Summers speaks with IHS Markit Senior Vice President Amb. Carlos Pascual for the latest CERAWeek Conversations – available at www.ceraweek.com/conversations
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Former U.S. Secretary of the Treasury and current Charles W. Eliot University Professor and President Emeritus at Harvard University Lawrence H. Summers says that the United States needs to make the right investments in healthcare and that the current U.S. economic recovery could become “something much more horizontal before too terribly long unless we’re able to find a vaccine or therapy” in the latest edition of the CERAWeek Conversations series.
In a conversation with Amb. Carlos Pascual, senior vice president, IHS Markit (NYSE: INFO), Summers says that it would be “crazy for Congress to be spending multi-trillions of dollars on economic stimulus and not putting two percent of that money into the testing and the contact tracing that could allow more activity with less spread.”
He says that the question is not whether the U.S. stimulus was big enough or strong enough (he thinks it was) but whether it will be “long enough” via a further extension of unemployment benefits and other measures.
He also talks about how the gap between “those who are delivering and those who are being delivered to” during this period could make for a “rather volatile and polarized electorate” this November; why stimulus should focus on “meeting the needs of people rather than focusing on particular businesses” and the need to “renew the very idea of international community” to fight the global pandemic.
Commenting on advice to business leaders, Summers reminds us that “we mostly succeed together or fail together.” He warns that “when times are tough people tend to shorten the horizon and pull in the circle—and both are mistakes.” History, on the other hand, best remembers “the people who find the strength to widen the circle of mutual interests and to lengthen the horizon during a moment of crisis.”
The complete video is available at: www.ceraweek.com/conversations
Interview Recorded Thursday, June 18, 2020
(Edited slightly for brevity only)
On tradeoffs between re-opening economies and preventing a second virus wave:
“I actually think there’s less conflict than many people suppose, because the truth is that if we blow it on the health side, it’s actually going to do a lot of damage economically.
If you look at the experience of different U.S. states, there’s remarkably little evidence that the states that opened-up first have had more rapid growth in retail sales or more rapid resumption of employment than the states that closed down.
“The reality is that taking a chance on the health side doesn’t really accomplish as much for the economy as you might at first think, because people who are apprehensive, even if they are allowed to go out, don’t go out. I’m not constrained by what the governor says. I’m constrained by what feels safe and sensible to me.
“It is crazy for Congress to be spending multi-trillions of dollars on economic stimulus and not putting two percent of that money into the testing and the contact tracing that could allow more activity with less spread. So often economics is a dismal science and it’s about painful tradeoffs. In this case, I actually think the right investments in healthcare and health measures will enable us to have more prosperity and more health as well.”
On the various potential shapes of the U.S. economic recovery:
“I think there’s also a K-shaped aspect where this recovery is going to be good for some people and much less good for other people. You see that in the number of jobless claims and what’s happened to the stock market. Generalizing to talk about one economy and one recovery can be a mistake.
“We saw a collapse, we started seeing bounce back. Bounce back I think came back a little earlier than we thought it would and it’s come a little stronger than we thought it would. But I don’t think we’re going to bounce anywhere near back to normal until we have a vaccine. Some point, this rapid bounce back is going to give way to a rather slow slog.
“You could use the swoosh metaphor. Unless we’re careful, we’ve got some pretty substantial W-risk. You see that in the fact that even in Beijing you’ve seen an increase in the number of cases, records being hit in Florida and Texas.
“Beware of W, look out for K, enjoy the V aspect while it lasts, but it’s going to give way to something much more horizontal before too terribly long unless we’re able to find a vaccine or therapy.”
On COVID-19’s differential economic impact across American society:
“So far the evidence on differential mortality experience, on morbidity experience, on increases in unemployment, on losses of income, it is very much members of minority groups, it is very much those with less rather than more education, it is very much those who had lower incomes before all of this started.
“This is what’s most morally troubling: If it weren’t for the fact that some of those who were poor have no choice but to do dangerous work, the exacerbation of income gaps would be even larger.
“The visible image of those who are delivering and those who are being delivered to is going to cause a lot of people to be thinking as they vote this November about who will deliver for them. That suggests to me we may have a rather volatile and polarized electorate.”
On economic recovery agendas addressing inequality and social justice issues:
“I think we always come out of crises in a different path than the trendline we were on before the crisis. That was certainly true with what the New Deal left behind in America. That was certainly true coming out of the 1960s when we were left with a Medicare program; when we were left with a set of civil rights initiatives; when we were left with the environmental movement institutionalized into government.
“This is a similarly dramatic time and it’s too early to know exactly what the changes will be, but I would be surprised if we were not looking towards a rather dramatic period in terms of new public policies.
“My hopes would certainly be that those would be new public policies that will ultimately be conservative in the sense that they will preserve our market-based democratic system; but in order to be ultimately conservative will be proximately bold in terms of extending the obligations of employers [and] in terms of changing the strength of the social safety net we have woven.”
On the size and strength of the U.S. stimulus package and support for small businesses:
“It was big enough and strong enough, the question now is whether it will be long enough. That depends upon whether in the next month congress acts; acts to continue unemployment insurance; acts to support state and local governments; acts to do something to meet the challenge of tenants, both residential and non-residential.
“If we’re able to support demand overall in the economy or able to maintain a robust financial system, there will be more change and there will be more volatility in the small business sector than there has been traditionally, but I think we’ll make our way through. I’d rather see us focusing on meeting the needs of people rather than focusing on particular businesses as a category.”
