Why We’ll Remain Preeminent
Lawrence Summers is optimistic about the country’s future, crediting beyond our economic position the strength of our universities and the talent they cultivate. What does he worry about? Among may weaknesses, K-12 education among them, our reluctance to cultivate an ethos that embraces ambition rather than one that condemns it, and the general distrust of government and its stakeholders.
Festival: 2012
Why We’ll Remain Preeminent
Aspen Ideas Festival transcripts are created on a rush deadline by a contractor for the Aspen Institute, and the accuracy may vary. This text may be updated or revised in the future. Please be aware that the authoritative record of Aspen Institute programming is the video or audio.
THE ASPEN INSTITUTE
ASPEN IDEAS FESTIVAL 2012
WHY WE'LL REMAIN PREEMINENT
Doerr-Hosier, McNulty Room
Aspen, Colorado
Monday, July 2, 2012
LIST OF PARTICIPANTS
ELLIOT GERSON
Executive Vice President, Aspen Institute,
LAWRENCE H. SUMMERS
Charles W. Eliot University Professor at
Harvard University, President Emeritus.
* * * * *
P R O C E E D I N G S
MR. GERSON: Ladies and gentlemen, if I could
have your attention please. I realize this is going to be
a very popular session, and we have lots of people outside
who are still getting their food. I'd ask everyone if
possible to be as quiet as they can as they're getting
their food to find a place to sit, obviously continue
eating and enjoying your lunch. And I hope you will now --
I'm sure you will now enjoy an opportunity to have a
conversation with Larry Summers.
Larry of course is now the Charles Eliot
University professor at Harvard. He was president of
Harvard. He has had many important positions in
government, of course, a secretary of the Treasury, top
economic advisor, has really been serving in high
positions of public service for about 20 years. And of
course, we all know that he is also one of the world's
most distinguished academic economists.
Probably all of you had the chance to listen to
Larry in the Music Tent and you'll now have an opportunity
to engage in a conversation and we'll have microphones and
we'll give you time to ask some questions. But I think
this conversation is going to be about some different
kinds of issues that Larry said he wanted to address.
It's not going to be as much on economics and
macroeconomics, but rather one of the things we're going
to do is explore why despite all of the challenges that we
have been discussing here at the Ideas Festival, he is
fundamentally optimistic about America, America's future,
America's standing in the world.
And that optimism is there despite his candor
and frankness about the great challenges that we have.
And I think having talked to many of you over the last few
days I think we could all benefit from some strong doses
of optimism amidst all of these challenges.
And Larry, you've been in some of these
conversations too. We've heard a lot over the last few
days and really all week about the dysfunction --
dysfunctional political system that seems apparently
incapable of dealing with our biggest challenges and even
many of our smallest challenges, and even in the tent you
spoke quite eloquently of some of the things that needed
to be done and talked about for example economic, moral,
and security threats given our continued stagnation.
And you said that we have to be thinking about
leaving our children strong infrastructure and strong
schools and not just thinking in terms of dollars of debt.
So in a time when the media and many of our polls focus on
American decline and the public attitudes seem to suggest
that Americans feel somehow we're in decline, what gives
you so much hope? And I wonder if it has something to do
with the fact that you're back as you were in much of your
career in a great university. Do universities and the
strength of our universities give you some of that
optimism?
MR. SUMMERS: I'll come to universities in a
minute, but let me start by saying this; I've spent much
of the last 18 months since I left government traveling
and for our problems I would rather have the set of
problems that the United States faces than the set of
problems Europe faces, the set of problems Japan faces, or
the set of problems any developing country faces. If you
think about sclerosis and aging in Europe and Japan, if
you think about the problems of riding the tiger in the
emerging markets, I choose to have our problems.
I choose to have our problems in part because I
think they're less serious than those faced by Europe and
Japan, and I'd also choose to have our problems because we
have a remarkable capacity for self-renewal. You know,
the phrase self-fulfilling prophecy is a standard one; the
phrase self-denying prophecy is a less common one, but it
is part of the genius of America that people become
alarmed and then responses come and then problems are
changed.
I've just been reading Robert Caro's biography
of Lyndon Johnson. It describes how in the summer of
1963, the book that had seized the attention of the
intelligentsia was written by James MacGregor Burns and it
was entitled The Deadlock of Democracy. And it had as its
thesis the fundamental inability of democracy to get
anything done for kind of an interesting reason. It had
as its thesis that there was an insufficient division in
cleavage between the two political parties, that --
(Laughter)
MR. SUMMERS: It really did. I mean the whole
thesis was these southern Democrats were more conservative
than the New England Republicans, and so you didn't have
clearly defined parties and so you couldn't have elections
that produced mandates and so nothing happened. Deadlock
of democracy and then you had the great society. If we
had been convened here in the summer of 1979, we might or
might not have liked Jimmy Carter, but we would have kind
of agreed with his thesis about malaise and the book that
would be on our minds would have been Lester Thurow's Zero
Sum Society.
Those ideas look badly wrong 5 years later. If
you look, you can argue about the wisdom and I obviously
am in support of the wisdom of the steps that were taken.
