Ep. 98 - Larry Summers

Update: 2016-11-21


Larry Summers, U.S. economist and former Treasury Secretary, talks with David Axelrod about growing up in a family of renowned economists, shares his view of what did and did not cause the financial crisis in 2008, and forecasts the economic implications of Donald Trump’s policy proposals.

Following script is auto-generated by Speech to Text Technology:

the board for the acts files comes from rockin' mortgage my Quicken loans lift the burden of getting a home loan with rockin' mortgage and get a secure transparent home loan approval in minutes skip the bank of the waiting then go completely online at Quicken loans dot com slash X Files This podcast is brought you by sixty DB listen to conversations that go beyond the headlines business sports politics today's news plus all of your favorite podcasts download the free sixty DB at Today the the the the and now from the University of Chicago Institute of Politics and CNN The X Files with your host David Axelrod the the the this long and storied career as an economist as an academic as an university president has a treasury secretary and as an economic advisor Larry Summers has been both extremely impactful and sometimes controversial figure as we look at the new administration where our economy is today and what the state of the middle classes today he has some important insights and concerns about where we're going after this last election I visited with Larry Summers at Harvard the other day to talk about all of this the more the the the Larry Summers my old friend and colleague idea you know I always wonder how much one's life is predetermined and my mom was a journalist and then she went to qualitative research she's always such a name my sister and me thinking that our names with goodbye lines and you know you like to think you have free will but I went into journalism and then I went to politics as heavily into qualitative research you know or I'm going here born in to serve economics royalty your parents were both distinguished economist your relatives Nobel laureates in economics did you was it did you always sense that you are going to follow in that path no lease my um neither my brothers when in economics for my brothers is a doctor and my brothers is a lawyer had I wouldn't say my parents ever tried to push me into economics in fact I was a kid I thought I was going to be a mathematician or physicist and as a kid I was very interested in math and physics and science and then two things happened one is I got very turned on to public policy and I saw economics is a way that I could be analytical and scientific and also engaged with thinking about policy questions for the questions that excited me most and the other frankly was that I got to MIT my soul real mathematicians in real physicists were like and I decided probably be better to do something where I was relatively good and something where where I was struggling but then when I was at MIT I was very much on the debate team and I was engaged by that most of the people who did that ended up going to law school so I fought pretty hard about being a lawyer because I liked argue argue exactly I learned that myself I'd love to argue but I decided that as a lawyer for every hour you spent arguing you spent and proofreading and then I didn't want to have a boss and that being an academic meant you didn't have to have a boss and so I ended up deciding to go to grad school in economics maybe in some deep sense it was faded but I didn't experience it has faded along the way so when you were you went MIT like when you're sixteen years old were you interested in public policy before that like when you are young guy who just does his issues were talked about dishes were always talked about not so much technical economic issues but the politics and all of that when I was very young kid I was interested in baseball but I was also all over following Johnson beating Goldwater when I was ten when I was ten years when I was ten years old and I was completely transfixed by the nineties by the nineteen sixty eight election and so I was always very very interested in I came to have a sense of the moral significance of economics I remember that delayed our token was a close friend of my father's and I remember the story seems class weird to spell nano uses CA CA CA chairman on Darrel and under Lyndon Johnson and was a kind of prominent economic advisor in subsequent years and I remember as a child probably just after our laughed to see a hearing the story of how there had been a publication of the Commerce Department Colby CD business cycle digest but the Johnson administration had renamed it business conditions digest because they thought we didn't need to have a new business cycle anymore because economists it figured out how to fine tune the economy and avoid recession but didn't actually work out that way but it did leave me with the sense that doing what economists do could really have huge effects on the lives of millions of people kind of it's it's in keeping with the ambitions of that entire era you know you have these people were flush with winning a World War two who had this confidence that there was no problem we couldn't master and so the war on poverty and some of the other initiatives of the sixties you know Johnson saying we're going to wipe out poverty and so on yet it turns out to be more complicated than it seemed back in those heady days of World is a complex