3 Takeaways - Former Secretary of the Treasury and President of Harvard, Larry Summers: The Big Trends Shaping the World Today (#32)

Episode Date: March 15, 2021

Former Secretary of the Treasury and President of Harvard Larry Summers talks about the defining trends of the 21st century, including how we are going to achieve collective solutions, the shift in the center of gravity of the world’s economy and culture to the east, the upcoming transformation in education, the hard choices facing the leading universities, and the exponential growth in what information technology will be capable of.

Welcome to the Three Takeaways podcast, which features short, memorable conversations with the world's best thinkers, business leaders, writers, politicians, scientists, and other newsmakers. Each episode ends with the three key takeaways that person has learned over their lives and their careers. And now your host and board member of schools at Harvard, Princeton, and Columbia, Lynn Thoman. Hi, everyone. It's Lynn Thoman. Welcome to another episode. Today, I'm excited to be here with Larry Summers. He was formerly Secretary of the Treasury, and before that, he was president of Harvard University. Larry is one of the most insightful and unconventional thinkers I know. I'm excited to find out what big trends he's seeing now.

Welcome, Larry, and thanks so much for being here today. Good to be with you, Lynn. Well, I'm looking forward to being with you physically again and not just virtually. Likewise. What are the big trends you're seeing today? COVID is obviously a defining event. I think it is going to be part of three very large trends. The first is an increased recognition of the need for collective action to solve collective problems. There are things that the market is very good at, producing widgets very efficiently, driving better service of customers, driving efficiency in production and innovation. There are things that markets can't solve very well. They can't solve pollution in the air.

They can't solve doing the research to develop a vaccine. They can't solve making sure that those who lack the capacity to earn a 1970s that had a whole variety of excesses that were corrected during the Reagan-Thatcher era. And I think the tide is running out on that era. And in general, the orientation is going to be towards recognizing problems as collective and towards working towards more collective solutions. Second very large trend in the moment, which has also been accelerated by the developments of the COVID period, is a shift in the center of gravity of the global economy and of global thinking and of global culture towards the East. If a social scientist from Mars came and visited our planet during the COVID year, what would strike them as an overwhelming fact was how much more virulent and extensive the disease had been in the United States and in Western Europe than it had been in Asia. The United States mortality rate from COVID is 15 to

20 times as high as Pakistan's, has been Pakistan not recognized as an effectively, terribly effective society. Some of this is cultural, but it's not all cultural. Performance has been very good in Australia and New Zealand. But I think a second very large trend is this whole move in the shift of economic power to the East. And I think the third very large trend in our moment is the changes associated with the pervasiveness of information technology and exponential growth in what it is capable of doing. And my sense is that in the same way that the industrial revolution transformed everything from the nature of the family and the role of women over time to urbanization and the nature of political institutions, that there's going to be very substantial, similar change associated

with the IT revolution. And I don't know what forms it is going to be associated with a whole set of changes, if you like, one layer down, how companies think about serving their shareholders versus their stakeholders, how macroeconomic policymakers think about the basic objective of macroeconomic policy, what the nature of the way society organizes higher education and countless other kinds of changes. Do you have any thoughts on what some of those specific changes might look like? Well, to take my own area of macroeconomics and macroeconomic policy, for decades now, the preoccupation was with making sure that you didn't have deficits that excessively crowded out private investment, was with making sure that the political tendency to want to heat things up didn't translate into

self-fulfilling expectations of inflation. And I think what the 30-year trend towards lower interest rates has reflected is that we have a world where we are awash in savings, and the difficulty is getting those savings translated into investment as a consequence of the fact that population and labor force growth is slow, that you could get so much capital for the cost of your $600 smartphone for the consequence that rising inequality has raised savings. And so I think we're going to have to think much more about stimulating demand as a chronic policy problem and not just a policy problem during recessions, but we're going to need to do it in ways that can be sustained