But I think you get very little argument from historians
or political scientists, but that the United States passed
more consequential legislation in the last 3 years than in
any 3-year period, certainly going back to the mid-'60s
and perhaps going back to the 1930s.
And so deadlock of democracy, fundamental
gridlock does need to grapple with that kind of
observation. So with perspective one sees that whether it
was alarm about Sputnik, whether it was alarm about Japan,
whether it was alarm about malaise, whether it was alarm
about where the country was going when the President of
United States couldn't walk on a college campus for
several years in the late 1960s, these kinds of alarm
about the future are a regular and recurrent part of our
history and they call forth the things that drive change
and enable things to get better.
We are blessed with remarkable strength in a
world where economic strength increasingly depends upon
technology, innovation, and entrepreneurship. If I say
the names Bill Gates, Steve Jobs, Jeff Bezos, Mark
Zuckerberg, and then I ask you for more Americans you
could all fill in a few more names. If I ask you to name
non-Americans who belong on that list, you will, I would
suggest, not have an easy time.
And that says something about our country's
capacity for renewal in cutting-edge sectors. At a time
when we head towards a knowledge economy, somewhere
between 15 and 18 of the world's 20 greatest universities
are American universities, and the flow for those wanting
to get educated is all to the United States. And that
culture that those universities at their best bring, a
culture that venerates the authority of ideas rather than
the idea of authority is something that makes the American
system very well adapted to the much more open and
flexible world that we are moving in.
So yes, inequality is a terrible problem. Yes,
our K-12 system isn't what it should be. Yes, we are --
do not now have the nation's finances on a sustainable
path. Yes, there is a diminution in trust and faith in
institutions and I could give a longer list. But if you
look at this moment either relative to other countries or
relative to a range of past moments in American history I
think it gives you a very useful perspective and grounds
for somewhat more optimism.
MR. GERSON: Well, let's just continue on the
subject of higher education and you mentioned how American
universities continue to rank so high and how important
universities are to our future. How confident are you
that we are going to retain our lead internationally in
higher education. I mean there are many crises facing
higher education and the investment in research is
declining. The graduation rate -- certainly the elite
universities still are very strong, but the percentage of
Americans who graduate from college, we always used to
lead the world, we no longer lead the world.
The economic model seems to be many people
broken. Your own university, it now would cost a family
about a $0.25 million dollars to send someone to Harvard
for 4 years. Is that sustainable? Are you worried about
the future of American universities and our continued
leadership in that sector?
MR. SUMMERS: There are two parts to that
question. There's a part which is about American
universities compared to foreign universities, and there's
a part which is about American universities against an
absolute standard. As far as the standing of U.S.
universities, who knows where things go in the long run,
but for the next decade or two I feel very good about the
strength of American universities.
Here's a painful observation to start with.
Without taking any pleasure in it or for better or for
worse, the sector of American higher education that's
represented by Stanford, Harvard, Williams, Pomona is
having much better times than the sector of American
higher education that's represented by Berkeley, Ann
Arbor, the University of Texas. We are the only country
that has that sector.
The challenge of state government-financed
higher education in a world with a relative cost of higher
education is rising and there's increasing pressure on
taxpayers. We'll diversify with respect to higher
education; we have a channel for moving billionaire wealth
into opportunity in higher education. The rest of the
world fundamentally doesn't have that.
The world is getting more mobile and more small.
If you look at the fraction of the best students in any
country who are studying in the United States, it is going
up. If you look at the fraction of faculty across
international borders and come to American universities,
it is going up. Who knows where it will be 30-40 years
from now?
But I think if you ask to what extent are
Oxford, the Sorbonne, Delhi university or Tokyo university
competition for America's best universities, the extent of
that competition is not greater today than it was 20 years
ago. And it seems to me the trends are actually --
because the American system is more private and more
flexible are actually running in favor of the American
system.
I think there's a different question -- there
are two different questions where I think it's right to be
much more concerned. One is with respect to mass
education and equality of opportunity where you're quite
right that because the American secondary system is not
doing what it could and what it should, we no longer are
leading the world in the fraction of kids who get a
college degree, and that is a crucial -- that certainly is
a crucial national challenge.
With respect to cost, I think the way you framed
it exaggerates the problem fairly substantially, because
when you look at the price of automobiles you really
wouldn't want to look at the sticker price. You'd want to
look at the price that people actually paid. And if you
look at what's happened to the average net cost of
attending America's leading universities, it's much more
modest increase, because of substantial greater financial -
-
MR. GERSON: Some of the things --
MR. SUMMERS: Right, I mean, the thing I did at
Harvard, which was introducing an idea that any family
with an income below $60,000 didn't have to pay anything
to send their children to Harvard, those kinds of ideas
have gained increasing traction. So I think that the
focus on the sticker price can overdo the increase.
But there's no question that as a broad matter
there is a critical challenge, and the critical challenge,
you know, it has its roots in -- there's lots of specific
things you can say and you know, God knows there's plenty
of inefficiency in universities. It's one thing to say
that academic freedom is a sacred value, it's another
thing to say that every professor should be able to get
precisely the computer they want and the university
shouldn't be able to pool its purchasing power to get a
discount. And yet at many universities people will not
stand for pooling purchasing power in the ways that would
be absolutely standard in a corporation.
