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Tuesday, February 11, 2014

Larry Summers: U.S. ‘Obsession’ With Paper Debt Is Misguided

Former U.S. Treasury Secretary Larry Summers addresses the Wall Street Journal CEO Council on November 19, 2013 in Washington, D.C.  (Nicholas Kamm/AFP/Getty Images)

Former U.S. Treasury Secretary Larry Summers addresses the Wall Street Journal CEO Council on November 19, 2013 in Washington, D.C. (Nicholas Kamm/AFP/Getty Images)

Lawrence Summers, who served as economic adviser to Presidents Obama and Clinton, says that more than any paper debt, he’s worried about leaving future generations with costs of work that should be done now.

Summers tells Here & Now’s Jeremy Hobson that with interest rates so low, taking on debt is a better option than deferring infrastructure maintenance or cutting investment in education, science and innovation. He’s calling for significant infrastructure investment to help the economy.

Interview Highlights: Larry Summers

On volatility in the stock market

“If you look at history in the vast majority of years, markets go down by a few percent several times. And so except by the standard of the remarkable performance of the last year or two, a fluctuation of this kind in historical terms is more like a four-inch snowfall in Boston than it is like a one-foot snowfall in Boston.”

“I think that there is going to be pressure on a number of major emerging markets. I don’t think that’s going to be an immense story in terms of its direct impacts on the United States, but I do think a number of countries — Turkey, South Africa for example — have gotten themselves in very difficult situations because they’ve come to rely on easy money as an alternative to strong policy. And as the world economy grows and as financial conditions change, they’re going to be challenged.”

On where the U.S. is now in the recovery

“The good news is that the fall of 2008 was worse than the fall of 1929. The winter of 2009 was worse than the winter of 1930. And what’s followed bears no resemblance to the depression, to what happened between 1930 and 1933. And that’s a tribute to the strong polices that President Obama put into place. I think there are deep concerns about the capacity of our economy to grow rapidly with financial stability. As you point out, growth has been positive. We’ve been growing — that’s a real achievement. But it hasn’t been at a rate that’s sufficient to re-employee people substantially. It hasn’t been at a rate that enables us to close the gap between the economy’s capacity and its potential.”

On the need to improve infrastructure in the U.S.

“We have been obsessed in recent years by the paper debt we might leave our children — but debt that carries a 3 percent interest rate. When I think of the burdens that my generation’s going to leave to my children’s generation, it’s not the paper debt that I’m worried about. It’s deferred maintenance on a nation’s infrastructure that in too many respects is collapsing. It’s an education deficit of people who used to receive the best educations in the world and now aren’t in the top 20. It’s the debt represented by the fact that we have dipped into all the funds for science and innovation and aren’t maintaining them at the rate we used to at a time when the rest of the world is investing ever more in science and technology. Those are the debts — and those are debts that incur interest rates and costs much more than the 0 or 3 percent on treasuries. Those are the debts I worry about most.”

On income inequality in the U.S.

“There is no question that inequality is an absolutely central issue. Inequality limits demand in our economy, which holds back economic growth. Inequality distorts the composition of political power and influence. What’s particularly tragic about American inequality is that it is increasingly translating into inequality of opportunity. Since George Washington, the vast majority of Americans have lived better than their parents. America has been a country where there’s been more and more equal opportunity in every generation. And that process has stopped in recent years, and that, I would suggest to you, is unacceptable. We’re never going to completely eliminate inequality — we shouldn’t want to. Some people work harder, some people are more productive than others. But it is not acceptable that every child in the United States does not have a chance.”

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Robin and Jeremy

Robin Young and Jeremy Hobson host Here & Now, a live two-hour production of NPR and WBUR Boston.

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