Larry Summers
The podcast transcript.
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It’s a terrific podcast — certainly one of the best we’ve done — thanks entirely to Prof. Summers.
John Ellis: Hello and welcome back to Night Owls. I'm John Ellis. I'm joined as always by my partner in podcasting, Joe Klein. We're gonna skip the usual self-promotion for our Substack newsletters to spend more time with our guest, Larry Summers.
During the pandemic I had an idea for a podcast called “The Impossibly Impressive Resume,” and it'd be one-on-one interviews with people who had or have impossibly impressive resumes. That's sort of what we’re doing here today., because we have as our guest, Larry Summers, one of the nation's leading economists, who served as the Secretary of Treasury in the Clinton administration.
And that’s not all! Dr. Summers served as director of the White House National Economic Council in the Obama Administration, as President of Harvard University and as the Chief Economist of the World Bank.
Larry, thank you very much for joining us today.
I think for our audience, I'd just like to start by talking about the Trump administration's economic theory of the case, if you will. The Reagan administration had supply side economics as its theory of the case. The Clinton administration had the idea that if you assuage the bond markets, you would free up capital for private investment, which would spur economic growth. Dick Cheney actually had an interesting idea, which is that deficits don't matter.
I think a lot of people are confused about the Trump administration's theory of the case. So we thought we'd start by asking you whose knowledge of public finance and economic policy is, uh, shall we say, impossibly impressive. So can you do that for us? Can you give our audience a thumbnail of the Trump theory of the case?
[00:01:49] Larry Summers: I don't know that there is a theory of a case that is rooted in economic analysis rather than the psychological imperatives of, the president that unifies, things. But if there is a theory of the case, I think it probably rests on three pillars. First, that the world is a transactional place and that all leverage one has should be used and that the United States, by virtue of being a superpower, has an enormous amount of leverage.
[00:02:34] Larry Summers: Second, that the accumulation of wealth. The accumulation of assets is the ultimate purpose of economic activity because it leads to more leverage or power rather than, living well. And third, that selling is good and buying is bad. And so it's good to have trade surpluses. And I think those are the three pillars of their beliefs.
[00:03:18] Larry Summers: And I think in embracing those, pillars, they commit four or five fallacies that we teach in almost every introductory economics course. Number one, they suppose that bilateral economic relationships prove anything. In a complicated world. I run a big trade surplus with Harvard University.
[00:03:46] Larry Summers: I run a big trade deficit with my golf club. I am not exploiting Harvard University. My golf club is not exploiting me. It is the natural order of things that things work out that way. It is entirely non probative with respect to any kind of unfairness or exploitation. Second, even aggregate trade balances do not necessarily and often do not reflect economic weakness.
[00:04:24] Larry Summers: I'm living in the state of Arizona. The state of Arizona has run a trade deficit with the rest of the United States every year for the past a hundred. That is an arithmetic concomitant of the fact that people and investments are moving to Arizona. And the only way that there can be a flow of capital to Arizona is for Arizona to spend more than it earns as people invest in it.
[00:04:57] Larry Summers: And there's a corollary of that to import more than it exports. And I, and I think most Americans would rather live in a country that capital is desperate to get into than a country that capital is desperate to get out of. And if one looks at economic catastrophes, they always have large capital outflows.
[00:05:23] Larry Summers: And as a consequence, they have more exports, than imports. And as a consequence, they are selling more than they are buying. But that is a sign of weakness, not of strength. The third. Fallacy of a Trump world is the idea that imposing tariffs is a way of changing trade balances in important ways. Once one recognizes that trade balances are the difference between what a country spends and what it earns, what it in aggregate saves and how much investment takes place within them, it's immediately clear.
[00:06:18] Larry Summers: The tariffs are not likely to have large effects on, trade deficits any more than putting a tax at certain stores that I like to buy at might or might not change the gap between my spending and my income. Putting a tariff on certain products from certain sources doesn't change the fundamental of how much a country wants to spend relative to how much it is able to produce, what logic suggests.
[00:06:56] Larry Summers: Experience confirms. Switzerland has very, very low tariffs and a huge and chronic and recurrent trade surplus. Brazil has very, very high tariffs and a chronic and sustained trade deficit, so it is neither true that trade deficits have a lot to do with, um, economic wellbeing, nor that tariffs have a material impact on trade deficits.
[00:07:32] Larry Summers: The fourth fallacy is the failure to recognize that, we now live in a world of integrated production and, uh, supply chains and show today's imports are inputs to tomorrow's exports. The United States has 60 times as many people working in steel using industries as it does in the production of steel, steel tariffs.
[00:08:02] Larry Summers: Raise the price of steel, not just imported steel, but also domestic steel that competes with, imported steel. And in the process, make other industries much larger industries than steel, like automobile production, like home building, less competitive by virtue of having more expensive inputs.
[00:08:27] Larry Summers: So tariffs do not even serve the objective of promoting the competitiveness of American manufacturing. One study done of the Trump administration's tariffs at the Federal Reserve, found that the 2018 tariffs, which are about a 10th as large as the ones we're talking about now.
[00:08:52] Larry Summers: We're net destroyers of jobs within the manufacturing sector. And the last point, and maybe the one that is most important for people to understand is that the idea that the future of manufacturing production is the future of the American economy is delusional. Yes, we need to invest in protecting our defense industrial base.
[00:09:29] Larry Summers: Yes, there are important issues of resilience that have to do with production. That's just in case rather than just in time that businesses and policy makers have perhaps paid insufficient attention to. those require specific and targeted kinds of policy responses, but the idea that across the board, tariffs on all countries and all sectors are a way of achieving that is not plausible.
[00:10:11] Larry Summers: The idea that we are somehow gonna produce some kind of economic renaissance through the production of manufacturing or the increase in manufacturing is not credible. The statistic everybody quotes is that 8% of jobs are in manufacturing. That's a small number, but it misses a crucial point that half those jobs.
[00:10:39] Larry Summers: Half are in jobs that exist in all sectors, advertising, marketing, accounting, being an administrative assistant. So we are at 4% in production work. That number has been in steady decline, not just in the United States, but in every major country. China has fewer manufacturing production workers despite its manufacturing boom than it did a quarter century ago.
[00:11:12] Larry Summers: And so the idea that we are going to produce any important employment effect through the whole scale production. Our encouragement of manufacturing is also not realistic. And so at each of these levels, the non relevance of trade deficits, the inability of these policies to impact trade, deficits, the lack of connection between trade deficits and manufacturing scale, the lack of connection between manufacturing scale and economic success.
[00:11:57] Larry Summers: This is not a serious, uh, theory. The Laffer Curve, which I regarded as a badly wrong economic theory, had internal logic. And was rooted in economic ideas that had been discussed for a long time. I have derided modern monetary theory. It has intellectual antecedents in serious thought by economists. Those who favor industrial policies in much more dirigiste ways than I would favor can point to a tradition of economic thought.
[00:12:49] Larry Summers: This set of policies is without logic or grounding in experience. The interesting proposition is not that free trade is better than protectionism. The interesting proposition is that within the scope for protectionism, the approach now being pursued is nonsensical.
[00:13:19] Joe Klein: Was actually, that's exactly where I wanted to go, Larry.
[00:13:23] Joe Klein: on the kind of strategic level, to Trump's tariff policy? Is, is there a method, to his madness? I think we, all three of us agree, that the, the policy is mad, but does he have a plan, in terms of how he's going to lift or impose or he seems to change it every day?