So there are plenty of problems like that, but
look, here's the root of the problem. The root of the
problem is that more productivity basically means more
students per teacher. That's what it basically means in
education. And I don't think any of us want that for our
kids. What we want is the opposite and so how do you
drive towards greater productivity and productivity
increases to keep pace with other sectors, and therefore
the relative price of higher education rises and that's a
challenge.
It's particularly a challenge when the only
source of financing is taxpayers and it's especially a
challenge when you recognize that about 75 percent of the
kids, maybe 80 percent of the kids who go to college come
from the upper half of the income distribution and most
people graduate from college end up in the upper half of
the income distribution. And so the idea that everybody
should pay taxes to help the children of the relatively
affluent who are themselves going to become the relatively
affluent, you know, is understandably enough a challenging
notion politically.
MR. GERSON: Well, I want to come back to that
in the context of equal opportunity and also efficiency of
higher education as one of the other things we talked
about is the use of technology and online education. I
mean, talk about productivity you can -– there the ratio
could be a 100,000 to 1. But I want to get back to public
higher education which has been enormously important to
American upward mobility and to the development of a
middle class and when you talk about the Harvards and the
Stanfords and the Pomonas and the Williams you're talking
about a very small slice of the population that is
increasingly from a very affluent -- from very affluent
families and there is a crisis in public higher education.
And now, you know, many of first generation
Americans, poor Americans, they go to community colleges.
The other extreme from Harvard and those are grossly underfunded
institutions. So we can't really ignore the plight
of public higher education can we, and just assume that
because our elite private institutions, the envy of the
rest of the world, a model that the rest of the world
doesn't have, are strong?
MR. SUMMERS: We certainly can't -– we can
neither ignore them in the sense of recognizing that they
are a crucial national asset nor -- private institutions
are a crucial national asset. No one should suppose that
the fact that we have that crucial national asset is
grounds for complacency about the future of public higher
education. I think increasingly, and you see this
starting to happen, the model for a public higher
education is going to take on more and more of the
attributes of private higher education.
You are going to –- you see to a much greater
extent than it was two or three decades ago that a
Berkeley or a Penn State or a UT Austin rely on
philanthropy and seek philanthropy and that trend is going
to need to continue. Taxpayers simply are not going to be
prepared to pay for the cost of becoming one of the great
institutions of Shakespearean studies. That's a costly
thing and taxpayers just are not -- we're seeing it across
the country -- are not going to be prepared to pay for it.
So we're going to have to rely more on
philanthropy. We're going to have to rely more on
technology to try to drive efficiency. We're going to
have to rely more on models that emphasize financial aid.
You know, the children of most of the people in this room
if they attend a public university probably should be
paying a tuition that bears some resemblance to the cost
of providing that education.
And so we're going to need to move away from the
universal low tuition model in substantial parts of public
higher education. And we're probably going to need to
make student loan models, particularly for those studying
fields where the returns are quite lucrative into a larger
share of the finance -– of the financing model. Those
were all probably steps that we are going to have to take,
but it is going to be increasingly difficult to maintain
private universities at the same level of greatness as our
greatest private universities unless we're able to
mobilize substantial philanthropic resources.
And that's why I think the movements to do that
are really quite extraordinary. And you know, you would
have quite a different world. I mean I was speaking to
the dean of a prominent public -– public medical school.
And that medical school gets 7 percent of its support from
the state, 7. We know at 7 percent of the cost coming
from the state, you have to ask does the discouragement to
philanthropy, how does that compare with the revenue
benefit that you are receiving? And so I think there is
going to need to be substantial soul-searching in public
higher education.
MR. GERSON: Do you think there was some soul
searching going on in the University of Virginia Board
recently?
MR. SUMMERS: You know, I don't know anything
about that episode beyond what I read in the newspapers.
It certainly did not seem to me to be a triumph of
rational and reasonable --
MR. GERSON: Or transparency.
MR. SUMMERS: Rational and reasonable governance
and it's hard to believe that the trustees were
consistently right given the range of physicians that they
took over a 2-week period. But I'll tell you, I've
learned having been involved in a fair number of public
controversies --
(Laughter)
MR. SUMMERS: -- both when I've been right and
when I've been wrong that it is almost impossible to judge
the merits of them from the outside and that you don't
really know all of the story. I'm not saying that the
story would necessarily make any particular actors look
better or worse. But I would just hasten to -– I've been
part of screwing things up when the newspapers didn't
manage to notice that we'd screwed things up and I've been
part of doing just the right thing and being portrayed as
having screwed things up. And so I just think one needs
to look at this with a certain lack of confidence about
the judgment one can make from the outside, but certainly
it has all the elements of fiasco written all over it.
MR. GERSON: Recently the Kennedy School put
out a video where you said that Americans needed to stop
attacking the rich for their achievements and you've said
that you worry about losing an ethos in this country that
embraces ambition. Can you tell us what you are worried
about there?
MR. SUMMERS: You know I don't remember the
video. I suspect that what you said is not entirely and a
100 percent in context. But look what I will say -- I
will say a couple of things that are in that direction. I
yield to nobody in believing that rising inequality and a
sense particularly of diminished opportunity for those who
were children of the less fortunate is an absolutely
critical national problem particularly the question of
lack of equal opportunity, which I think is central to the
whole concept of the United States, but I think there are
two questions that one does have to reflect a bit on as
one condemns inequality.