place but I think it's a good idea sometimes to look at things not everyday or every week or even every year and the one does see progress whether it's in the length of the length of people's lives the extent to which they're able to read the extent to which violence to diminish use um somebody who sort of been the principal of why I studied economics and in many ways it's kind of abiding faith of my dad with the better analysis and a generous spirit and a lot of determination of the world can be made a better place with all the problems the world is a much better place than it was when I was a child in America is a much better place because it was when I was a child good analysis and generous generous spirits are not always in abundance and in all our our precincts but you got involved in politics you after you got your PhD at Harvard you in the eighties began to advise candidates Mike Dukakis government uses ran for president you helped advise him I became interested in I became very interested in policy and all of that it shows that was the academy issue confining the academy was too confining but I always felt that if you're going to understand the nature of truth that was a great thing to do but if you are going to work on investment incentives or bank capital or tax policy what was the point if you weren't connected to the actual debates in the world where those things were going to be decided and it was my immense good fortune that I had been um I think I've worked pretty hard and I think I've been successful at being helpful to a student at Harvard's Jack Corrigan who struggled a bit some stages when he was an undergraduate and six years later he was Mike Dukakis is deputy campaign manager one of his great great master says Pollard easily and it was his job to locate an economic advisor of for the campaign and he din study hard enough to know that many economists I mean okay so there I was in I was given a chance and I learned an immense amount about politics and a certain amount the About Economics doing that and that was when I met a lot of people who subsequently made a big difference in my life like the Lloyd Benson like Bob Rubin and the like Gene Sperling like the Sylvia Mathews and TomTom little over a who's of the bill is very shamanic administer the Democratic administrations and I realized I realized from that experience something I often tell young people that being connected in having relevant experience is just worth a great deal there aren't that many people who've given economic advice during the presidential campaign if you've done it once that puts you way ahead of people who've never done it who never done it at all and so having those kinds of experiences are really very valuable if public service is something you want to do as some part of your life so we spent some time at the World Bank is the chief economist there I should take a just a slight departure here and ask you about the World Bank and about international institutions can save space and to be under siege right now what did you learn from your experience there about the significance of these institutions in terms of maintaining global economic growth and particularly lifting those nations said that needed to hell for Owen's first thing I heard was that global poverty is a very different phenomena we think of is poverty in America during my time at the World Bank I went places with air and saw people we're a bicycle was an immense luxury or where access to clean water was something that was desperately craved had I came to realize the very special place of the United States because it was very clear that what the United States thought had a very disproportionate effect on what happened in the world by ISIS law that these institutions at their best literally can change the fate of hundreds of millions of people during that time that I was at the World Bank that was a major budget and financial crisis in India add to the point where India at that point had only a billion dollars of gold and had to put it on a ship and send it to London so it could be collateral for a billion dollars so that the government be able to meet its payroll and the World Bank was able at that time to land three billion dollars which made an immense difference in putting India on a trajectory where people actually started for the first time to see very rapid growth in living standards so I'm a believer that the world is getting smaller that they're going to be difficult problems and that we need international institutions where people don't just talk they do and wear what they do doesn't have to do with fighting a war and I think the special feature of institutions like the world I like the other development banks like the International monetary Fund is that there are places where countries come together to cooperate and actually do things not just talk about things and the things they do can educate girls in societies where they otherwise wouldn't get educated develop of power sources that don't do immense damage to the environment prevents kids from being in places where the heat comes for me and or charcoal and does like the equivalent of packing of smoking two packs two packs a day so I These are profoundly important institutions and I'm very fearful that the We're not going to maintaining the next generation the kind of support that the United States has given them in the past hoop are the problem is that you have you I'm sure there are people who