[00:13:47] Larry Summers: I have not been able to, discern a, plan. There are hallmarks of things that are being done according to plan. The different actors in the drama speak from the same set of talking points. That is dramatically not the case with, uh, the Trump administration commitments made on Tuesday are honored on Wednesday and Thursday.
[00:14:19] Larry Summers: That is not a hallmark of the approach, that is being, pursued. here. No, I think there is an instinct and reckless, ego driven improvisation by the president of the United States enabled by those who have taken oaths of service, not to the president, but, to, the country.
[00:14:50] John Ellis: I wanted to ask Larry, um, uh, you know, I'm the, I'm the Chief Executive Officer of Morgan Stanley, and I see this happening.
[00:14:59] John Ellis: So I call up Larry Summers and I say, Larry, what do I do about this? I mean, how, how should I respond? What would your answer to that be?
[00:15:11] Larry Summers: It would be at, uh, a number of different levels. If you're walking down the street and somebody is walking unsteadily, just stipulating wildly with, their arms carrying a suspicious parcel, it's probably a good idea to give them a wide berth and not to engage them in a dispute if you have to act on your own.
[00:15:47] Larry Summers: And, I understand the instinct of individual CEOs and individual companies to steer, clear. I think it's also a good idea if it's in your neighborhood to try to get a group to join together to engage in some kind of confrontation to assure safety. And so I would counsel those in the business community to try to lock arms and come together in, protest.
[00:16:33] Larry Summers: And I think it is not the least of America's generalized deficiency of social capital. That there has been a failure of collective action. Somehow the nation's law firms, even though efforts are being made to ize them out of providing the services that represent the deepest ethical commitments of lawyers, have not managed to come together in resistance.
[00:17:07] Larry Summers: Individual universities, and I'm proud of what Harvard has done, have resisted, but there has not been an effective coming together of academic community. We have a president who, of all things venerates, the titans of industry and the titans have not been Titanic and have not come together collectively as a group.
[00:17:38] Larry Summers: So I would. counsel collective action on mass. And given the scale of the threat and the danger, I have been disappointed that we have not seen, more of that. Now, to be fair, it is easier to counsel courage than to be courageous, and there is. A moment when it is right to act, when the dimension of the problem has become very clear.
[00:18:17] Larry Summers: It is easier to act when there is ambiguity about the dimension of the problem, and it may well be that there is still time before the problem becomes permanent or too enormously damaging. So it may be that some of those who could be acting are biting their time. And while it seems to me that. That biting has gone on for too long.
[00:18:48] Larry Summers: I credit the possibility that wise judgment is, being, applied, but I think this is a very scary moment. I think it is always a mistake in life to think that bad cannot get worse, and I think it does bear emphasis that we have not in an unambiguous way, crossed a Rubicon where clear court orders are being blatantly defied.
[00:19:26] Larry Summers: There's always jockeying and interpretation and all of that with respect to what the judiciary does. And we are certainly close in a number of areas, notably in El Salvador. But I do think it's fair, uh, Joe and John to recognize that that Rubicon, the Andrew Jackson Rubicon of the Supreme Court has, spoken.
[00:19:59] Larry Summers: Let's see what it's going to do next. We have not crossed that Rubicon, yet, but my advice, to a business executive would be along the lines of, what I have just said.
[00:20:17] John Ellis: Let me just follow up on that for one second. So you're there with the CEO of Morgan Stanley and he says, look, I wanna bring the traders in.
[00:20:25] John Ellis: I wanna bring in the Chief investment Officer. Recognizing that you're not offering investment advice, but, given this environment, how does one trade it, if you will? if you're a Morgan Stanley or Goldman Sachs, how do you approach? What's your strategy? I guess
[00:20:42] Larry Summers: I would say that we've, we are seeing something new as a market phenomenon.
[00:20:49] Larry Summers: The American capital flight trade, there's a pattern. I saw it when I was in government, in each of the financial crises that I dealt with in foreign environments. Um, the pattern is there comes to be a generalized loss of confidence in a country. And therefore a run on all its assets. that's when the stock market goes down.
[00:21:21] Larry Summers: At the same time, the stock market's going down, even though a recession is more likely, bond yields are going up and the bond market is going down, the currency is collapsing, and people who used to own the country's assets are buying more gold. That's what has happened in recent years and a number of points to Erdogan's Turkey.
[00:21:49] Larry Summers: That's what has happened, uh, a dozen times over the last 70 years in Argentina. I. We had a bit of that in the worst moments of the Carter administration, and that's what led to Paul Volcker's appointment as chairman of, the Federal Reserve. That's not the American pattern. When people got nervous during the financial crisis, the United States was still the world's bastion, and so people bought US bonds, they bought the US dollar, but today we have American capital flight and we have had it with particular force and virulence when the president has been more true to his economic convictions.
[00:22:48] Larry Summers: When he announced his Liberation Day policies indicated after a disastrous first day of market response that he would remain committed. We saw the American capital flight trade undo itself somewhat when he backed off the reciprocity, tariff policies. We saw the capital flight trade reinstitute itself in a very strong way on Monday of this week when the president further indulged himself in fed bashing.
[00:23:26] Larry Summers: When the emanations suggested that was just talk. We saw, later in the week some backing off, in the pattern. But the defining thing one has to gauge in this environment is the American capital flight trade. And that's not a phenomenon that trading desks are accustomed to when they're talking about American assets.
[00:23:57] Larry Summers: It is always a thing that is top of mind for any emerging market investor to think about whether the country in question is gonna move from being an emerging market to being a submerging market.
[00:24:12] Joe Klein: Larry, you were at the very top of this. You talked about Trump's philosophy of, strength,.
[00:24:18] Joe Klein: One, one thing I wonder about here is a very specific gamble that he's making and that gamble is that the American economy is ultimately stronger than the Chinese economy. what's your assessment of the Chinese economy? How much trouble are we in? John writes endlessly about the, the real estate market there, but, I think that when export market is threatened, uh, the Chinese get very scared.
[00:24:47] Larry Summers: I think, the history is likely to record that the United States made a very substantial error in assessing the Soviet economy. In 1960, John Kennedy died believing that Russia would surpass the United States economically. History does record massive error in the late eighties and early nineties in the assessment of the Japanese economy.
[00:25:20] Larry Summers: And my guess is that the views circa 2020 of the Chinese economy will come to look to have been almost ludicrously optimistic. I think it's a good rule when parents push their children to study a new country's language when they're in high school, that's usually a sign that that country's, economy is, peaking.
[00:25:52] Larry Summers: And, so I am not optimistic about the long run Chinese economic prospect, however. Most sobering hour or hour and a half that I've spent in the last six months was in the World War II Museum in Tokyo, which makes very clear that the antecedent of Pearl Harbor was a perception on the part of the Japanese authorities that their economy, while appearing strong in fact, was not, and was being importantly constrained by a variety of aggressive US economic policies.
[00:26:46] Larry Summers: And so I think that economic disappointment with the capacity to place blame on the United States. In a complex authoritarian, structure where the authoritarian is not going to be able to meet all the expectations he has raised... is a very, very dangerous, situation. So I am not. Optimistic about the Chinese economy, but I think an American economic strategy of trying to tip it over some kind of brink is not likely to be a strategy that is effective in promoting American interests, even if it is a strategy that proves to be successful in undermining, Chinese interests.
