Larry Summers on Job-Taking Robots and Permanent Economic Stagnation

Larry Summers, a former Treasury Secretary, Harvard president, and front-runner to take over the Federal Reserve before bowing out this fall, was interviewed at the Wall Street Journal CEO Council in Washington, D.C. this week. 

Here's my partial transcript of his remarks, lighted edited for clarity.  

On computers and robots taking our jobs: There were some guys who wrote a book nine years ago about technology and its impact on employment. They said computers can do some things, but they won't be able to do others. The example of things they couldn't do was make a left turn against ongoing traffic. Well, Google nailed that one within less than a decade.

Since leaving government I've spent time in Silicon Valley. The set of things they can set technology to do is mind-boggling. Now, it's always been true with technology that jobs were eliminated in one sector and went somewhere else, and there wasn't net loss. People thought it couldn't happen -- it was true with agriculture, with the Luddites, it's always been true that lost jobs somewhere go someone else. But the fact that it's always been true doesn't mean it will always be true. It used to always be true that housing prices only went up. It's not a conclusive arch over time.

An example I like is, George Eastman had great ideas on photography, and it not only benefited him, but along with his success the city of Rochester supported success for generations. Compare that to Steve Jobs. His ideas benefited him and his shareholders, but there was no comparative large-scale middle-class job creation.

That's what we have to work through. It requires becoming much more imaginative with regard to service jobs, and the dignity of work in the service sector. I'm all for doing everything we can, and there's lots still to do regarding a renaissance in American manufacturing. But I want you to think about this: China has gained competitiveness, gained share, been incredibly innovative and gained efficiency, but there are actually fewer workers in Chinese manufacturing today than there were 20 years ago. So success if and when it comes is going to come from various kinds of service works, various kinds of greater customization. Look, it's a tragedy, on the one hand you're saying there's not enough work to do. On the other hand, there are several million kids in this country who profoundly need individual attention in a way they are not close to getting. We have no way of bringing people who want to work together with those.

On whether economic growth will stay low for long periods of time: I'm not predicting it, but I don't know how you can look at the data and not say it's a substantial risk. Four years ago right now financial repair had happened, TARP had been repaid, credit spreads had normalized. There was no more panic in the air. Four years ago. We have not grown the share of adults working in the U.S. at all since that time. We have not gained at all on the potential of the economy.

The forecasts have been persistent, absolutely consistent, that we would return to accelerated growth nine months in the future, and it's always been wrong. Maybe that's right now, and we'll be faster nine months from now, but I don't know how you can be certain it will. 

There was a troubling feature before the crisis. Think about 2004 to 2007. We had what the consensus thinks were excess budget deficits and easy monetary policy, a credit bubble and a housing bubble. You might think that with all these things going, we'd have an economy overheating. But it wasn't. The underlying real economy [employment and productive capacity], with a huge support of demand, was not overheating by any stretch of the imagination. It's been more than a decade since we've grown at a healthy rate in any sustainable way. That is a deep concern as we look to the next decade.

When I came into the Clinton administration in 1993, we did a comprehensive exercise, using growth forecasts from the Fed and IMF, forecasting Japan's long-term growth rate. There was a debate. The pessimists thought 3% a year for the next 16-20 years. The optimists thought 4% a year. It has in fact grown by 0.6% a year since. So GDP is slightly more than half today what we universally believed back then. We didn't think permanent stagnation was conceivable. But it happened.

Is there a risk of this in the United states? Absolutely. I have to say that between pessimistic or hyper optimistic, I'd choose pessimistic. My guess is it'll be better than that, but the thing policymakers should be obsessing about is risk of secular stagnation. That is where the concern ought to be. 

In part two, I'll share Larry's thoughts on international taxes and the rollout of the Affordable Care Act. 

No Pitch

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