if they heard you say what you just said in this country would say listen I'm just trying to get by here and I'm less concerned about lifting people out of poverty somewhere else and not falling into poverty myself and that's the tension that you know that it is right wing populism has capitalized I can I relate to to that concern on the other hand the contributions the United States makes to the international financial institutions all in is way beyond are tenth of one percent of the US budget which is not understood nobody people don't people are able to see that each dollar we give because those institutions can borrow money and because other countries contribute as well as a lever ten ten plus times over and look these things are forward defense of U S interests if a better job been done of economically developing Afghanistan we might not have had the trillion dollar quagmire in Afghanistan for the last fifteen years if we did a better job of economic development in North Africa there might not be the refugee crisis of the magnitude it we are seeing if we had been more successful in supporting economic reform in Russia we may not be in the new cold war that we're facing so I don't think of the work of these institutions as Alpha was I think I don't think of them a soft power I think of as forward defense of U S interests since we're talking about capital it seems like a pro fish is time to take a break for word from our sponsor will be right back with Larry Summers rocket mortgage by Quicken loans proudly supports the X Files when it comes to the big decision of choosing a mortgage lender it's important to work with someone you can trust who has your best interests in mind with rockin' mortgage you'll get a transparent online process that gives you the confidence you need to make an informed decision skip the bank of the waiting and go completely online at Quicken loans dot com slash X Files equal Housing lender license in all fifty states and MLS consumer access dot org Number thirty thirty you obviously put a huge role in the Clinton administration first as deputy treasurer sector even as Treasury secretary before we get into some of the specifics of what you did there as I was thinking about this the other day how much luck plays in presidential cycles you guys not to diminish anything that you did a very present risk President Clinton risked a lot of political capital raise taxes early in his administration to try and fight deficits and goes to series of things that were really important but you also had kind of an up surge in the economy led by the tech bubble and so the question I guess is how much does this tough cycle on its own and how much those two presidents impact on them David I think presidents get more blame for bad stuff that happens less and more credit for good stuff that happens then they deserve I came to the view after all came to view initially it always seem quite odd to get as much credit for some of the good stuff that I think was caused by the vicissitudes of the business cycle in the strength of the private sector and I guess I've come to the view in life that since I get blamed I will take up residence I were to blame for all sorts of things they didn't do it's only fair to take credit for all kinds of things that have many causes I also think Vince Lombardi got it right when he when he said You make you make your breaks yay Sarah who said Luck is where preparation and opportunity me yeah that's another was another observation is the sum remember who was one of the famous golfer said you know odd thing the more I practice the better the breaks I get yeah and so I think it's also fair to say that we did have a big boon part of the reason we had a big boom was that we had surprisingly low interest rates in the spur a lot of investment and that a lot to do with the tough choices that Bill Clinton made regarding the budget deficit in a year and that was completely different than the one we live in now in ERA with the problem really was excessively high costs of capital so I think the president is surely entitled to a great deal of credit of for the good economic performance that took place in nineteen ninety when you're there you had you involved in a series of sort of international crises involving the finances of other countries Mexico Russia as some of Asia and you you play big role in resolving those and you help modernize the antiquated financial structure one of the issues obviously that has arisen and is banned about like Bernie Sanders and debates would constantly raise Glass Steagall I always wondered whether people actually knew who glass and steel were and what Glass Steagall was but but the deregulation of the financial industry has been hotly debated and I know you have reflected on some of that look to die here's his car I think OH with the benefit of foresight is obviously bad for eyesight is much that I think could have been would have pursued different priorities maybe some of it should have been foreseeable it at the time in some ways certainly all various things in Dodd Frank if they had been Legislature in the nineteen nineties were legislated the period between two thousand and two thousand and eight what I think of it helpful in mitigating the financial crisis on the other hand I think that it's much too broad brush to speak of this in terms of regulation versus deregulation not all de regulation is bad not all regulation is the good glass Steagall the idea that