[00:27:51] Larry Summers: Uh, my own view is that the right way to think about the United States and China is two people who share a toward lifeboat in a turbulent sea, a long way from shore who don't know each other that well, and who instinctively have little affection and some amount of aversion. Who nonetheless are in a toward lifeboat, a long way from shore and with no alternative but to reassure each other and cooperate well enough to reach the shore.
[00:28:40] John Ellis: One thing I think the Chinese have, have been very smart about is investing in brain power, in the stems as it's called. and that leads us to, the Trump administration's assault on academia, sort of writ large. What, where is that coming from? I mean,. If you wanna attack Harvard University where some of the most important scientific research in the world is taking place, it seems insane that you would,, cut funding for that, that you would, block, foreign students from coming in to study thre, um, do you have a sense of what's really driving this policy, I guess you would call it?
[00:29:21] Larry Summers: This is a long political tradition. Richard Hofstetter wrote a famous book in 1963 called Anti-Intellectualism in American Life. Joe probably knows the story better than I do, but Ronald Reagan on plausible accounts won the election that began his political career, in 1966 against Pat Brown with his best issue being complaint about what was going on at the University of California at Berkeley.
[00:29:58] Larry Summers: And, and asserting that students needed haircuts. Joe McCarthy, ran his most successful efforts against pointy-headed Ivy League elites. And he only encountered failure when he shifted his target from Ivy League elites to, the us, military. So the idea that there is political hay to be made by attacking pointy headed intellectuals in universities that is as American as, apple pie, and Trump is picking up on that enduringly successful, trope. it has been made easier for him by a variety of trends in higher education that have been unwelcome. They have preserved more of the noblesse than of the oblige. They have cut themselves off from a broad swath of Americans.
[00:31:20] Larry Summers: I mean, if you look at the field, for example, of American studies. You read the major scholarly journal of the field or you look at the course offerings at major universities, the correct nomenclature for the field would be anti-American studies rather than American studies.. Someone described, um, American studies at Harvard to me when I was president as being, oh, you have to understand it's a holding company for identity politics, intellectual material opposing the American, tradition.
[00:32:02] Larry Summers: And for reasons I'm not fully learned enough, to trace there is, those who for out of intellectual doctrinal reasons are led to see colonialism as a central and besetting sin have chosen Israel as their primary target, today. And those are very fashionable doctrines in no small part of American intellectual life.
[00:32:38] Larry Summers: And that has led to antisemitism being — even occasionally encouraged on college campuses in a way that would be unthinkable with respect to racism. So the urge to go after elites is all ready there, and for a variety of reasons. You know, I think back to the fact that it was the policy of every Ivy League University... that because the Ivy League universities disagreed, I might say rightly, I think with the judgment of successive democratically elected presidents, and democratically elected congresses, that the United States should have a given set of policies on gays in the military.
[00:33:32] Larry Summers: It was their policy not to permit the military to recruit on the campus. It is not unreasonable for people to have found that outrageous. I attended the ROTC ceremony. when I was the president of Harvard — the commissioning ceremony. I was the first Ivy League president in 30 years to attend an ROTC commissioning ceremony.
[00:33:58] Larry Summers: So I think another part of what has happened is that there is always that temptation to populist attack on universities and then universities have presented a very attractive target, and that is what's going on here. Now: To explain is never to justify. Was it reasonable for the Biden Administration Office of Civil Rights to open inquiries about antisemitism on college campuses?
[00:34:34] Larry Summers: I actually think it was. Was it reasonable for the Trump administration to simply freeze funding in complete contravention of every process, statute and requirement in the statute to, freeze funding unless letters of diktat were complied with, with the range of demands going far beyond anything that could be plausibly committed or regarded as having to do with discrimination?
[00:35:17] Larry Summers: No, that was outrageous, and I think Harvard was right, to Sue. You know, John and Joe, when you become an official in the Treasury Department, you sort learn that — of course you're not supposed to take bribes. It's just elementary ethics that you're not supposed to take bribes. Fully sacrosanct is the idea that you're not supposed to get involved in individual tax matters at the IRS. And yet we have the president of the United States calling for a change in the tax status of an individual institution and giving instructions to appointments, those he's appointed in the Treasury Department to convey this to the IRS.
[00:36:13] Larry Summers: And you have, as best one can tell, complicity on the part of, the Treasury Department. When Richard Nixon did this kind of stuff, George Schultz put the relevant notes in a safe where they would never be seen and told the commissioner of the IRS that we were going to be entirely ignoring this. That's what leadership is about, and that's not what we are seeing.
[00:36:46] Larry Summers: You know, Richard Nixon, in an important sense, knew the difference between wrong and right. That's why he always tried to cover up and hide what he was doing that was wrong. We now have a president who glories in his wrongdoing and wants his wrongdoing to be as widely known as possible so that it can intimidate as widely and broadly as possible.
[00:37:20] Larry Summers: That is far more serious (issue). and I don't think it is a thing that has precedent in America's post Civil War history.
[00:37:33] Joe Klein: Larry,, I have to, confess I was an American Studies major, but it was in the 1960s and the result was, the result of reading people like Hofstadter and C Van Woodward was that I came to really love the country at a point when the country was doing some really stupid things.
[00:37:53],
[00:37:53] Larry Summers: So you should explore with, your formidable skills, the current state of the field of American studies. I think you would find it eyeopening, (and) in a positive educational way, to review the flagship journal of the field and the syllabi of courses at a number of major institutions.
[00:38:20] Joe Klein: I, I've gotten old and life may be too short for that. but let me ask you this, I admired tremendously your tenure as president of Harvard. but you ran up against, some formidably stupid and myopic forces on the left. Donald Trump is running against those forces as long as he's talking about Harvard and El Salvador.
[00:38:49] Joe Klein: He's not talking about the economy, and he's doing this successfully. It's what won him the last election. you are a political person as well as an economic person. You have served in democratic (party) administrations. how would you counsel the Democrats to respond to this part one and part two?
[00:39:09] Joe Klein: Are there any democratic, uh, politicians who you really admire right now?
[00:39:17] Larry Summers: I, um, I have tended towards the view that political message, people very frequently don't seem very smart to me on economics. Therefore, I take seriously the possibility that I am kind of useless on a political message, and I hesitate to prescribe, with, confidence. I do think that all of the evidence is that people care more about the economy than they care about abstractions, and so I think the Democrats would be well advised to be pointing to economic failure, pointing to the fact that I don't think there has been another President who managed during their first a hundred days to preside over a huge drop in the stock market, a huge drop in the value of the dollar, a huge increase in home mortgage rates, a downwards revision in growth prospects, an upwards revision in unemployment forecast and in upwards revision in inflation, and, for all of that, to be linked to the president's own words.
[00:40:43] Larry Summers: And I think that catastrophic economic failure from a President whose raison d'être had a lot to do with how he was gonna create a boom and bring down inflation, is a place where democratic messaging should start. I think the second place that I would go is to basic notions of fair play. I think abstractions of democracy get only so far, but I think Americans are basically committed to, fair play, and I think fair to one's opponents and those one is dealing with and fair in terms of not feathering one's own nest and the friends of one's, selfs nest. I think that is a second place in which I would be going in terms of, messaging. And I think the third message that the Democrats need to be pushing is towards a connection with a broad swath of America. I always think of a photograph that many of us, I'm sure almost all your listeners have seen.
