, Frank DeRosa, MPP, 1982. You mentioned that you would give the Inflation Reduction Act a relatively high grade. What do you see as the pluses and minuses of that legislation?

- Look, I think the pluses are that it gets America off the dime on renewable energy in a very important way, both on the power plant side and on the transportation side. And that it's in a variety of ways is probably a positive stimulus to technological development. And I think we, over the years at the Kennedy School and everywhere else in economic policy have probably made a mistake in overemphasizing externalities as a market failure and underemphasizing chicken and egg problems, no charging stations without electric cars, no electric cars without charging stations as a problem. And I think the IRA moves to do things about that. I think the IRA has some seriously protectionist elements in it. And those are both alienating to other countries and reducing of the potential environmental benefits that could be generated. I think the political economy of passage of the IRA involved making a number of compromises and choices that were probably not precisely the ones you'd make if you were trying to achieve environmental benefits at minimum cost.

- Thank you. I wanna turn to Fernando Gutierrez-Eddy. Fernando has an MPA from 2009 and this will be our last question.

- [Fernando] Thank you so much, Professor Summers and good afternoon. Yes, I'm Fernando Gutierrez-Eddy, mid-career MPA '09. I wanted to ask on one of the framing points that you mentioned and specifically on AI, but not OpenAI. I mean, how do we balance enabling sort of speed of development in a very competitive space, including from the likes of China and the safety that you spoke about?

- Carefully, thoughtfully, with many eyes on it, with a lot of awareness of the natural cognitive biases that people will tend to bring to something like this, with a lot of awareness of worst case possibilities but with a lot of rigor around the consequences of alternative choices. If we regulate too hard and the activity switches to places where it's completely unregulated, the consequence may have been to make the whole system less safe rather than more safe. So I think we've learned a lot from other technologies, the ways in which we've regulated nuclear power, the ways in which we have regulated genetic developments of various kinds. And I think those are very important things to learn from. I think that the kind of structure that open AI has that doesn't make all the high powered incentives just be about profit maximization is a prudent step, but it's certainly not a prudent step that provides a basis for government abdicating from its responsibility. And I think government has to pay close attention as well. I think it's important. I think we've learned in the banking area and other areas that when there is competition between countries that you have real risks of races to the bottom. And therefore it's important to foster international cooperation early.

- Thank you so much, Professor Summers. I wanna apologize to the folks whose questions we did not get to. My hope is we can have you back very soon because the interest is so high in our community and you've been so generous. Thank you to everybody who called in and everyone who listened. I wanna wish you a very wonderful new year and really look forward to seeing you at the upcoming Wiener Conference calls that will be scheduled for the spring semester. Professor Summers, thank you again.

- Can I just thank everybody for both listening to me and more importantly, I can tell you as somebody who's talking to students every day that the strength and continued interest of alumni is a major source of sustenance for the Kennedy School and makes a very, very big difference. Thank you all for joining me.

- Thank you so much. Beautifully said. We appreciate you. Thank you everyone and goodbye.