Suppose America had had 40 more people like
Steve Jobs over the last generation would that have been
good or would that have been bad? I think it's pretty
clear that it would have been good, that we would have
been a richer, better, more secure, more prosperous, more
leading country. But there's no question that if we had
had 40 more Steve Jobs, any measure of inequality would
have been higher and the Gini coefficient would have been
greater.
A student of mine who has a bit of a rightwing
polemical instinct looked at the Chicago Bulls and he
looked at the average compensation of players on the
Chicago Bulls and the Gini coefficient for the players on
the Chicago Bulls before and after Michael Jordan joined
the team. After Michael Jordan joined the team, the Bulls
played much better. The average compensation of the Bulls
other than Michael Jordan went up significantly, because
they were winners and the Gini coefficient went up through
the stratosphere.
Was having -- was getting Michael Jordan for the
Chicago Bulls a good thing? I think it's hard to argue
that the answer was no. So I think one needs to focus on
equality of opportunity. One needs to focus on unjust
enrichment. And one needs to be little careful of -- to
avoid talking about inequality in a way that condemns
vaulting success --
MR. GERSON: But you've seen --
MR. SUMMERS: -- because vaulting success is a
good thing. And I think there's a broader ethos question
that we have to ask. You know, I have no doubt that it's
the right thing in 6-year-old soccer that everybody plays
an equal amount. I'm sure that's the right thing in sixyear
old soccer. Is it the right thing in 16-year-old
high-school football?
Is it the right thing when at a number of our
country's leading law schools and business schools not
only or grades kept secret, but students are asked to sign
an ethical pledge that they will not share their grades
with anyone, that the student who does best in the class
or who gets all A's is committing an academic infraction
if they share with an employer that they got all A's. And
the motivation is that it creates invidious competition.
Is that a good thing? Why, you can see why it's
a good thing and you could see why it promotes
collegiality and you can see all those things. On the
other hand, you've got to sort of wonder whether a world
where there's that much emphasis on Kumbaya and that
little emphasis on recognizing extraordinary performance,
I kind of think that does have some incentive effects and
that those incentive effects may not be altogether
positive.
MR. GERSON: But do you seriously think that
many Americans begrudge the success of the Steve Jobs of
the world or the Michael Jordans? I mean isn't there an
issue independently just with the degree of inequality
that --
MR. SUMMERS: Well, but that's the question. I
mean, that's --
MR. GERSON: I mean, everyone agrees capitals
and requires a degree of inequality of reward for
performance in merit, but I think and we've seen this in
many context here in polls which are certainly distressing
if you believe in capitalism that so many Americans are
now -- we had a poll a few days ago 65 percent of people
under age 29 don't believe that what's good for business
is good for America and other kinds of questions that
reflect a belief in the morality of capitalism as it's
practiced today. So I mean equality of opportunity you
talk about passionately, but isn't there a point at which
the actual degree of income inequality can be a problem as
well?
MR. SUMMERS: I think you have to ask what the
source of the inequality is, if the source of the
inequality is that you have more Steve Jobs coming and you
have more people doing fantastic things that create great
fortunes then I'm not sure it's right to condemn the
inequality. If the source is that there are more people
slurping around getting, you know, giving money to
congressmen and getting licenses for monopolies of one
kind or another from the government and then making
billions off of those licenses then that is something
that's quite problematic.
But I'm not sure that framing the issue in terms
of inequality per se rather than framing the issue in
terms of unjust enrichment, inappropriate wealth
gathering, government-sanctioned monopoly and the like
isn't the more constructive way. Would I like to see more
progressive taxation? Of course. Do I think that we as a
country would be better off with the high income tax cuts
repealed? Of course. But I think one needs to be very
careful to say there's a right degree of distribution and
that somehow we should get to that right degree of
distribution and if we're not at it, it's a problem
regardless of what caused us to have the rising inequality.
MR. GERSON: But what if the source of that
inequality is just the greater likelihood of being able to
get into the elite universities simply by virtue of family
income compared to the opportunities to get into higher
education for those who are poor? I mean isn't -- hasn't
higher education been a primary vehicle for people to move?
MR. SUMMERS: I think if you -- I think -- look
higher education has got to do a lot better than it's done
and I've got the scars to show for having pushed to
achieve that objective. But if you ask how much of the
increase in inequality in the United States comes from
increasing income polarization in elite higher education,
the answer is very close to zero. It's very close to zero
for two reasons.
One, it's not at all clear that it's happened.
In fact if you look at the fraction of kids who went to
public schools at any leading university, it's going up,
not down. If you look at the fraction of kids who are
poor, it's going up, not down. So there's been progress,
not enough progress, but there has been progress. Second,
I think one needs to be a little careful in the judgment.
The best studies show of course it's true that
the average kid who graduates from Yale has higher family
income, higher life prospects on a variety of ways than
the average graduate of the University of Connecticut.