[00:42:14] Larry Summers: It's a photograph taken during the depression of a dozen guys with lunch pails, sitting on a girder, suspended over Manhattan. And, when I think of the Roosevelt Coalition, I think of those dozen guys, and it is sobering to me that two thirds of those guys today would be voting against the Democrats.
[00:42:45] Larry Summers: And so I think the Democrats have a great deal of repair to do, away from being the party of the faculty room and the identity group. And if they can find ways of connecting with a broad American middle class, I think they will be much more effective. I've admired. Things that my friend, Rahm Emannuel, has been saying.
[00:43:19] Larry Summers: He seems to be in touch with a good deal of what I am talking about — in terms of both recognizing the dangers of the Trump administration — and also having some instinct for the senses of: fairness, and, values, and patriotism that I believe animate Americans.
[00:43:54] Joe Klein: Ah, so you did give us a name. I was, I was betting that you wouldn't, I remember, uh, 20 years ago I asked, David Petraeus, whether there was anybody in the Democratic Party who, uh, understood the way his mind worked.
[00:44:07] Joe Klein: And he said, "You mean aside from Hillary?", Hillary Clinton was on the Armed Services Committee at that point. you know, I, I have two kinds of friends: One group think that the coup has already taken place, and the other think that the coup will take place in the next few months. Um, how much trouble are we in?
[00:44:30] Joe Klein: and I know that you've spoken in the last five minutes about the perils of going into abstract democratic questions. But, how much trouble are we in terms of our democracy and way of life?
[00:44:44] Larry Summers: I think we are in more trouble by some significant margin than at any point in my lifetime. So that includes the McCarthy period, that includes the traumas of the late 1960s, and Watergate, that includes the Cold War at its height. That includes the malaise (the) period of loss of confidence of the late 1970s, that includes the various dislocations of Covid where a million people died.
[00:45:41] Larry Summers: I think the American project is in more jeopardy than any of that. I am ultimately an optimist. Winston Churchill did not say what is attributed to him, that "The United States always does the right thing but only after exhausting all the alternatives." But, I think there is a lot of truth in that, and I am a believer when it comes to the United States in the power of self-denying prophecy.
[00:46:23] Larry Summers: I think there is a reading of American history that suggests that, we as a country, have a tremendous capacity for the jeremiad about doom, but that ultimately because we have that capacity, we tend to right ourselves before it's too late. And, my best guess is that the United States will see off this challenge, given all of our great strengths, but, I can't say I'm certain of that.
[00:47:03] Larry Summers: And given the stakes involved, even a small risk that we don't is something that is of immense, significance.
[00:47:18] John Ellis: One last question before we let you go. Larry, you're on the board of OpenAI. I think, our audience would be very interested to hear if you're optimistic about the future of ai. Are you concerned? Where are you given your knowledge of where things stand and where things are likely to go in this extraordinary new technology?
[00:47:39] Larry Summers: Yes to all of that, I am very optimistic about the technological potential of AI and also concerned about our ability as a society to manage adapting, to it. You guys are extremely sophisticated, so I think it is... four or five years until we are at the point where there would be an AI, that had absorbed everything I've said and written, and it could perform this podcast and you wouldn't know whether it was the real Larry Summers or just some synthesis of Larry Summers done by an AI.
[00:48:34] Larry Summers: I think we're, within a year and a half, of the moment when people who are much less sophisticated, and who haven't known me a long time, like the two of you, would have that ability. And, I think that's a kind of remarkable commentary on these systems. I now think there's a substantial likelihood that we will see a very rapid increase in scientific and technological progress as a consequence of AI.
[00:49:09] Larry Summers: And I think that, while much of the discussion has focused on the comparison of an individual AI with an individual brain, I think the larger issues ultimately will have to do with the capacity for hundreds or thousands of AI to be in cooperation with each other. I mentioned an idea about studying American studies a little bit earlier to Joe and he said he was, "Getting older and life is too short."
[00:49:45] Larry Summers: (Laughter from Joe) In a world where there were a hundred mental versions of Joe, through AI, life would not be too short for any idea to be explored. So, I think the potential is immense, but I think we are going to have to be more agile and nimble as a polity then we have shown ourselves to be of late if we are to deal with all of this in a way that makes it work for everyone.
[00:50:30] Larry Summers: I have a sneaking suspicion that because AI is likely to come for IQ before it comes for EQ, because it is likely to reduce the value of the cognitive, because the AI can replace it, that it may ultimately be substantially egalitarian in its implications. But, that is not to say that there won't be a huge amount of change with which we will have to deal as a society, but ultimately I am a believer in progress.
[00:51:21] Larry Summers: great changes came from everything from the printing press, to electricity, to the airplane, to the computer, to the internet, and I think AI will be at least as significant as any of those steps.
[00:51:42] Alex K. (Producer): Joe, do you have an exit question?
[00:51:46] Joe Klein: No, I think that that's a great place to end it, although I do have, you know, 600 other questions I could ask.
[00:51:53] Joe Klein: and, it's always, a pleasure to talk to you, Larry, even back in the day in the Clinton administration, when we'd sometimes disagree with each other!
[00:52:04] Larry Summers: Yes! These days I think we're pretty well, we are we are pretty well aligned.
[00:52:10] John Ellis: I think the, the thing that you said that that's really true, and it's not just true about, you know, legal matters, but the thing I struggled to understand is I think we have actually crossed a Rubicon and I don't understand, or I can't, you know, grok how we get back.
[00:52:32] Larry Summers: You know, we probably thought we had crossed a Rubicon with Joe McCarthy. We probably thought we had crossed some kind of Rubicon on the night of the Saturday Night Massacre. I remember as a 14-year-old the streets of Chicago in 1968 and what was America in the face of that.
[00:52:56] Larry Summers: So, I do think it is easy to get a little too consumed with the, the terribleness of the moment. I haven't gone back and read carefully. You guys probably know better than I, the degree of hysteria on the part of progressives, and on the part of the media, about Ronald Reagan, and then about W (President George W. Bush) and the fact that they were so hysterical in ways that look today to have been excessive, that there was so much hysteria about Japan surpassing us in ways that today look ridiculous, lead me to apply some discount to alarm. You know, the smartest people who give investment advice. a thing they talk about a lot is, and I don't remember what the right number is, but there've been a thousand months since the second World War.
[00:54:08] Larry Summers: If you were out of the market for 75 of those months, you would've missed 80% of all the increase. And so it is easy to become very alarmed, and to think that the alarm will continue forever. But: Rome did fall. So, I think one should control one's pessimism even as one voices one's alarm.
[00:54:41] John Ellis: Alright. That's a wrap I think. Thank you very much to, Larry Summers for joining us today.
[00:54:46] John Ellis:. And, thank you all for listening. just as a bit of self-promotion, Joe Klein's Substack is called Sanity Clause. You go to Google, you type in sanity clause, you type in Joe Klein and you type in Substack and it pops right up.
[00:55:04] John Ellis: it's one of the very best, political newsletters that Substack, publishes. And I highly encourage you to subscribe and to become a paying subscriber because these things cost money, including this podcast. I have two Substack newsletters. One is called News Items. The other is called Political News Items, and you can find both of them at news-items. com.
Next week we will be talking with Wolfgang Munchau, who is the publisher, co-founder, chief writer of Eurointelligence— probably the very best newsletter about all things Europe that you can find. Thanks very much for listening, and we'll see you next time.
We posted the audio version yesterday. If you prefer to listen to podcasts on the major podcast platforms, you can find this and all the other ‘Night Owls’ podcasts at Apple, Spotify, Amazon, and iHeart.
