Interview With Larry Summers

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L.S.: I think it's going to require a great deal of study and it's going to require exploration, seeing how the mortgage market functions over the next while before one's in a position to make any judgment: I don't think this is a moment for market fundamentalism. Anyone who looks at the performance of the subprime markets and the jumbo markets where the G.S.E.'s were absent, over the last year, has to see that the calls of many for simply privatizing and shrinking these institutions may well be taking a large risk with a crucial part of the financial system. At the same time, you can't keep going the way we've been with privatized gain and socialized loss. So I think it's a very technical and complex question and it's premature to suggest a blueprint at this point.

L.G.: By the way, do you feel like you're done with government work? Or, should Obama win, would you like to have a hand in fixing this problem? 

L.S.: Oh I'm—I certainly have strong opinions on a range of public-policy questions, but I'm very happy right now doing what I'm doing, teaching and consulting and writing on public-policy issues.
 
L.G.: So you don't think much of Henry Kissinger's idea that you should be given a permanent job in the White House to fix flabby policy ideas?
 
L.S.: I'm happy doing what I'm doing and flattered by Henry's observation.
 
L.G.: You're "happy," that's such a political answer, what everybody's supposed to say. But if you were offered such a thing, you're so happy doing what you're doing that you wouldn't take it?
 
L.S.: I think I answered your question, Lloyd. I said as much as I'm going to say.
 
L.G.: Okay, fine, I hear you. So about how long have you been advising the Obama campaign on economics?
 
L.S.: The last few months.
 
L.G.: How did that come to pass? I notice that you've given pretty much equally to Obama and Hillary in terms of your campaign contributions. Were you initially with Hillary? I notice that your contribution to Hillary was after her campaign effectively ended.
 
L.S.: Precisely, yes. I was neutral during the process, just focused on hoping we got a strong Democratic candidate. And as people sought my advice on economic questions, I've provided it. And a number of people from the Obama campaign have sought my advice, and I've tried to be helpful.
 
L.G.: Have you had some chats with Obama about policy?
 
L.S.: I don't get into the details of private conversations. I was part of what I thought was a very impressive meeting that he had with a group of economic advisers several weeks ago, where we reviewed both the current financial difficulties and some of the challenges that a new administration was going to face.
 
L.G: Tell readers why and in what ways the Obama economic policy is superior to the McCain economic policy.
 
L.S.: Look, I think after a period during the 1990s, when the economy grew rapidly and a very large fraction of Americans shared in the prosperity and America's influence and respect in the world were expanded, we've been in a period in recent years when economic expansion has been less strong; when its fruits have gone to only a very small share of the population and where our position of trust and respect in the world has been very greatly eroded. So I think the question is whether we're going to change course or whether we're going to stay on the course. And I think aggressive response to recession through fiscal stimulus, including through rebuilding infrastructure in a strategic way, is important, and that's something that's been a focus for Senator Obama. I think moving beyond a "trust the market no matter what, what's best for Wall Street is what's best for America" approach to the financial markets is important if the economy is to work. That's what Senator Obama favors. I think we're in a time when wage growth has lagged far behind productivity growth, and when there's been a large-scale movement of income and wealth toward the top 1 percent. That may be hard in some ways for government to fix, but surely government should not reinforce it with its tax policies. And so I think making the focus of tax reduction be on the vast majority of American families, rather than on a very privileged few, is the right and responsible economic policy. I think that for the medium and longer term, it is essential that we have responsible budget and fiscal policies that maintain confidence in our economy and support high levels of investment. That's what we did in the 1990s. The three and a half extra trillion dollars that the Tax Policy Center estimates that Senator McCain will issue in debt over a decade will have a very substantial adverse impact on investment and growth and incomes, in my view. I think we've got to have a more focused and a more public approach to assuring health-care availability, so that we're in a position to contain costs. And that's what Senator Obama has advocated.
 
L.G.: Are you concerned about the deficit?
 
L.S.: Yeah, I am. But during a recession, the top priority for the near term isn't deficit reduction. For the medium term, an economy with almost no national savings, with the baby-boom generation starting to retire, fiscal responsibility is essential. Senator Obama, by talking about serious health-care reform, by talking about the need to address the Social Security issue, by focusing on making sure that each new initiative is paid for, has put forth a fiscally responsible program in the tradition of the approach that was taken during the 1990s. The other side has mostly described the additional taxes it's going to cut for the top 1 percent. And those several trillion dollars of deficit—it's not my estimate, and it's not some Democratic adviser's estimate, it's think tanks that review both sides' proposals—those extra several trillion dollars are, I think, likely to be quite burdensome on the economy. They took a risk with foreign confidence in our system, they took a risk with our vulnerability at a time when for the first time in history, really, the world's greatest power has made itself the world's greatest debtor.

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