on an enduring basis. To take a very different example from a different field in which I've been engaged, I think that universities, and I'm here probably thinking of the leading universities or the most elite universities, places like Harvard, are in ways they don't yet recognize, going to have to make a very profound choice. Do they want to define their greatness as universities in the way that Augusta defines its greatness in the sphere of golf through its incredibly curated experience and its staggering exclusivity? Or do they want to define their greatness in terms of the scale on which they are transforming the world? It wasn't an option to have vast impact through teaching and pedagogy until fairly recently. You could admit a 1600 student class or a 1200 student class or a 2000 student class. You could, as universities did in a way that was revolutionary

in its moment, 50 years ago, admit women on an equal basis. You could promote diversity. You could, as I was so proud to do during my time as president, make clear that any family with an income below $60,000 could send a child to Harvard at no, zero, out-of-pocket cost. But as long as you were admitting each year 10 basis points or less of the class of students, there was a limit to the difference you can make. But today, with the capacities of distance education to provide for experiences that are both at much larger scale and much more individualized. When I lecture to a 100-person class, nobody can say, can you repeat that for two minutes, because I was distracted for a moment. I have to provide the materials at the same level to all hundreds of students. I can't go faster or slower for a particular student or segue to respond to the interests of a particular student.

All of that kind of thing becomes possible. And we are just at the very beginning of it in education. You know, when the first movies took the form of people putting cameras in the back of theaters and recording what was going on on the stage, over time, there was transformative change. A movie became something that was very different from that. The people who had been most extraordinary as theatrical actors, in many cases, weren't so great as movie actors. And a whole set of new people became terrific as directors, as producers, as actors in the context of movies. And movies became something very different. I believe that's what's going to happen in education. And the crucial question is, who is going to lead that? I've given two examples in macroeconomic policy and in higher education, two very different examples. I think that whatever your sphere is, if your sphere is journalism, if your sphere is medical care, if your sphere is manufacturing, production,

there are going to be transformative changes that are going to follow from this emphasis on collective action, this shift to the East, and especially what's being made possible by new technology. Talking a little bit more about education, the top universities, especially the Ivy League universities, have stayed essentially the same for 50 plus years. And the education they provide has also stayed the same. As you mentioned, they really haven't scaled. They all have about 10,000 or so undergraduate students. How do you see universities and college educations in five or 10 or 20 years? None of the Ivy League schools have, except possibly Cornell, have as many as 10,000

undergraduates. I think Harvard's probably average or slightly bigger than average for the Ivy League. And it has 6,700 undergraduates at a point in time. I thought a lot when I became president of Harvard about the remark you just made, that if you thought about industries, it was pretty rare for the leading firm in 1960 to be the leading firm in 50 years later. And it was without precedent for the leader 50 years before and the whole top 10 to have changed very little over decades. Part of that is a reflection of the fact that

without the profit motive, there's less force for disruption and more force for constancy. I think another part of it has to do with the fact that universities are run much more by their most important employees, their faculty, than other institutions are, and that it's well known that, for reasons that aren't hard to understand, that worker-owned or controlled firms are resistant to expansion because it dilutes the rents that are going to the current incumbents. I think that's a part of it. I think another part of it, maybe the most important part of it, is that universities are networks. The students come because they think the faculty is great. The faculty come because they think the students are great. The students come even more because they think the other students are going to be great. And the faculty come because they think

the other faculty are going to be great. And so if the main reason people chose hotels was to meet people in the lobby and you became a great hotel, it would be easy to stay a great hotel, even if you went downhill, because everybody would be used to your lobby as the place to meet. So my suspicion is that there are going to be limits to how much transformation is going to come from the existing leading universities. And I think the question is going to be, in what ways is this going to be transformed by those outside of the traditional leading universities? My wife, Lisa New, is a professor of English at Harvard, and she has devoted herself in these last years to bringing her field of poetry to a far larger audiences than you could ever reach teaching undergraduates. Her television show, Poetry in America, has aired thousands of times across the country in its first two seasons. Her courses, which are not videos of her standing in