Here’s the transcript, lightly edited to make me appear more coherent.
John Ellis: Hello and welcome back to Night Owls. I'm John Ellis. I'm joined as always by my partner in podcasting, Joe Klein. We're gonna skip the usual self-promotion for our Substack newsletters to spend more time with our guest, Larry Summers.
During the pandemic I had an idea for a podcast called “The Impossibly Impressive Resume,” and it'd be one-on-one interviews with people who had or have impossibly impressive resumes. That's sort of what we’re doing here today., because we have as our guest, Larry Summers, one of the nation's leading economists, who served as the Secretary of Treasury in the Clinton administration.
And that’s not all! Dr. Summers served as director of the White House National Economic Council in the Obama Administration, as President of Harvard University and as the Chief Economist of the World Bank.
Larry, thank you very much for joining us today.
I think for our audience, I'd just like to start by talking about the Trump administration's economic theory of the case, if you will. The Reagan administration had supply side economics as its theory of the case. The Clinton administration had the idea that if you assuage the bond markets, you would free up capital for private investment, which would spur economic growth. Dick Cheney actually had an interesting idea, which is that deficits don't matter.
I think a lot of people are confused about the Trump administration's theory of the case. So we thought we'd start by asking you whose knowledge of public finance and economic policy is, uh, shall we say, impossibly impressive. So can you do that for us? Can you give our audience a thumbnail of the Trump theory of the case?
[00:01:49] Larry Summers: I don't know that there is a theory of a case that is rooted in economic analysis rather than the psychological imperatives of, the president that unifies, things. But if there is a theory of the case, I think it probably rests on three pillars. First, that the world is a transactional place and that all leverage one has should be used and that the United States, by virtue of being a superpower, has an enormous amount of leverage.
[00:02:34] Larry Summers: Second, that the accumulation of wealth. The accumulation of assets is the ultimate purpose of economic activity because it leads to more leverage or power rather than, living well. And third, that selling is good and buying is bad. And so it's good to have trade surpluses. And I think those are the three pillars of their beliefs.
[00:03:18] Larry Summers: And I think in embracing those, pillars, they commit four or five fallacies that we teach in almost every introductory economics course. Number one, they suppose that bilateral economic relationships prove anything. In a complicated world. I run a big trade surplus with Harvard University.
[00:03:46] Larry Summers: I run a big trade deficit with my golf club. I am not exploiting Harvard University. My golf club is not exploiting me. It is the natural order of things that things work out that way. It is entirely non probative with respect to any kind of unfairness or exploitation. Second, even aggregate trade balances do not necessarily and often do not reflect economic weakness.
[00:04:24] Larry Summers: I'm living in the state of Arizona. The state of Arizona has run a trade deficit with the rest of the United States every year for the past a hundred. That is an arithmetic concomitant of the fact that people and investments are moving to Arizona. And the only way that there can be a flow of capital to Arizona is for Arizona to spend more than it earns as people invest in it.
[00:04:57] Larry Summers: And there's a corollary of that to import more than it exports. And I, and I think most Americans would rather live in a country that capital is desperate to get into than a country that capital is desperate to get out of. And if one looks at economic catastrophes, they always have large capital outflows.
[00:05:23] Larry Summers: And as a consequence, they have more exports, than imports. And as a consequence, they are selling more than they are buying. But that is a sign of weakness, not of strength. The third. Fallacy of a Trump world is the idea that imposing tariffs is a way of changing trade balances in important ways. Once one recognizes that trade balances are the difference between what a country spends and what it earns, what it in aggregate saves and how much investment takes place within them, it's immediately clear.
[00:06:18] Larry Summers: The tariffs are not likely to have large effects on, trade deficits any more than putting a tax at certain stores that I like to buy at might or might not change the gap between my spending and my income. Putting a tariff on certain products from certain sources doesn't change the fundamental of how much a country wants to spend relative to how much it is able to produce, what logic suggests.
[00:06:56] Larry Summers: Experience confirms. Switzerland has very, very low tariffs and a huge and chronic and recurrent trade surplus. Brazil has very, very high tariffs and a chronic and sustained trade deficit, so it is neither true that trade deficits have a lot to do with, um, economic wellbeing, nor that tariffs have a material impact on trade deficits.
[00:07:32] Larry Summers: The fourth fallacy is the failure to recognize that, we now live in a world of integrated production and, uh, supply chains and show today's imports are inputs to tomorrow's exports. The United States has 60 times as many people working in steel using industries as it does in the production of steel, steel tariffs.
[00:08:02] Larry Summers: Raise the price of steel, not just imported steel, but also domestic steel that competes with, imported steel. And in the process, make other industries much larger industries than steel, like automobile production, like home building, less competitive by virtue of having more expensive inputs.
[00:08:27] Larry Summers: So tariffs do not even serve the objective of promoting the competitiveness of American manufacturing. One study done of the Trump administration's tariffs at the Federal Reserve, found that the 2018 tariffs, which are about a 10th as large as the ones we're talking about now.
[00:08:52] Larry Summers: We're net destroyers of jobs within the manufacturing sector. And the last point, and maybe the one that is most important for people to understand is that the idea that the future of manufacturing production is the future of the American economy is delusional. Yes, we need to invest in protecting our defense industrial base.
[00:09:29] Larry Summers: Yes, there are important issues of resilience that have to do with production. That's just in case rather than just in time that businesses and policy makers have perhaps paid insufficient attention to. those require specific and targeted kinds of policy responses, but the idea that across the board, tariffs on all countries and all sectors are a way of achieving that is not plausible.
[00:10:11] Larry Summers: The idea that we are somehow gonna produce some kind of economic renaissance through the production of manufacturing or the increase in manufacturing is not credible. The statistic everybody quotes is that 8% of jobs are in manufacturing. That's a small number, but it misses a crucial point that half those jobs.
[00:10:39] Larry Summers: Half are in jobs that exist in all sectors, advertising, marketing, accounting, being an administrative assistant. So we are at 4% in production work. That number has been in steady decline, not just in the United States, but in every major country. China has fewer manufacturing production workers despite its manufacturing boom than it did a quarter century ago.
[00:11:12] Larry Summers: And so the idea that we are going to produce any important employment effect through the whole scale production. Our encouragement of manufacturing is also not realistic. And so at each of these levels, the non relevance of trade deficits, the inability of these policies to impact trade, deficits, the lack of connection between trade deficits and manufacturing scale, the lack of connection between manufacturing scale and economic success.
[00:11:57] Larry Summers: This is not a serious, uh, theory. The Laffer Curve, which I regarded as a badly wrong economic theory, had internal logic. And was rooted in economic ideas that had been discussed for a long time. I have derided modern monetary theory. It has intellectual antecedents in serious thought by economists. Those who favor industrial policies in much more dirigiste ways than I would favor can point to a tradition of economic thought.
[00:12:49] Larry Summers: This set of policies is without logic or grounding in experience. The interesting proposition is not that free trade is better than protectionism. The interesting proposition is that within the scope for protectionism, the approach now being pursued is nonsensical.
[00:13:19] Joe Klein: Was actually, that's exactly where I wanted to go, Larry.
[00:13:23] Joe Klein: on the kind of strategic level, to Trump's tariff policy? Is, is there a method, to his madness? I think we, all three of us agree, that the, the policy is mad, but does he have a plan, in terms of how he's going to lift or impose or he seems to change it every day?