But if -- statisticians have done this in a number of
different ways, if you hold constant the characteristics
of the kid and you say which predicts your income better
in life, which college you went to, or which was the best
college you got into?
So the best college you got into is a kind of
measure (inaudible). The evidence says that the best
college you get into is a better predictor of your life
prospects than the college that you actually went to. So
I think we should make a mistake in suggesting that that
great an advantage inheres to going to some of the leading
schools.
MR. GERSON: Another thing that you've written
about and expressed concern about that you think, you
know, impedes our continued preeminence and also our
ability to solve some of these problems is the growing
distrust of government. And we've seen again evidence in
our polls and many of our conversations a growing
distrust, especially among the young, but really across
the board, Democrats, independents, and Republicans in how
government operates. How concerned are you about that and
what do you think can be done to restore confidence in
government?
MR. SUMMERS: Look, it's a remarkable thing if
you think about it that if you ask about approval of or
trust in Wall Street and Congress, Wall Street's about 50
percent more popular than Congress. It's a remarkable
thing.
MR. GERSON: Actually we just did a poll that we
announced 5 -- we released 5 days ago that showed only 17
percent of Americans felt that Wall Street executives
shared their values, shared the values of average
Americans.
MR. SUMMERS: Yeah, but what about Congress?
MR. GERSON: Congress is in the single digits.
MR. SUMMERS: Congress is in single digits,
exactly, exactly, that's my point. That Wall Street's got
-- that it's remarkable the degree of disillusionment.
And I don't pretend to completely know the answers. A
fair amount of it is frankly reflective of ignorance. You
know, the tea party sign which is "Government Hands Off
Medicare" --
(Laughter)
MR. SUMMERS: -- captures a certain amount of
prevailing understanding. You know, here's a fact, but I
bet you it is known to only a minimal number of people.
Of every dollar that's paid in in Social Security taxes,
$0.991 is paid out in Social Security benefits. If you do
the same calculation for 401(k) plans, that number is
somewhere in the 80s. So the friction cost is 10 to 15
times as large when it's done through the wonderful
private sector as through the inefficient government. If
you do the same thing from --
(Applause)
MR. SUMMERS: If you do the same thing -- yes,
Bob, I know you're from the financial industry, and I know
you're looking unhappy about that, but it is the fact.
And if you think about -- and just to get yourself into a
mindset for relating to it, just ask yourself in a world
where people can expect to earn a 100 basis points, excuse
me 600 basis points on their money when you charge people
75 basis points to manage their money, what fraction of it
you're absorbing.
And 75 basis points is low relative to what a
large number of middle-class Americans pay to have the
savings, to have their savings managed by our wonderful
financial sector. If you look at Medicare, it's $0.97
goes to doctors and hospitals of every dollar that comes
in. If you look at private health insurance that number
is in the low 80s.
MR. GERSON: So what --
MR. SUMMERS: So again the frictional costs are
much greater. So look, that doesn't mean that there isn't
a problem. Some significant part of the problem reflects
misunderstanding. Some significant part of the problem
almost certainly reflects what is the difficult side of
one of our country's great strengths which is its
diversity. A lot of what people don't like about
government is that they think it's working for them, not
us. In Sweden, where everybody is kind of Swedish --
(Laughter)
MR. SUMMERS: -- and kind of the same, they
think that like it's all us, and so when government does
stuff it's for us. If you look across states in the
United States, look at -- or cities in the United States,
the more ethnically homogenous the city or state, the more
generous the government and the larger the scope of public
sector activity relative to private sector activity.
So a lot of what is not liked about government
is less that they think government is inefficient than
they think it's working for people like them, not people
like us. And then look, then there is validity to both
the leftwing critique and the rightwing critique sort of
how government functions and works in our society. The
leftwing critique is that moneyed interests have a vastly
disproportionate sway over things, and that influences
choices government makes, it influences who gets bailed
out and the like and there's some truth in that. I was
kind of not as certain as most of my colleagues in the
Obama administration that Citizens United was a mistake
because I saw the free speech values as very strong.
Now watching what happens, I was wrong and I
think there's very substantial subversion of our democracy
that's happening. I think the left is right about that.
I think the people who say on the right that there's a
fair amount that happens that is driven by the
bureaucratic imperatives of the providers, rather than by
the best judgment as to what's actually necessary, you
know, that stuff has some validity.
Look, I saw this in a very -- saw this in two
ways, well, just give two examples from the time during my
experience as president of Harvard. I lived in what was
the Harvard's president's house. Harvard was required --
there were two steps up to the front door. If you went
through the kitchen there were no steps up to the kitchen.
Harvard was required to build a ramp to the front door.
That ramp, because it was an old house and architects
needed to be involved and so forth, cost $450,000.
(Laughter)
MR. SUMMERS: In the 5 years that I lived in the
house there was one occasion on which it was used to
enable someone with a wheelchair to come into the house,
and there were I would estimate 94 occasions on which my
young son had a wonderful time skateboarding down the ramp.
(Laughter)
MR. SUMMERS: Is that a -- you know, that kind
of stuff gets people upset with government. Is there --
there are lot of groups in our society that need
protection. Is it really a rational priority of a
government in squeezed times to make sure that no
university asks or encourages or pressures a tenured
professor approaching 80 years old to retire? Should that
be seeking to engage itself with that question be a focus
and a priority of our government? Is there anyone in this
room who thinks that there's huge rationality in the way
the TSA does it business?