On the disparities between equity markets and the real economy:
“I increasingly think there’s a difference between the S&P economy and the real economy. The S&P 500 companies employ less than 10% of the American workforce. They do a substantial amount of business abroad. In many cases they are not very labor intensive in their production. And some of them are the large tech companies that are going to gain from our increased isolation in our homes. If you take all of that together, you’re looking at perhaps 30 or 40% of the stock market. If you have 30 or 40% of the stock market that’s really set up to benefit, or at least do fine through COVID, you have monetary and financial policies that are directed at goosing the whole stock market, you’re going to start to understand why the stock market as a whole looks reasonably robust.
“If you look at cyclical companies, the kinds of companies that traditionally go up and down during recessions, their stock market values are down pretty substantially, it’s just that they’re a smaller share of the market than they used to be.”
On “rebuilding better” and addressing climate change and sustainability:
“We’re going to be borrowing money on an unprecedented scale. The single most important principle about debt is that how good debt is depends on how it’s going to be paid back and whether the borrowing will be put to use in a way that will support the paying back. If I think about my obligations to my children’s generation, I think they will condemn me much more harshly for having been part of a generation that doesn’t protect the earth from fundamental change in the terms of life through climate change than they will for their being bequeathed the obligation to pay back a bunch of government bonds that have an interest rate of 1% on them.
“We do need to borrow, but I think we need to borrow to do things that are meeting obligations to our children: repairing a decaying infrastructure; maintaining a functioning government civil service; making adequate investments in a learning, training, job-finding system; maintaining America’s scientific and technological leadership; and doing our part with respect to the climate change issue.
“Absolutely we do need to be investing in renewables, investing in energy efficiency, thinking about the broad public infrastructure. I think of things like high-speed power lines that are necessary for those technologies to have their maximum positive effect.”
On balancing contact tracing technologies with data and privacy rights:
“There always should be limitations on unaccountable power. The regulatory frameworks within which some of our largest technology firms operate do require scrutiny. It’s that way with any new industry. I think the Clinton administration was right to legislate in the direction of a presumption of permission and internet freedom. But 25 years later when those companies are at a scale that would have been unimaginable during the Clinton administration, we do need to look at the legal and regulatory frameworks.
“I would hope that we would find a way of using technology—using technology carefully—to protect privacy but using technology to facilitate contact tracing. It would surprise me if the right answer was to ignore the information that’s generated for the benefit of advertisers routinely by our telephones as we go about our business.”
On a collective sense of international community and assistance for developing economies:
“At a minimum we need to be able to do what we did after 2009 and strengthen the capacity of the global financial institutions, to channel substantial sums of money to Africa and to the world’s poorest countries. We need to establish frameworks in which debt relief can be provided and provided on a substantial scale.
“We need, to the maximum extent possible, keep markets open so that sales can take place, trade can continue, and those countries can be enabled to prosper. We need to invest in the relevant technologies, whether it’s testing, whether it’s vaccines, whether it’s therapies. Those aren’t things that any one country can do on its own.
“We need to renew the very idea of international community. Exactly the wrong way to think about international relations and foreign policy is as a zero-sum game where we can’t win without somebody else losing. We need to reconceptualize it again as a country as being a positive sum thing where it’s our enlightened self-interest in many cases to help others.
“We can never responsibly lose sight in the fact that foreign policy is as much about getting mutual contributions for mutual interests as it is balancing power or trying to win zero-sum games.”
On U.S.-China relations steering in a common direction:
“I think the right way for the U.S. and China to think of themselves is as two individuals who don’t really have that much time for each other or mutual compatibility in a two-oared lifeboat in a turbulent sea a long way from the shore. Their feelings about each other aren’t really that important. Their ability to inflict pain on one another isn’t really that important. What matters is whether they can row together back to the shore.
“It’s managed grudging respect that is necessary for the U.S. and China to find a way forward rather than some kind of affectionate partnership or some kind of cold war which I think risks becoming a self-fulfilling prophecy that might not even stay cold. What we need is responsible dialogue in which people make judgments about what interests and what aspects of the other country’s behavior are most salient for them and focus the dialogue on those aspects.”
His message and strategic guidance to business leaders dealing with the current uncertainty:
“As President Zedillo said to me during the Mexican financial crisis, markets overreact, therefore policy has to overreact. In general, when people are saying “well, it’s just the market, it’s going to be okay,” they’re usually about to make a mistake. It’s in general better to think about overreacting than it is to think about underreacting.
“Second, keep one’s eye on the long-run rather than on the short-run because tomorrow’s short-run is today’s long-run. Many people get themselves in trouble by every three months doing and saying what seems best for the next three months, but then they have a problem when the three-month interval ends. That’s particularly a point about rhetoric. You don’t add genuine confidence to a situation with false forecasts of optimism. Great leaders express confidence that there’s a way ultimately through, but don’t sugarcoat the path that we’re going to be on.
“Third, we mostly succeed together or fail together and remembering mutuality of interest. When times are tough people tend to shorten the horizon and pull in the circle—and both are mistakes. The people who are ultimately remembered best by history are the people who find the strength to widen the circle of mutual interests and to lengthen the horizon during a moment of crisis.”
Watch the complete video at: www.ceraweek.com/conversations
About CERAWeek Conversations:
CERAWeek Conversations features original interviews and discussion with energy industry leaders, government officials and policymakers, leaders from the technology, financial and industrial communities—and energy technology innovators.
The series is produced by the team responsible for the world’s preeminent energy conference, CERAWeek by IHS Markit.
New installments will be added weekly at www.ceraweek.com/conversations.
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A complete video library is available at www.ceraweek.com/conversations.
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