front of a classroom lecturing, but have rather more of a character of a Ken Burns documentary or a more cutting edge. Ken Burns documentary are used in high schools with disadvantaged students across the country. And she is working extensively now with Arizona State, building on initiatives that were launched at Harvard to pursue what Arizona State's mission is, which is pervasive impact for everybody who wants it. Where this is all going to go between traditionally leading universities, bold innovators in higher education like Arizona State, major information technology companies who obviously have capacity to do things in these areas, and social entrepreneurial startups on the Khan Academy Teach for America type model. Where all of that is going to go, I have a difficult time forecasting. There's a proposition that I attribute to the economist, Rudy Dornbusch,

but I think has been put forth in many different times and places that applies here, which is things take longer to happen than you think they will. And then they happen faster than you thought they could. And I think that's going to be what's going to happen than you think they will. And then they happen faster than you thought they could. And I think that's going to be what's going to happen. So I'm not confident that it's all going to feel different five years from now, but I think there'll be a moment when we look back and the whole experience will have changed. Certainly the experience I have of teaching during the Zoom period is going to have a substantial lasting impact on the instruction I offer. wide range of prominent economists, prominent former policymakers and the like, most of whom could not and would not have come and been visitors to my class. And so my students are going to absorb virtual input and virtual guests in a way they could not have before for a number of years to come. They are going to enjoy instruction from me

that is much more extensively curated than they could have and more polished and probably better than they could have before. I think there will be a lasting impact of what we've all learned to do. I mean, it's kind of remarkable to think that Zoom as a verb was not something that was in the vocabulary of anybody over the age of 12 in the beginning of the year 2020. So education is a field that hasn't changed much, as we've just talked about over 50 years. Another field that hasn't changed much is government. How do you see government looking ahead? I think government's going to be called on to do much more. And it's going to be called on to do much more as a consequence of a fundamental technological trend, which is that we've achieved remarkable and extraordinary productivity growth in some

spheres, but it's very hard in others. The example I like to use is that all the consumer price indices were normalized to be 100 in 1983. The consumer price index for televisions is today about five. The consumer price index for a year in a college or a day in a hospital is above 600. On some measure, and there are lots of issues you can raise about the choices I just made, about the way the consumer price index is constructed, all of it, there has been a change in the relative price by a factor of 100. If you think about it, a television set is a quintessential thing produced by the private sector. And a day in a hospital room or a year of college is something in which the government is much more heavily involved. And so I think the one very big change is going to be that more and more of our economy is going to be towards sectors where there's more

and more government involved, not because our values will have changed, but because of the inevitable constellation of technology. Just because much less of our economy is in agriculture than it was 50 years ago or 100 years ago, that's not because we like to eat less. That's not because other products have become vastly more attractive to us. It's because agriculture has been enormously successful, and so we need fewer people to do it. And that's happening to much of what we think of as traditional industrial activity. So government will be bigger. I think the pressure will be enormous for government to be more competent. I like to tell the story of a bridge that I'm sure you've crossed

many times, and probably some of your listeners have as well, that connects Harvard Square and the city of Boston, right between where Harvard Business School is located. That bridge is 360 feet long. That bridge was thought to require a repair, and a commitment was made to repair it. A lane of traffic was closed on that bridge for 62 months in order to repair that 360-foot bridge. As a standard, Patton built a bridge spanning a portion of the Rhine in one day that was 10 times as long as that bridge. In fact, I learned from the Harvard Classics Department that Julius Caesar built a similar bridge only eight times as long across the Rhine in nine days. And it took us in contemporary America nearly 2,000 days to do the job with very substantial disruption. That's an extreme example. But we are going to need to think very hard about how to make government more responsive and more

competent and effective. And there are deep tensions that I feel like I'm knowledgeable enough to identify, but not knowledgeable enough to resolve between the view that we need more reliance on real expertise with less extensive popular participation that delays everything and creates extremely long processes, on the one hand, and the growing global suspicion of technocrats, on the other hand, and need for more extensive popular participation in decision-making, how our democracies are going to evolve in a way that reflects those tensions, that enables trust with speed, is I think another very profound question. It seems like the U.S. has had bailouts every eight or 10 years. We had bailouts for the savings and loan crisis, then for 9-11, then the 2008 financial crisis, and then for COVID.