(Laughter)
MR. SUMMERS: So there's a lot that government
can do to do better. But I think that that is only part
of the story and people's misunderstanding is another part
of the story, and it's not that government doesn't
function well, but it doesn't function for me is a third
part of the story.
MR. GERSON: You've also, Larry, been especially
frank about issues as we've seen today. Do you think that
we are --
MR. SUMMERS: My life experience is that
whenever anyone compliments on my candor and encourages me
to go further or says --
(Laughter)
MR. SUMMERS: -- could you step out of your role
as a government official and tell us what you think as an
economist or forget your job at Harvard, just tell us what
you really think that they're inviting you to do something
I will regret.
MR. GERSON: Well, I don't --
(Laughter)
MR. GERSON: I wouldn't do that at all, but do
you --
MR. SUMMERS: Yeah, so you could try, but --
MR. GERSON: Do you think conversations in this
country are dictated too much by political correctness?
MR. SUMMERS: Yeah. Yes, of course they are.
Does that mean that there are not large -- many different
areas where insensitivity has been the norm, and where
there's been important progress in the last decades
towards speaking -- towards people speaking in ways that
are more respectful? Yes, I think there has been great
progress, and I don't think one could have achieved that
progress without some element of shaming and without some
element of declaring that certain kinds of ways of
expressing views were repugnant and unacceptable.
But has that shifted to a point where certain
important subjects are very difficult to address and
people shy away from studying them? Yes, it absolutely
has. Are there reasonable perspectives that have been
demonized? I think it's very hard to argue that that is
not -- that that has not taken place.
Are there things that happen on university
campuses? Look, my daughter -- I can't remember precisely
what the T-shirts said, but at the school where one of my
daughters recently graduated, a group of her friends on
the crew team wore T-shirts that -- referring to the
person who steers the boat used in some way the
word "cock" on the T-shirt they wore, group of them wore Tshirts
to a party. They were told that they could not --
that this had been an insensitive act and that as a
consequence they would no longer be able to participate in
the end-of-season tournament and that their graduation was
called into question.
There was subsequently a rebellion, and you
know, the (inaudible) came to town and there were
editorials, and the decision got reversed. But there are
10 of those every semester across the major 25 -- major 50
colleges in the United States. Is it the end of the world
for that to happen? No, but is it a quite -- is it a
quite unfortunate thing? I think it is.
There's another -- there have been a number of
instances, nobody on an American college campus is at risk
of losing their tenure or losing their ability to teach
because they say anything pro-communist. In that sense,
the lessons of the McCarthy period have been fully learned.
But if somebody says something that speculates
about ethnic differences of a variety of kinds, or takes
an unfashionable position, there are instances where
assistant professors don't get promoted or don't get their
contracts renewed on American college campuses every year
in significant quantity, and I think that's -- I think
that's wrong, and I think we are worse off -- we are worse
off as a country for it.
MR. GERSON: Ladies and gentlemen, let's go to
the audience. We have I think three microphones, so we'll
start with the woman right here, and then right after that
the woman in the black. You'll be next. No, the woman
who has it, go ahead please.
MS. CANTOR: My name is Pam Cantor and I run a
not-for-profit called Turnaround for children. A lot of
your comments have been focused on higher education, but
the place where inequity gets established in this country
is in K-12 education. I wanted to ask at a time when a
third of our kids are dropping out, a third don't make it
to high school graduation, and a third make it
successfully into college, what do you see as the
accomplishments of this administration on public education
and what do you think has to happen in the next
administration to change those numbers?
MR. SUMMERS: Let me say three things. You
know, I spoke about higher education because that's the
sector in which I've spent my life and so I might have
something to say that's new and interesting, not because I
think it's the most important thing or the only important
thing. Washington, D.C. has a terrific custom which is in
the Washington, D.C. area which is that the schools are
open on Veteran's Day and they invite the parents to come
watch the classes. And I did that every year when my kids
were young and I was at Treasury.
And you have to think that a third-grade or a
fourth-grade or a fifth-grade teacher has a much, much
harder job than I did in educating and teaching those kids
and they obviously don't get rewarded to the extent that
they should and that's obviously got to be a central part
of our problem.
I don't really know enough to evaluate Race to
the Top and the pressure that it has brought. My
instincts about public education are that probably it's
both and rather than either/or. We have a kind of debate
that I think is a little sterile between people on the
right who insist on accountability measurement, merit pay,
focus on basics. I think they're mostly -- I think a lot
of that, the largest part of it has -- is right, but they
tend to say that if just make everybody accountable, you
can take resources out, not put resources in, and I think
they're badly wrong.
And there are people on the left who think the
only problem is that the system doesn't have more
resources and who want to put more money in without more
accountability and without more measurement. And I think
they're wrong too. And so I think what we need is a
combination of more resources and more measurement and
accountability, and I think that the administration
through Race to the Top has made significant progress, but
there's a very, very long way to go and I suspect that
those issues are very, very important.