[00:13:47] Larry Summers: I have not been able to, discern a, plan. There are hallmarks of things that are being done according to plan. The different actors in the drama speak from the same set of talking points. That is dramatically not the case with, uh, the Trump administration commitments made on Tuesday are honored on Wednesday and Thursday.
[00:14:19] Larry Summers: That is not a hallmark of the approach, that is being, pursued. here. No, I think there is an instinct and reckless, ego driven improvisation by the president of the United States enabled by those who have taken oaths of service, not to the president, but, to, the country.
[00:14:50] John Ellis: I wanted to ask Larry, um, uh, you know, I'm the, I'm the Chief Executive Officer of Morgan Stanley, and I see this happening.
[00:14:59] John Ellis: So I call up Larry Summers and I say, Larry, what do I do about this? I mean, how, how should I respond? What would your answer to that be?
[00:15:11] Larry Summers: It would be at, uh, a number of different levels. If you're walking down the street and somebody is walking unsteadily, just stipulating wildly with, their arms carrying a suspicious parcel, it's probably a good idea to give them a wide berth and not to engage them in a dispute if you have to act on your own.
[00:15:47] Larry Summers: And, I understand the instinct of individual CEOs and individual companies to steer, clear. I think it's also a good idea if it's in your neighborhood to try to get a group to join together to engage in some kind of confrontation to assure safety. And so I would counsel those in the business community to try to lock arms and come together in, protest.
[00:16:33] Larry Summers: And I think it is not the least of America's generalized deficiency of social capital. That there has been a failure of collective action. Somehow the nation's law firms, even though efforts are being made to ize them out of providing the services that represent the deepest ethical commitments of lawyers, have not managed to come together in resistance.
[00:17:07] Larry Summers: Individual universities, and I'm proud of what Harvard has done, have resisted, but there has not been an effective coming together of academic community. We have a president who, of all things venerates, the titans of industry and the titans have not been Titanic and have not come together collectively as a group.
[00:17:38] Larry Summers: So I would. counsel collective action on mass. And given the scale of the threat and the danger, I have been disappointed that we have not seen, more of that. Now, to be fair, it is easier to counsel courage than to be courageous, and there is. A moment when it is right to act, when the dimension of the problem has become very clear.
[00:18:17] Larry Summers: It is easier to act when there is ambiguity about the dimension of the problem, and it may well be that there is still time before the problem becomes permanent or too enormously damaging. So it may be that some of those who could be acting are biting their time. And while it seems to me that. That biting has gone on for too long.
[00:18:48] Larry Summers: I credit the possibility that wise judgment is, being, applied, but I think this is a very scary moment. I think it is always a mistake in life to think that bad cannot get worse, and I think it does bear emphasis that we have not in an unambiguous way, crossed a Rubicon where clear court orders are being blatantly defied.
[00:19:26] Larry Summers: There's always jockeying and interpretation and all of that with respect to what the judiciary does. And we are certainly close in a number of areas, notably in El Salvador. But I do think it's fair, uh, Joe and John to recognize that that Rubicon, the Andrew Jackson Rubicon of the Supreme Court has, spoken.
[00:19:59] Larry Summers: Let's see what it's going to do next. We have not crossed that Rubicon, yet, but my advice, to a business executive would be along the lines of, what I have just said.
[00:20:17] John Ellis: Let me just follow up on that for one second. So you're there with the CEO of Morgan Stanley and he says, look, I wanna bring the traders in.
[00:20:25] John Ellis: I wanna bring in the Chief investment Officer. Recognizing that you're not offering investment advice, but, given this environment, how does one trade it, if you will? if you're a Morgan Stanley or Goldman Sachs, how do you approach? What's your strategy? I guess
[00:20:42] Larry Summers: I would say that we've, we are seeing something new as a market phenomenon.
[00:20:49] Larry Summers: The American capital flight trade, there's a pattern. I saw it when I was in government, in each of the financial crises that I dealt with in foreign environments. Um, the pattern is there comes to be a generalized loss of confidence in a country. And therefore a run on all its assets. that's when the stock market goes down.
[00:21:21] Larry Summers: At the same time, the stock market's going down, even though a recession is more likely, bond yields are going up and the bond market is going down, the currency is collapsing, and people who used to own the country's assets are buying more gold. That's what has happened in recent years and a number of points to Erdogan's Turkey.
[00:21:49] Larry Summers: That's what has happened, uh, a dozen times over the last 70 years in Argentina. I. We had a bit of that in the worst moments of the Carter administration, and that's what led to Paul Volcker's appointment as chairman of, the Federal Reserve. That's not the American pattern. When people got nervous during the financial crisis, the United States was still the world's bastion, and so people bought US bonds, they bought the US dollar, but today we have American capital flight and we have had it with particular force and virulence when the president has been more true to his economic convictions.
[00:22:48] Larry Summers: When he announced his Liberation Day policies indicated after a disastrous first day of market response that he would remain committed. We saw the American capital flight trade undo itself somewhat when he backed off the reciprocity, tariff policies. We saw the capital flight trade reinstitute itself in a very strong way on Monday of this week when the president further indulged himself in fed bashing.
[00:23:26] Larry Summers: When the emanations suggested that was just talk. We saw, later in the week some backing off, in the pattern. But the defining thing one has to gauge in this environment is the American capital flight trade. And that's not a phenomenon that trading desks are accustomed to when they're talking about American assets.
[00:23:57] Larry Summers: It is always a thing that is top of mind for any emerging market investor to think about whether the country in question is gonna move from being an emerging market to being a submerging market.
[00:24:12] Joe Klein: Larry, you were at the very top of this. You talked about Trump's philosophy of, strength,.
[00:24:18] Joe Klein: One, one thing I wonder about here is a very specific gamble that he's making and that gamble is that the American economy is ultimately stronger than the Chinese economy. what's your assessment of the Chinese economy? How much trouble are we in? John writes endlessly about the, the real estate market there, but, I think that when export market is threatened, uh, the Chinese get very scared.
[00:24:47] Larry Summers: I think, the history is likely to record that the United States made a very substantial error in assessing the Soviet economy. In 1960, John Kennedy died believing that Russia would surpass the United States economically. History does record massive error in the late eighties and early nineties in the assessment of the Japanese economy.
[00:25:20] Larry Summers: And my guess is that the views circa 2020 of the Chinese economy will come to look to have been almost ludicrously optimistic. I think it's a good rule when parents push their children to study a new country's language when they're in high school, that's usually a sign that that country's, economy is, peaking.
[00:25:52] Larry Summers: And, so I am not optimistic about the long run Chinese economic prospect, however. Most sobering hour or hour and a half that I've spent in the last six months was in the World War II Museum in Tokyo, which makes very clear that the antecedent of Pearl Harbor was a perception on the part of the Japanese authorities that their economy, while appearing strong in fact, was not, and was being importantly constrained by a variety of aggressive US economic policies.
[00:26:46] Larry Summers: And so I think that economic disappointment with the capacity to place blame on the United States. In a complex authoritarian, structure where the authoritarian is not going to be able to meet all the expectations he has raised... is a very, very dangerous, situation. So I am not. Optimistic about the Chinese economy, but I think an American economic strategy of trying to tip it over some kind of brink is not likely to be a strategy that is effective in promoting American interests, even if it is a strategy that proves to be successful in undermining, Chinese interests.