banks and investment bank should be separated had nothing to do with the two thousand and eight financial crisis nothing if you think about the major institutions that were involved Lehman Brothers AIG Bear Bear Stearns Fannie Mae Freddie Mac none of them were combined banks and investment banks and in fact the ability to combine banks and investment banks like Bank of America bought Merrill Lynch was actually very helpful in resolving the crisis the country came through the financial crisis passed was Canada and Canada has always had a banking system based on for the whole country having five large banks that do banking and investment banking so I think the idea that it's all about the combination of banks and investment banks I don't think that's a plausible view it as half could more have been done with respect to derivatives yes was it imaginable that it would be done with a Senate that had Phil Gramm is the chairman of the Banking Committee I don't think I don't think so but certainly if I had to do over again would have been caught trying harder on some parts of those issues you know the we did we did and I don't think this gets story gets told off home if you look it almost everything that is raised in connection with mortgages and predatory lending Andrew Cuomo and I pushed hard with the secretary of the time push hard for of fixing that given the attitudes that the Fed at that time and given the Republican Congress we didn't get anywhere if you look at what was actually the biggest failure if Ayers and the need to bail out Fannie Mae and Freddie Mac their problems of being under capitalized with something I'm proud to look back and say that I was able to ward against while I was Treasury secretary her a little pressures on both sides of that one home were were immense lot of Republicans now say with that was the cause of the crisis Fannie Mae and Freddie Mac into Jesse's we are really leading that to the counter argument is that some of the private concerns that were involved in mortgage lending got into deeper water than Fannie Mae and Freddie Mac but I'm eager to hear what your response to the It seems it seems too glib I don't think it's I don't think it's reasonable to say that Fannie Mae and Freddie Mac caused the crisis on the other hand we did have to put hundreds of these of dollars to bailing them out which we would not have done if they had been adequately capitalized they saw how the industry into the know they they made very important imprudent lending and mostly they had virtually nothing in the way of reserves and they were allowed to operate with very little capital because of the perception that the government was guaranteeing they had much less in the way of reserves and capital than any other financial institution would have and frankly there was a kind of the unholy alliance of their shareholders who didn't want to have to hold large amounts the capital and people who want to see large amounts of lending of come from them it was a kind of dangerous situation that shouldn't have been allowed to fully test the site but there's nothing you could have done just about Fannie and Freddie that would have prevented these problems I think if you address that to address predatory lending law that would have been helpful I also think that I think this is fair that the people who had regulatory responsibility from two thousand and two thousand and eight as the crisis approach bear very substantial responsibility I remember being appalled to see the Bush administration have some kind of summit on financial regulation and the photo op of the summit was the whole regulatory officials standing with the kind of saw used to cut wood sawing through of books of regulation to signal their attitude toward Israel is what it looks like the the same crowd is getting their tools out again and I think we've got we've got huge risks that you can quibble with aspects of Dodd Frank but if you went back to the pre Dodd Frank of world you'd be taking immense and systemic risks of another financial crisis how do how deeply concerned are you about that as you look at some of the rhetoric and some of the names of service until I think some of it is is very very very very scary I think that Congressman hand sewing for example has been mentioned as a possible Treasury Secretary has a very systematic record of opposing most of the major steps that in my view are constructive in terms of making financial crisis is less less likely others don't have is clear record on the phone and on financial regulation but the idea that we would repeal it repeal Dodd Frank was something that the town Trump promised and I think that would be that would be a catastrophic kind of kind of there live there can't be any question that banks need to have a bigger question of equity to protect against risk than they used to have that they need to have more cash in the vault to deal with whatever may come given what we've seen that may come that they need to be much stronger protections for consumers and all that is in Dodd Frank law are there some Burr are some rules that burden community banks excessively there may be reforming those could be the be the right thing are there other rules where there's just too much bureaucratic intrusion into the details of a fan of banking on their May it there may be is you as you know cause we argued about
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Ep. 98 - Larry Summers

The Axe Files with David Axelrod