I also suspect without having any particular
expertise in it that if somebody looks back from 2060 and
says that great things happened in American education
between 2012 and 2025, it's as likely that it will have
happened because of the dissemination introduction and use
of technology in various ways that we can only begin to
imagine now. It's as likely that it will have happened
that way as it is that it will have happened through
continuing pressure for reform, as important as that is.
MR. GERSON: A question --
SPEAKER: I'll pass.
MR. GERSON: No, over here? Garry?
GARRY: The last time you were here, we talked a
little bit about the money supply --
MR. SUMMERS: Can we just say that if people are
going to remember the last time I was here and are going
to attempt to hold me to consistency and stuff like that,
this is really very unfair, and I won't be likely to
return?
(Laughter)
GARRY: I won't make any reference to what you
said or thought before. I'm curious about your current
views on the possibility that further expanding our money
supply could help improve our economy and your perspective
on the views of Paul Krugman.
MR. SUMMERS: Look, old habits as Treasury
secretary die hard, and so I am very cautious about either
predicting or prescribing for the Federal Reserve System.
I think that nobody spends because there's like a high
money stock in the United States. Nobody decides there's
a big money stock, so I'm going to spend. So insofar as
expansionary monetary policies work, they work by changing
things which do directly impact on people's spending. As
of an hour ago, the 10-year treasury rate was 1.57
percent. Maybe the people who don't make investments
because 1.57 is kind of high --
(Laughter)
MR. SUMMERS: -- and they will make investments
if the interest rate were 1.2 percent maybe, and maybe the
investments that you wouldn't make at 1.57 and wouldn't
make at 1.2 would turn out to be good investments. But my
suspicion is that once you've got interest rates where
we've got them, I'm not sure there's great efficacy
towards further reduction in interest rates.
On the other hand, I think it's also true that --
and here I would agree with Paul Krugman the risks of
slowdown in rising unemployment seemed to me to dwarf the
risks of rising inflation. And more generally, I think
the most difficult thing that is kind of the essence of
what Keynes taught, and which is just very, very difficult
for people to appreciate, and I grant you, not all
economists would agree with this statement is this. The
central irony of financial crisis is that it is caused by
too much confidence, too much borrowing and lending, and
too much spending. And it is only resolved with more
confidence, more borrowing and lending, and more spending.
And that's what you mean when you say the reason
businesses isn't hiring is because they don't have an
order book that supports hiring, that you need to find
ways of increasing demand. I think that's entirely right.
Whether the tools of monetary policy have a great deal
more to do that they can achieve with respect to demand I
think is very much a question right now, and that's why
I've put much more emphasis on aspects of fiscal policy
than on aspects of monetary policy.
MR. GERSON: The gentleman on the side. And
who's going to be next? And in the middle.
SPEAKER: Hi, I'm --
MR. GERSON: And --
MR. ROSS: My name is Carne Ross. I'm a former
British diplomat, and I'm also a part of Occupy Wall
Street where I'm part of a working group that's trying to
set up a new bank. And if anybody can generalize about
Occupy which nobody I think really can because there's
such a diverse movement, is not so much anti-rich, it's
motivated by a sense that the system is not fair, that it
is tilted to a few insider large for-profit banks that
have manufactured a situation partly through political
influence, where their advantage is protected. And I'll
give you a specific example of this.
We have been looking at how to set up a new bank
and we find that the barriers to entry to set up a small
community bank owned by its customers, democratically run
are extraordinarily difficult. For instance, there has
not been a new bank charter given by the FDIC since 2008.
Another example is the -- a National Credit Union able to
compete to scale with the big for-profit banks is not
actually legal because credit unions are not allowed to
have universal membership, are not allowed to be
universally accessible for any customer. This is one of
the many ways that the big for-profit banks have protected
what is essentially an oligopolistic situation, or what
one might call a ransacking (phonetic) situation. Dodd-
Frank does nothing about this.
MR. GERSON: Can you please ask a question?
MR. ROSS: Sure. Well, it's a complex question.
MR. SUMMERS: Well --
(Laughter)
MR. ROSS: And what I want to ask specifically
is what can the administration do to return banking to
simple banking owned by its customers led by the community?
(Applause)
MR. SUMMERS: You know, I agree with some of
what you said and don't agree with everything you've said.
We just witnessed actually a very rare convergence. Your
view about the difficulty of getting a bank license is
something on which I've been lobbied quite extensively by
the heads of each of the major private equity firms in the
United States.
So we don't usually see agreement between Occupy
Wall Street and the private equity industry, but we do in
this area. If I had to guess you are probably right that
it is too difficult to get a bank license in the United
States. That does not reflect the fact, it really doesn't
that JPMorgan is afraid of your community bank and has
somehow subverted the system in order to stop your
community bank from getting a license. It reflects the
fact that the government is scared about its inability to
distinguish between a responsible license applicant and a
non-responsible license applicant and nobody gets mad at
you for turning down somebody's license.
But if you give somebody a license and then they
go broke and then you have to pay off a bunch of
depositors, you've wrecked your career. So I agree with
you about the direction of error there even if I don't
agree with you about the precise cause. You know, turning
banking to its simple roots is a complicated kind of idea.
