Quotes I Found Interesting from Ezra Klein & Larry Summers on þe Ezra Klein Show

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Ezra Klein & Larry Summers: I Keep Hoping Larry Summers Is Wrong. What if He’s Not?: ’For the last year or so, Larry Summers, the economist and former Treasury Secretary, has been this relentless, loud, frustrating economic Cassandra….

Larry Summers: The situation continues to resemble the 1970s, Ezra… mistakes of excessive demand expansion that created an inflationary environment. And then we caught really terrible luck with bad supply shocks from OPEC, bad supply shocks from elsewhere. And it all added up to a macroeconomic mess. And in many ways, that’s the right analogy for now. Just as L.B.J.‘s guns and butter created excessive and dangerous inflationary pressure, the macroeconomic over-expansion of 2021 created those problems, and then layered on with something entirely separate, in terms of the further supply shocks we’ve seen in oil and in food. And so now I think we’ve got a real problem of high underlying inflation that I don’t think will come down to anything like acceptable levels of its own accord. And so very difficult dilemmas…. I don’t envy the tasks that the Fed has before it…. The job of the demand managers, principally the Fed, is to judge what supply is and calibrate appropriately. It’s not an excuse for inflation to blame it on supply. It’s a reality… that you have to deal with.

Larry Summers: The first academic papers that I wrote as a late graduate student in the 1970s were about the benefits of high pressure labor markets…. At that time a 1 percent increase in the employment ratio for white males went with a 6 percent increase in the employment ratio for African-American teenagers. And I highlighted that much of unemployment was not just frictional unemployment but was long-term structural unemployment that destroyed families. And so it was terribly, terribly important to avoid recessions…

Larry Summers: What we care about is not just the level of employment this year, but the level of employment averaged over the next 10 years… not just about wages and opportunities this year, but we care about wages and opportunities over the long-term…. The doctor who prescribes you painkillers that make you feel good to which you become addicted is generous and compassionate, but ultimately is very damaging…

Larry Summers: The excessively inflationary policies of the 1970s were, in a political sense, what brought Ronald Reagan and brought Margaret Thatcher to power…

Larry Summers: I [do] not care about inflation for its own sake. But what I [do] care about [is] real wage growth over time, average levels of employment and opportunity over time, and a sense of social trust that would permit progressive policies. And I thought those vital ends were being compromised by those with good intentions but a reluctance to do calculations. And I have to say that the early evidence at this point… it gives me no pleasure to say this… suggests that those fears may, to an important extent, have been justified…

Larry Summers: The near-term impact is $25 or $30 a barrel higher oil prices, and the equivalent with respect to grains… a meaningful contributor to the inflation process, perhaps a 1 and a half percentage points…. Things take longer than you think they will and then they happen faster than you thought they could. And so I suspect that relief is going to be slower in terms of supply chains than people expect. But I do think that at some point, it will come in the future. And then all of this is going to make the task of containing inflation that much more difficult…

Larry Summers: If you look at five-year expected inflation right now, it is about 3 and a half percent, detached from the 2 percent target. And if you look at 10-year expected inflation, it is at close to 3 percent. So we actually are a bit detached from our target levels of inflation…. The Fed has done more signaling of tightening in the last two months than any time in the last 40 years. So the only reason why we have kept inflation expectations under control is that belatedly the Fed has done the things that those of us who are anxious about inflation were recommending for the past nine months…. But let’s not confuse massive Fed signaling…. Let’s not say that expectations have become anchored and that’s some kind of triumph for team transitory. That’s evidence on the efficacy of the recommendations of those of us who felt that the Fed should have begun the tightening much sooner…

Larry Summers: To restrain the economy, you have to raise the level of real interest rates…. I don’t think we’re going to…bring down the rate of inflation until we get to positive real interest rates… [nominal] rates… 4 percent to 5 percent… over the next couple of years…. I think the likelihood is that we will not return to 2 percent inflation without having at least a mild recession…

Larry Summers: I endorsed Build Back Better. I re-endorsed Build Back Better. I was a strong supporter of Build Back Better for exactly the reason you say that I think there are a set of fundamental investments that we need to make in our economy that start from infrastructure and include a range of human investments. There are ways in which I think the design could be better. I’d like to see emphasis on efficiency and building infrastructure as well as more money into infrastructure…. We should pay for fundamental public investments that are worth it, that there are a lot of fundamental public investments that are worth it, that have very high returns. That many of the ways of raising revenue probably would be good ideas even if we didn’t need the money, such as improving tax compliance…

Larry Summers: If we could find a way to admit substantially more, particularly, but not only, high-skilled immigrants into the country… the benefits in terms of growth would really be very substantial…. Finding a better synthesis on immigration policy that allowed more immigration and probably involved more insistence on the Americanization of immigrants would… be… very desirable…

Larry Summers: We as a country have under-invested substantially in place-based policies. I think that we have red hot markets in some places…. And we have rather stone cold markets in a variety of other places. And I don’t think we’ve applied enough imagination about how we could shift demand from the red hot places to the stone cold places…

Larry Summers: We are under-investing in technology… way under-spending on fundamental research… shortchanging one of our most fundamental strengths as a country…

Larry Summers: I was very influenced by Zachary Carter’s recent biography of Keynes, which I think demonstrates that ideas and even economic models ultimately, and over time, have larger impacts than maneuvers and machinations in small rooms…

Larry Summers: A book that will come out in the next several months, Brad DeLong’s Slouching Towards Utopia <https://www.amazon.com/Slouching-Towards-Utopia-Economic-Twentieth-ebook/dp/B09PL63L1V>… is, I think, a really remarkable and powerful placing of all of economic history in perspective, that gives a sense that at some level I had known but never appreciated of how profoundly different the 20th century was than all other centuries and points towards the combined power of science and markets to change the world profoundly, and sometimes, in some ways, for good, and sometimes, in some ways, for ill. I think anybody who wants to propound about economic policy should read that book…

Ezra Klein: I feel like I’ve been waiting for Brad’s big economic history opus for a long time now. So I will agree that I’m very excited for that one to hit my desk…

LINK: <https://www.nytimes.com/2022/03/29/opinion/ezra-klein-podcast-lawrence-summers.html>