[00:27:51] Larry Summers: Uh, my own view is that the right way to think about the United States and China is two people who share a toward lifeboat in a turbulent sea, a long way from shore who don't know each other that well, and who instinctively have little affection and some amount of aversion. Who nonetheless are in a toward lifeboat, a long way from shore and with no alternative but to reassure each other and cooperate well enough to reach the shore.
[00:28:40] John Ellis: One thing I think the Chinese have, have been very smart about is investing in brain power, in the stems as it's called. and that leads us to, the Trump administration's assault on academia, sort of writ large. What, where is that coming from? I mean,. If you wanna attack Harvard University where some of the most important scientific research in the world is taking place, it seems insane that you would,, cut funding for that, that you would, block, foreign students from coming in to study thre, um, do you have a sense of what's really driving this policy, I guess you would call it?
[00:29:21] Larry Summers: This is a long political tradition. Richard Hofstetter wrote a famous book in 1963 called Anti-Intellectualism in American Life. Joe probably knows the story better than I do, but Ronald Reagan on plausible accounts won the election that began his political career, in 1966 against Pat Brown with his best issue being complaint about what was going on at the University of California at Berkeley.
[00:29:58] Larry Summers: And, and asserting that students needed haircuts. Joe McCarthy, ran his most successful efforts against pointy-headed Ivy League elites. And he only encountered failure when he shifted his target from Ivy League elites to, the us, military. So the idea that there is political hay to be made by attacking pointy headed intellectuals in universities that is as American as, apple pie, and Trump is picking up on that enduringly successful, trope. it has been made easier for him by a variety of trends in higher education that have been unwelcome. They have preserved more of the noblesse than of the oblige. They have cut themselves off from a broad swath of Americans.
[00:31:20] Larry Summers: I mean, if you look at the field, for example, of American studies. You read the major scholarly journal of the field or you look at the course offerings at major universities, the correct nomenclature for the field would be anti-American studies rather than American studies.. Someone described, um, American studies at Harvard to me when I was president as being, oh, you have to understand it's a holding company for identity politics, intellectual material opposing the American, tradition.
[00:32:02] Larry Summers: And for reasons I'm not fully learned enough, to trace there is, those who for out of intellectual doctrinal reasons are led to see colonialism as a central and besetting sin have chosen Israel as their primary target, today. And those are very fashionable doctrines in no small part of American intellectual life.
[00:32:38] Larry Summers: And that has led to antisemitism being — even occasionally encouraged on college campuses in a way that would be unthinkable with respect to racism. So the urge to go after elites is all ready there, and for a variety of reasons. You know, I think back to the fact that it was the policy of every Ivy League University... that because the Ivy League universities disagreed, I might say rightly, I think with the judgment of successive democratically elected presidents, and democratically elected congresses, that the United States should have a given set of policies on gays in the military.
[00:33:32] Larry Summers: It was their policy not to permit the military to recruit on the campus. It is not unreasonable for people to have found that outrageous. I attended the ROTC ceremony. when I was the president of Harvard — the commissioning ceremony. I was the first Ivy League president in 30 years to attend an ROTC commissioning ceremony.
[00:33:58] Larry Summers: So I think another part of what has happened is that there is always that temptation to populist attack on universities and then universities have presented a very attractive target, and that is what's going on here. Now: To explain is never to justify. Was it reasonable for the Biden Administration Office of Civil Rights to open inquiries about antisemitism on college campuses?
[00:34:34] Larry Summers: I actually think it was. Was it reasonable for the Trump administration to simply freeze funding in complete contravention of every process, statute and requirement in the statute to, freeze funding unless letters of diktat were complied with, with the range of demands going far beyond anything that could be plausibly committed or regarded as having to do with discrimination?
[00:35:17] Larry Summers: No, that was outrageous, and I think Harvard was right, to Sue. You know, John and Joe, when you become an official in the Treasury Department, you sort learn that — of course you're not supposed to take bribes. It's just elementary ethics that you're not supposed to take bribes. Fully sacrosanct is the idea that you're not supposed to get involved in individual tax matters at the IRS. And yet we have the president of the United States calling for a change in the tax status of an individual institution and giving instructions to appointments, those he's appointed in the Treasury Department to convey this to the IRS.
[00:36:13] Larry Summers: And you have, as best one can tell, complicity on the part of, the Treasury Department. When Richard Nixon did this kind of stuff, George Schultz put the relevant notes in a safe where they would never be seen and told the commissioner of the IRS that we were going to be entirely ignoring this. That's what leadership is about, and that's not what we are seeing.
[00:36:46] Larry Summers: You know, Richard Nixon, in an important sense, knew the difference between wrong and right. That's why he always tried to cover up and hide what he was doing that was wrong. We now have a president who glories in his wrongdoing and wants his wrongdoing to be as widely known as possible so that it can intimidate as widely and broadly as possible.
[00:37:20] Larry Summers: That is far more serious (issue). and I don't think it is a thing that has precedent in America's post Civil War history.
[00:37:33] Joe Klein: Larry,, I have to, confess I was an American Studies major, but it was in the 1960s and the result was, the result of reading people like Hofstadter and C Van Woodward was that I came to really love the country at a point when the country was doing some really stupid things.
[00:37:53],
[00:37:53] Larry Summers: So you should explore with, your formidable skills, the current state of the field of American studies. I think you would find it eyeopening, (and) in a positive educational way, to review the flagship journal of the field and the syllabi of courses at a number of major institutions.
[00:38:20] Joe Klein: I, I've gotten old and life may be too short for that. but let me ask you this, I admired tremendously your tenure as president of Harvard. but you ran up against, some formidably stupid and myopic forces on the left. Donald Trump is running against those forces as long as he's talking about Harvard and El Salvador.
[00:38:49] Joe Klein: He's not talking about the economy, and he's doing this successfully. It's what won him the last election. you are a political person as well as an economic person. You have served in democratic (party) administrations. how would you counsel the Democrats to respond to this part one and part two?
[00:39:09] Joe Klein: Are there any democratic, uh, politicians who you really admire right now?
[00:39:17] Larry Summers: I, um, I have tended towards the view that political message, people very frequently don't seem very smart to me on economics. Therefore, I take seriously the possibility that I am kind of useless on a political message, and I hesitate to prescribe, with, confidence. I do think that all of the evidence is that people care more about the economy than they care about abstractions, and so I think the Democrats would be well advised to be pointing to economic failure, pointing to the fact that I don't think there has been another President who managed during their first a hundred days to preside over a huge drop in the stock market, a huge drop in the value of the dollar, a huge increase in home mortgage rates, a downwards revision in growth prospects, an upwards revision in unemployment forecast and in upwards revision in inflation, and, for all of that, to be linked to the president's own words.
[00:40:43] Larry Summers: And I think that catastrophic economic failure from a President whose raison d'être had a lot to do with how he was gonna create a boom and bring down inflation, is a place where democratic messaging should start. I think the second place that I would go is to basic notions of fair play. I think abstractions of democracy get only so far, but I think Americans are basically committed to, fair play, and I think fair to one's opponents and those one is dealing with and fair in terms of not feathering one's own nest and the friends of one's, selfs nest. I think that is a second place in which I would be going in terms of, messaging. And I think the third message that the Democrats need to be pushing is towards a connection with a broad swath of America. I always think of a photograph that many of us, I'm sure almost all your listeners have seen.
