Record Inflation and What’s Next (with Larry Summers)

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Our pocketbooks are reeling from May’s 40-year high inflation, and price gains don’t seem to be easing. Former Treasury Secretary Larry Summers saw this coming last year, when he predicted inflation would become a big problem in the U.S. What’s his money on now? Andy asks Larry to make predictions about how the federal government’s attempt to lower inflation by raising federal interest rates could impact the price of gas, our jobs, home values, and retirement accounts. Larry has an answer.

Keep up with Andy on Twitter @ASlavitt.

Follow Larry Summers on Twitter @LHSummers.

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Andy Slavitt, Larry Summers

Andy Slavitt  00:18

Welcome to IN THE BUBBLE. This is Andy Slavitt. It is Monday, June 13th. I hope everyone had a good weekend. We have a great show today. A really great show today, as a matter of fact, had some fun episodes last week, had a really good serious conversation on Friday. But today, we have Larry Summers, who was the Secretary of Treasury, and the head of the National Economic Council. But he’s been in the news a lot lately, because he was pretty outspoken last year and saying that inflation was going to be a big problem in the US economy. And he got a lot of pushback, including from the White House current Secretary Janet Yellen, who said, No, it’s only temporary. And as it turns out, Summers was right. And so he’s getting a lot of attention. And I thought we’d have him on the show. You know, he talks a lot to places like the Wall Street Journal, about some of the big things that are going to happen macro in the economy. But I thought it would be really great if he would come on, and talk about what is going to happen, but also break it down into some very specifics about how it’s going to impact people. So what’s gonna happen with mortgage rates, what’s likely to happen in the job market, what’s likely to happen to gas prices, what’s likely to happen to home prices, what’s likely to happen to your 401k, and to be as specific as possible, because he’s got a reputation for being willing to make these predictions. And he does on this show when he does this episode. And I really appreciated that. This is a really timely conversation. It’s in advance of tomorrow’s and Wednesday’s Federal Open Market Committee meeting where we’re going to learn about what’s going to happen further with interest rates, I think we know that they’re going to be heading up. But what’s that going to mean? You know, to fight inflation, the Fed only has a limited number of tools. Larry’s going to talk about that and the consequences of fighting inflation, the consequence of using those tools is going to be to make interest rates go up, it’s going to be to reduce jobs in the economy. And I asked Larry point blank, whether or not we’re out to see stagflation. stagflation, in a sense, the classic definition is just the economy is not growing, it’s shrinking. And we still have inflation. And I think it’s really important that you hear the answer.

Andy Slavitt  02:34

Now, you’ll notice in this show that I refer to him as Mr. Secretary, and I just want to explain this. Before we get on every interview, every single guest, I asked them, How would you like to be referred? We have a lot of doctors, we have a lot of scientists, there’s a lot of people usually I call them by their first name because we’re casual. Under normal circumstances, I would be calling him Larry. But I said to him before the show, hey, I want to call you, Mr. Secretary. is that okay, he said, yeah, that’s fine. If you call me Larry, that’s fine, too. But if it sounds a little strange to us, that’s a little awkward. That’s why I do that to just put guests in the frame of mind. All guests where they know they’re being respected. You know, these are achievements. And so I don’t like to get too formal. I like to keep it casual. But I think I find other ways to try to get him to get to some very relatable points. And I think he does a really good job of this. So I’m proud of this episode. I think it’s one of our best ones. Not that you know, being in the cockpit with Jay Ellis has anything to sneeze at. And look, if you didn’t listen to that episode, you might want to go back, because you missed a good one. But this is great. So we’re gonna welcome Larry Summers. And we’re going to talk about what’s next in the economy.

Andy Slavitt 

Welcome to IN THE BUBBLE, Mr. Secretary. So I’m wondering if you could just start by giving listeners a recap of kind of where we are in the economy and how we got to this point. When did we start to see inflation rise? And what were the driving factors?

Larry Summers  04:15

We’re in an economy that is overheated. That’s got very important positives. We’ve got very, very low unemployment. We’ve seen compression in wages is lower income. People have seen their wages go up faster than higher income people. We’ve seen rapid growth in employment. But it also comes with higher inflation that erodes real wages and an underlying rate of inflation that is far too high. Driven fundamentally, by the fact that we’ve got more demand than supply And when you’ve got more demand than supply, prices go up, there’s lots of room for argument about just how much of it is more demand, just how much of it is less supply. And economists argue a lot about it. But I think it’s very hard to escape the conclusion that we’ve got too much demand relative to supply. And so the challenge now is to get demand and supply back into balance. But the reality is that there’s not that much we can do that influences supply in the short run. And so the dominant determinant of what happens is likely to be demand. And we’ve got too much of it right now. And the challenge is to achieve the proverbial soft landing, and painful lesson of history is that most landings when you’re flying this high, don’t turn out to be soft.

