By David A. Graham
ASPEN, Colo.—Larry Summers does not appear to think much of sanguine predictions about America’s economic future right now.
During an appearance Tuesday at the Aspen Ideas Festival, which is hosted by The Atlantic and the Aspen Institute, the former Obama and Clinton adviser and Harvard president ticked off the reasons the country is still on a shaky foundation: The recovery from the 2001 recession proved to be illusory, created out of credit. There are unlikely to be major generational gains in education level. The labor force is growing more slowly. Together, they make for a worrying combination.
“Growth, even in the best case, is going to be slower,” Summers said. Surveying the current landscape, he admitted things could be worse, and praised the Federal Reserve’s quantitative-easing program. Given that GDP fell at an annual rate of nearly 3 percent in the first quarter of 2014, however, he said it’s clearly not enough.
But that doesn’t mean the economy is beyond salvation or stimulation. Summers laid out a four-point plan for fixing what ails the economy, focused on feeding demand for goods and services without having to court instability with low interest rates.
- Invest in Public Infrastructure. “Who here is proud of Kennedy Airport?” Summers asked the audience. Not a hand went up. “Who here has a vacuum-tube television?” he asked next. Again: no hands. Summers said American air-traffic controllers are still using vacuum-tube monitors to guarantee flyer safety. It’s a chilling example, but the truth is he had his pick of illustrations. Summers seemed almost incredulous that the nation isn’t taking a golden opportunity to fix its crumbling infrastructure: “At a time when we can borrow for way below three percent and construction unemployment is high, why aren’t we building?”
- Facilitate Private Infrastructure Investment. Now, what about once you leave the airport? You can make a clearer call on your way from Heathrow to central London or from Astana International to Astana than you can on the way from JFK to Manhattan, Summers quipped. He says that rampant NIMBYism is stifling opportunities for private infrastructure improvements, too—and the economic case is just as strong in the private sector. “We have huge problems of regulating glacially and promiscuously distributing veto power that stop adequate levels of private investment from driving the economy forward,” he said.
- Decide Once and for All on an Overseas Tax Amnesty. For years, policymakers have debated offering American companies a chance to repatriate overseas profits without taxing them. Proponents say it will encourage companies to brings that money home, where it will benefit the U.S., rather than benefiting European or Asian companies. Critics say the costs outweigh the benefits and demand better enforcement. The terms of the debate irk Summers. Either position is defensible, he said, but as long as there is uncertainty, no CEO is going to risk bringing the profits home—what if the government decides later to offer an amnesty? The government needs to choose and makes its choice clear.
- Get Over the Debt and Deficit Obsession. “The deficit may be nil in the future, or it may be much worse. But it’s much easier to roll over debt now, with interest rates low,” he said. Summers castigated politicians for fostering misconceptions about spending. “They say, it’s really important at a time when households are tightening their belt that government do the same as well,” he said. “It’s just wrong, and the reason it’s just wrong is what economics call the fallacy of composition. What’s true for one isn’t always true for many.”
To Summers, who’s long been near the center of the Democratic Party, this looks like a plan that should appeal to both parties.
“The logic here to my mind is pretty compelling. This is not a far left thing; this is not a far right thing,” he said. “The notion that it’s better to have highways without potholes versus highways with potholes is not a particularly Democratic or Republican idea. The notion that it’s good to have more oil come from the Dakotas and less from the Middle East is not a particularly partisan-freighted idea.”
So can it happen? Who knows? But Summers takes heart from the Clinton years, noting that in 1994 and 1995 the president was reduced to insisting he was relevant; within a couple years he had balanced the budget. “I don’t preclude the possibility of positive surprise,” Summers said wryly.