Let's remember that the banks in Europe have driven
themselves to the edge of bankruptcy by buying government
bonds, about as basic a transaction as you can engage in.
The central source of the U.S. financial crisis was
mortgages against houses whose value went down.
That's a basic and simple banking activity.
Bear Stearns was not a bank. It was not a bank, it didn't
do any of the basic banking things. But when it went
bankrupt it threatened to bring down the system, and when
Lehman was allowed to fail, the consequences were quite
catastrophic.
So the idea that if you just keep banks simple
and you let everybody else do what they want and fail
whenever they want that banks will be healthy because
simple things are safe things, that's actually not very
clearly right. And the idea that if you leave other
things outside of banks, then you can have no bailouts and
just let people take their consequences, we sort of tried
that experiment at Lehman and it didn't work very well.
So you know, do we have insufficient regulation
because there's too much political power in the banking
industry? Yes. Was it wrong that the banking industry
was spending -- financial industry was spending $1 million
per member of Congress on lobbyists with respect to Dodd-
Frank? Yes.
Is it wrong that there were four -- that every
member of Congress was quadruple teamed? That there are
535 congressmen and senators and 1,950 lobbyists working
Dodd-Frank? Does that make one feel uncomfortable? Yes.
But I think it's -- I think the challenge is not to decide
one's outraged. That's easy.
It's to figure out what the constructive steps
are that will maintain the availability of credit for
families who want to spend -- send their kids to college
or make an improvement in their home while their kids are
still living in it, and also keeps the financial system
safe. And that's a very hard problem and I would not want
to claim that it's been fully resolved.
But I think that figuring out the answers to
those questions are I think the really important thing.
Developing outrage is actually kind of the easy part.
MR. GERSON: Right here in the middle and then
we might have time for one quick question right over
there. So that will be our last question please.
SPEAKER: Great, thanks. My question is about
student debts and college -- inflation of college pricing.
Earlier you mentioned talking about sticker price versus
street price. We've all read how there's now $1 trillion
of student debt outstanding. That obviously is larger
than credit card debt and automotive installment debt.
That obviously reflects street price and not sticker price.
What do you see happening in the next few years
with college debt and the price of college? Do you think
we're at an inflection point? Do you think we're at a
breaking point? Curious to see -- just to hear what your
thoughts are. Thank you.
MR. GERSON: Actually let's get the other
question too, and then Larry will answer both of them.
SPEAKER: Great. Mine's back to education also,
but a little bit different. I think -- am I correct, this
is just a little question, then I have something else,
that we talk about higher education because we think that
the country would be better, our children would be better
if we had more education, that high schools right now as
it stands is not enough education, therefore I assume
that's why we talked about higher education so much. What
about thinking out-of-the-box? I'm not sure it's out-ofthe-
box.
I'm wondering if this thought has passed the
education elite. More high school education, so we're
better -- our children are better educated, they're longer
educated as they more mature in high school, so adding
onto high school, and/or adding, and I know this has been
thought of, but is there any reality in adding public
service, like Peace Corps, VISTA, et cetera, et cetera, to
add to the maturity and education of our children?
MR. GERSON: Two difficult questions, and we
only have about 2 or 3 minutes. So -- but if you could
address both of those quickly, Larry, that'd be great.
MR. SUMMERS: You know, I think that there are a
set of good ideas that involve drawing more and more young
people into various kinds of public service in our
schools, there's someone here who leads a group called
Code for America that is directed at harnessing the talent
of our geeks in computer coding to address a variety of
public problems. For reasons that we take too long to
explain fully, I'm very skeptical of coercive proposals
for national service.
And it's my observations that their principal
advocates tend to be people who were well past the age
when they would be compelled to serve and I don't think
that we have the capacity to organize ourselves to make
good and productive use of 9 million young people at a
times, efforts addressing various kinds of public problems.
So I'm not sympathetic to coercive national
service. I am very sympathetic to a lot of -- let many
flowers bloom in the Teach for America, AmeriCorps, those
kinds of areas. I haven't heard the idea of 13 grades of
public school. It's an interesting one. I'm inclined to
think that I would put higher priority on achieving
excellence in the 12 grades we have than in extending to
another grade, but it's an interesting idea.
I honestly have not studied the finances of
student loan debt well enough to be able to make a
projection with much confidence. I would be surprised if
we're in an inflection. Unfortunately, if we're in an
inflection point in cost growth in higher education, I
think the pressures that come from rising costs in every
dimension and by the way a change in the social dimensions
of what we expect colleges to do. It is a wonderful,
wonderful thing.
It really is a very important thing for the
society that we have -- I'm just going to use one example
that we have de-stigmatized mental illness and that we
have de-stigmatized going to see a counselor or
psychologist or a psychiatrist. It's a terrific thing.
But the level of expectation as to what a
college now has to provide has to spend providing
counseling and mental health services to its students is
immense. Most students now use those services at some
point during their college educations. And you know, in a
lot of ways that's a terrific thing, but there are a lot
of things like that in train. And so I'm not hugely
optimistic that we will succeed in substantially slowing
the growth rate of capital costs.
MR. GERSON: Ladies and gentlemen, let's thank
Larry Summers.
(Applause)
* * * * *
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