Andy Slavitt  06:00

There’s kind of a thud. I mean, you know, we’ve experienced for the last number of decades, certainly with the recessions academy that grew but never grew so fast as impacted inflation. Clearly, something changed. And clearly, there were many others who had gotten lulled into a sense that that’s just something that could just keep on going. And so we get behind what, what has changed. And obviously, we had a pandemic, there’s a war from an oil producing country. China’s in a weird situation. I remember when I worked in the Obama administration for Secretary Burwell, she used to require us if we said, hey, there’s a few factors here. She’d say, hey, Slavitt, draw pie chart, what percentage of the factors would you allocate to each of these different causes? She tried to get me to be a little more disciplined in my thinking, if you were kind of thinking about supply factors and demand factors. And then also, I guess, I’d say, you’ve been critical of kind of policy judgments, whether it’s on the Fed side, Congress and the administration with the rescue act, like do you have a mental model of how you apportion what the principal drivers are, in your view?

Larry Summers 

I think it’s pretty clear that we had very substantial demand problems before we had the Ukraine war. And I think it’s pretty clear that we substantially increased demand with the policies that were pursued in 2021. The judgment made to commit almost 14% of GDP, in budget stimulus measures, the judgment of the Fed, even while we were having this massive fiscal expansion, to step on the accelerator with monetary policy, with zero interest rates, and very substantial quantitative easing policies, where the government was growing its balance sheet. And so those two things together, really were important causes of a big increase in demand. If you look at many of the things where people talk about bottlenecks, semiconductors, for example, the quantity sold, was actually greater in 2021, than it had been before, which is kind of what tells you that it’s a demand increase. But there’s no question that this has all been made substantially worse by what’s happened in oil markets, which is related to the Ukrainian war by what’s happened to food prices that was starting to develop, even before the Ukraine war, and that we hit some bottlenecks last year. So I think it’s best to think of it as a mixture of demand and supply factors. But I think there’s got to be a major role of demand. And I think the last thing I would say, is, when you have a flat tire, you don’t fix it by blowing air in where the leak was. And in the same way, we can’t really do that much about supply. Right. And so the tool that we have at our disposal is the use of demand.

Andy Slavitt 

Yeah, that was really where I was going with the question which is one is one problem harder than the other to solve? Are we at a situation where because of supply issues, will continue to cause price pressure and inflation, and the Fed will take action to try to slow the economy down on the demand side, but we could end up with still high prices. but a recession or something that looks more like stagflation.

Larry Summers  10:04

I think the tendency is likely to be towards stagflation in general, when the Fed pursues restrictive policies, it influences the level of employment, the level of GDP, before it influences the level of inflation. And even that takes time. So my best guess would be that we’re headed in for a period, that’s going to be painful on both metrics, both on unemployment. And on inflation. I think inflation is likely to come down from some of the levels we’ve seen in the last few months. But I don’t think it’s going to come down to the point where it’s not a major problem. And I do think that we’re likely sometime in the next 18 months or two years, to see a significant increase in unemployment.

Andy Slavitt 

Interested in kind of conversation around wages, and I’m hoping you can help unpack it for people. You know, there’s a lot of people in the economy that would say, well, you know, we haven’t had a living wage or prevailing wage. And so even before inflation, there was hope that there’d be some upward pressure on wages. And of course, now that people are seeing inflation, there’s even greater demand. And it moves into what I think you economists refer to as a wage price cycle, where you say, hey, wait a minute, it’s costing me more to live, I’ve got to go ask my employer for more money, that then increases the cost of goods and services, because so much of goods and services, certainly services, but even goods are labor based. And so actually, people think about the role of wages here, and what this will likely mean for the outcome on wages.

Larry Summers 

You know, every numerator requires a denominator. And when you see what happens to somebody’s dollar wages, you have to look at the prices, they’re paid to know what that means. And the experience in the United States has generally been that when wage inflation, growth in wages gets above about 4%, the purchasing power of wages tends to be going down, rather than going up. And the faster you get the inflation going, the more you see declines in the purchasing power of wages. And so as a general rule, inflation doesn’t tend to be great for the purchasing power of working people. That’s why in service of higher purchasing power, I think it’s important that we work to contain inflation.

Andy Slavitt  12:56

Yeah, that is interesting. And it’s probably counterintuitive at the individual level, where people feel like, hey, if I get this raise, it’s going to be permanent, maybe now’s the time in the hot economy to negotiate for a different job and get a better income. And at least, that’ll keep it higher. But the point I think you’re reminding us is that when that happens, we’re not catching up. It’s, of course, very unevenly distributed. So there’s probably when […]

Larry Summers 

A classic example is that if one person stands up at a ball game, they see better if everyone stands up at the ball game, nobody sees much better. And everybody’s less comfortable.

Andy Slavitt 

Man that feels like an analogy around so many parts of the pandemic, Mr. Secretary, that I wish that you by the way, you’ve given me like five things I wish I’d said to Burwell back when I was working for, when she was making me answers questions that I didn’t really know the answer to. When you remind us, you said we were at zero effect, we were at zero interest rate in interest rates for a long time, and arguably with some of the purchasing even in some respects, negative interest rates. Remind us where we are now. And how high you think things will need to go before the Fed says, we’ve done as much of this job as we’re going to do. And how long do you think it’ll it should take him to get there?