[00:42:14] Larry Summers: It's a photograph taken during the depression of a dozen guys with lunch pails, sitting on a girder, suspended over Manhattan. And, when I think of the Roosevelt Coalition, I think of those dozen guys, and it is sobering to me that two thirds of those guys today would be voting against the Democrats.
[00:42:45] Larry Summers: And so I think the Democrats have a great deal of repair to do, away from being the party of the faculty room and the identity group. And if they can find ways of connecting with a broad American middle class, I think they will be much more effective. I've admired. Things that my friend, Rahm Emannuel, has been saying.
[00:43:19] Larry Summers: He seems to be in touch with a good deal of what I am talking about — in terms of both recognizing the dangers of the Trump administration — and also having some instinct for the senses of: fairness, and, values, and patriotism that I believe animate Americans.
[00:43:54] Joe Klein: Ah, so you did give us a name. I was, I was betting that you wouldn't, I remember, uh, 20 years ago I asked, David Petraeus, whether there was anybody in the Democratic Party who, uh, understood the way his mind worked.
[00:44:07] Joe Klein: And he said, "You mean aside from Hillary?", Hillary Clinton was on the Armed Services Committee at that point. you know, I, I have two kinds of friends: One group think that the coup has already taken place, and the other think that the coup will take place in the next few months. Um, how much trouble are we in?
[00:44:30] Joe Klein: and I know that you've spoken in the last five minutes about the perils of going into abstract democratic questions. But, how much trouble are we in terms of our democracy and way of life?
[00:44:44] Larry Summers: I think we are in more trouble by some significant margin than at any point in my lifetime. So that includes the McCarthy period, that includes the traumas of the late 1960s, and Watergate, that includes the Cold War at its height. That includes the malaise (the) period of loss of confidence of the late 1970s, that includes the various dislocations of Covid where a million people died.
[00:45:41] Larry Summers: I think the American project is in more jeopardy than any of that. I am ultimately an optimist. Winston Churchill did not say what is attributed to him, that "The United States always does the right thing but only after exhausting all the alternatives." But, I think there is a lot of truth in that, and I am a believer when it comes to the United States in the power of self-denying prophecy.
[00:46:23] Larry Summers: I think there is a reading of American history that suggests that, we as a country, have a tremendous capacity for the jeremiad about doom, but that ultimately because we have that capacity, we tend to right ourselves before it's too late. And, my best guess is that the United States will see off this challenge, given all of our great strengths, but, I can't say I'm certain of that.
[00:47:03] Larry Summers: And given the stakes involved, even a small risk that we don't is something that is of immense, significance.
[00:47:18] John Ellis: One last question before we let you go. Larry, you're on the board of OpenAI. I think, our audience would be very interested to hear if you're optimistic about the future of ai. Are you concerned? Where are you given your knowledge of where things stand and where things are likely to go in this extraordinary new technology?
[00:47:39] Larry Summers: Yes to all of that, I am very optimistic about the technological potential of AI and also concerned about our ability as a society to manage adapting, to it. You guys are extremely sophisticated, so I think it is... four or five years until we are at the point where there would be an AI, that had absorbed everything I've said and written, and it could perform this podcast and you wouldn't know whether it was the real Larry Summers or just some synthesis of Larry Summers done by an AI.
[00:48:34] Larry Summers: I think we're, within a year and a half, of the moment when people who are much less sophisticated, and who haven't known me a long time, like the two of you, would have that ability. And, I think that's a kind of remarkable commentary on these systems. I now think there's a substantial likelihood that we will see a very rapid increase in scientific and technological progress as a consequence of AI.
[00:49:09] Larry Summers: And I think that, while much of the discussion has focused on the comparison of an individual AI with an individual brain, I think the larger issues ultimately will have to do with the capacity for hundreds or thousands of AI to be in cooperation with each other. I mentioned an idea about studying American studies a little bit earlier to Joe and he said he was, "Getting older and life is too short."
[00:49:45] Larry Summers: (Laughter from Joe) In a world where there were a hundred mental versions of Joe, through AI, life would not be too short for any idea to be explored. So, I think the potential is immense, but I think we are going to have to be more agile and nimble as a polity then we have shown ourselves to be of late if we are to deal with all of this in a way that makes it work for everyone.
[00:50:30] Larry Summers: I have a sneaking suspicion that because AI is likely to come for IQ before it comes for EQ, because it is likely to reduce the value of the cognitive, because the AI can replace it, that it may ultimately be substantially egalitarian in its implications. But, that is not to say that there won't be a huge amount of change with which we will have to deal as a society, but ultimately I am a believer in progress.
[00:51:21] Larry Summers: great changes came from everything from the printing press, to electricity, to the airplane, to the computer, to the internet, and I think AI will be at least as significant as any of those steps.
[00:51:42] Alex K. (Producer): Joe, do you have an exit question?
[00:51:46] Joe Klein: No, I think that that's a great place to end it, although I do have, you know, 600 other questions I could ask.
[00:51:53] Joe Klein: and, it's always, a pleasure to talk to you, Larry, even back in the day in the Clinton administration, when we'd sometimes disagree with each other!
[00:52:04] Larry Summers: Yes! These days I think we're pretty well, we are we are pretty well aligned.
[00:52:10] John Ellis: I think the, the thing that you said that that's really true, and it's not just true about, you know, legal matters, but the thing I struggled to understand is I think we have actually crossed a Rubicon and I don't understand, or I can't, you know, grok how we get back.
[00:52:32] Larry Summers: You know, we probably thought we had crossed a Rubicon with Joe McCarthy. We probably thought we had crossed some kind of Rubicon on the night of the Saturday Night Massacre. I remember as a 14-year-old the streets of Chicago in 1968 and what was America in the face of that.
[00:52:56] Larry Summers: So, I do think it is easy to get a little too consumed with the, the terribleness of the moment. I haven't gone back and read carefully. You guys probably know better than I, the degree of hysteria on the part of progressives, and on the part of the media, about Ronald Reagan, and then about W (President George W. Bush) and the fact that they were so hysterical in ways that look today to have been excessive, that there was so much hysteria about Japan surpassing us in ways that today look ridiculous, lead me to apply some discount to alarm. You know, the smartest people who give investment advice. a thing they talk about a lot is, and I don't remember what the right number is, but there've been a thousand months since the second World War.
[00:54:08] Larry Summers: If you were out of the market for 75 of those months, you would've missed 80% of all the increase. And so it is easy to become very alarmed, and to think that the alarm will continue forever. But: Rome did fall. So, I think one should control one's pessimism even as one voices one's alarm.
[00:54:41] John Ellis: Alright. That's a wrap I think. Thank you very much to, Larry Summers for joining us today.
[00:54:46] John Ellis:. And, thank you all for listening. just as a bit of self-promotion, Joe Klein's Substack is called Sanity Clause. You go to Google, you type in sanity clause, you type in Joe Klein and you type in Substack and it pops right up.
[00:55:04] John Ellis: it's one of the very best, political newsletters that Substack, publishes. And I highly encourage you to subscribe and to become a paying subscriber because these things cost money, including this podcast. I have two Substack newsletters. One is called News Items. The other is called Political News Items, and you can find both of them at news-items. com.
Next week we will be talking with Wolfgang Munchau, who is the publisher, co-founder, chief writer of Eurointelligence— probably the very best newsletter about all things Europe that you can find. Thanks very much for listening, and we'll see you next time.
You're so right about this being a must-listen podcast. In fact, as a non-economist, I had to listen multiple times.