The bailouts get bigger and bigger. And there also seems to be a benefit and no cost to politicians for spending more and more. How do you see government spending deficits and government debt? than for those who can afford to maintain their own private standby capacity to come to their homes in the event of a fire. I think it's good to have standing hospitals rather than everybody having their own contractual arrangements in the event that they have a heart attack. So I think I would resist the idea that all bailouts, as you call them, are bad. That we've had an experiment in the United States with that philosophy. It was during the time of Andrew Mellon's

Secretary of the Treasury ship, during the 1929 to 1933 period, when he was absolute on the dangers of the government accumulating debt to bail people out, I would argue that kind of thinking made the depression great. So I would want to be very careful about that. I think we do need to recognize, as we look at borrowing, that just as the size of the mortgage you would take would have something to do with what the mortgage interest rate was, and just as you would think of yourself borrowing to buy a home as different than borrowing to take a vacation because there

was an asset there, I think we need that kind of thinking with respect to government policy. I think it's, like everything in life, it's a matter of balance. For much of the last decade, because of the issue of absorbing savings, I've been supportive of more government borrowing. I think during this COVID period, COVID came down and government response to COVID went up. So I have been concerned about the magnitude of the fiscal stimulus that has been provided. Less that we won't be able to pay it back. I'm sure we will pay it back. But that it will have a set of consequences, possibly of overstimulating the economy, that will prove inflationary. You talked in the beginning as one of your big trends about

collective solutions. It seems like our multilateral institutions have not been as effective as we'd like. How do we get to better collective solutions? I think we need to support them more than the United States has. The United States' regular tendency to be a deadbeat and pay our bills to those institutions years late and insist on representation without taxation has taken a toll on their effectiveness. I think we need to find approaches to leadership selection for those institutions that are based more on competence and less on political jockeying across nations. I think we need to distill more clear mandates for those institutions. And we also need to put more emphasis on measurable results and have more accountability for the people who work within those institutions. I am more inclined to think that you can't talk about our families, Faye, without talking about the performance of individual members of the family, with our family's success, without talking about what individual members of the family did. And that it's better to see

multilateral institutions as the creature of the nations that create and steward and fund them. And to think about the issue at that level, rather than to think about the issue just in terms of the institutions. A major issue in the world now is inequality and opportunity, both in the United States as well as globally. How do we reduce inequality and increase opportunity? I think ultimately the most important is education and skills development. I don't think we will ever promote the kind of fairness and inclusion either across countries in the world or within individual countries if we don't do more to equalize educational opportunity. I think it's a tragedy that the kids who get the best educational experiences at home also get the best educational experiences in school because of what the communities their

parents live in are able to afford with low tax rates rather than with high tax rates. And I think that is something we're going to need to very aggressively address. I think we've got some profound issues in our educational system around the basic place where I find myself increasingly out of step with contemporary thinking. Does achievement come from self-esteem or does self-esteem come from achievement? I prefer the latter view. And we're increasingly building an educational system that's premised on the former view. I think that is, over time, going to promote inequality. The next most important thing is the fiscal activities of the government. It really is wrong that a private equity success story pays taxes on her income at a rate that is properly computed less than half the rate that her assistant pays taxes on his income. I think that's indefensible.

Yet we haven't found the political will to change it, even though it's been identified. There's a long list of such things. People in my income class and your income class, Lynn, are less likely to be audited by the IRS than EITC, earned income tax credit recipients, who never earn more than $50,000 a year. Surely the payoff in terms of making government work, not to mention promoting fairness, would be to reallocate our enforcement efforts. And then the other side of that is more generous social insurance of various kinds. But I think it's important in thinking about inequality to take a built people up approach rather than to tear people down. I think if the United States had

more people in its history, like Steve Jobs and Bill Gates, we would be a better country, not a worse country. And so I would rather see the focus on how to build up a poverty population to become middle class population, to become upper middle class. I think that is a collective effort in which everyone can engage. And that's probably a better approach than pitting one group against another. Last question, Larry. What are the three key takeaways or insights that you'd like to leave the audience with today? And so we're all going to have to be putting much more and our institutions and not see them as different for us to stand back from and evaluate, but as extensions of who we are and that they can't be better or wiser or more supportive than we all collectively are. Larry, this has been great. Thank you.

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