Larry Summers  14:15

You know, it’s very hard to, to know, I think the markets and the fat are sort of expecting that we’ll get interest rates up sometime early next year to the two and a half to 3% range. And people are hoping that that’s going to be enough to contain inflation. It might be but I rather doubt it.

Andy Slavitt

And by 2% to 3%, you’re referring to the Fed funds rates specially?

Larry Summers 

Yes, the Fed funds rate, the basic short term interest rate that the Fed Loans bank money to banks at. But I think that the experience is that usually you have to raise interest rates by more than the inflation you’re trying to stop if you want to contain inflation. And so if we’re trying to stop and inflation, it’s at four or 5%. Even if it comes down a little bit, I think it’s quite doubtful whether 3% interest rates will be enough to do it.

Andy Slavitt 

And where are we today, can you remind us what the Fed funds rate?

Larry Summers

Today, we’re less than 1%. But we’re coming up fast, we’re coming up, people expect that in early June, we’re going to come up by 50 basis points. And then in mid-July, we’re going to come up by another 50 basis points.

Andy Slavitt

So the one and a half to two. And you could see this continuing to get up to three or four, which would take us into 2023.

Larry Summers 

I think, in general, markets and people are not really expecting three to four, they’re expecting more like two and a half to three, I think that there’s a good very good chance that it will be necessary to get to four or higher.

Andy Slavitt  16:07

Want to I want to talk about what that looks like and feels like to the public. And I, you know, reminds me, I mean, I’m old enough to have experienced the 1970s and inflation and various economies. You know, throughout the decades, I recognize that not everybody listening to this is. And so it’s a strange thing to explain to people. So I was thinking it might be interesting to talk about the impact on five or six things that are real things that people’s lives, and I’ll mention what they are, then maybe we could tick through them very quickly, about how we could see these things changing for Americans over the next, you know, year, year and a half two years is what you predict or are suggested it’s possibly goes through and those are, number one, gas and food prices. Number two, the job market, number three housing prices, number four mortgage rates and number 5401K’s

Larry Summers 

Yeah, sure. Look, gas prices are already pretty high. Hard to know, my guess is they’re probably gonna go a little higher. Given all the strains associated with the Ukraine war, that’s got more to do with what’s happening in geopolitics, frankly, than it does with respect to inflation. Same is true for some parts of food prices, because of the terrible restrictions that are going to have far graver consequences for people all over the world. From the embargo that’s being placed on the ability to export, Ukrainian wheat.

Andy Slavitt  18:17

Should people have in their head then that with less relief in the war and Ukraine, we will still continue to see high gas and food prices,

Larry Summers 

I don’t think without a resolution there, you’re going to get a return to normal in either gas or food prices.

Andy Slavitt 

And I’m sure this is very hard to predict. But if you did somehow see a negotiated some sort of end to the war. The markets would clearly rally I would imagine, but would you expect that to translate into an improved outlook and supply for food and fuel?

Larry Summers 

I think that would be the most likely? I think that would be the most likely thing. I think the history is that when you play sanctions on countries, the sanctions tend to stay for a long time. So I’m not sure you’re gonna see sanctions on Russian oil being released anytime real soon.

Andy Slavitt 

That’s helpful. That’s helpful information. The second one I was asking about would be jobs. The job market. Right now, the economy is still adding a few 100,000 jobs, people are entering the workforce. Employees are kings and queens, if you will, at least it to a greater sense that they’ve been from a long time in terms of some highly competitive fields, being able to ask for wage increases, et cetera. But to tell me what that outlook looks like over the next couple of years as the Fed continues to raise interest rates.

Larry Summers 

My guess is that we’ll continue to see job growth for the next few months. Beyond that, I think the picture is much murkier, and I’d be quite surprised if the kind of 400,000 jobs a month that we’ve been Seeing for the last period is something that would continue for another year or two, I’d expect a very sharp slowdown in the rate of job growth. And I think at some point in the next couple of years, we’re likely to have months when we’re losing jobs rather than gaining jobs.

Andy Slavitt  20:17

So the periods of time when people really have to worry about keeping their jobs and unemployment going up, is you tend to be recessionary periods where people start to cut, or they find new efficiencies with technology, etc. Is that something that you think people should be particularly worried about around the corner?

Larry Summers 

It’s a basic fact about the US economy. And there’s a similar fact about other major economies, that when unemployment is above four, and unemployment has to be below four, and inflation is above four, almost always, within the next two years, you have a recession.

Andy Slavitt 

Got it. The greatest asset that people have the most valuable asset that many people have, is their home. And, you know, there’s been, you know, with some interruptions, there’s been a boom in the value of people’s houses, and a lot of people, you know, my mother in law, my mom to a certain extent, you know, a lot of their retirement, and a lot of people who are retiring is to some degree based upon their perceived equity value in their home, many people have paid off their mortgages. And then of course, you got other people that have, you know, that sort of bought expensive new homes when interest rates are low, and maybe they’ve stretched. And so this could be a cause of real stress and real strain on families. It’s also just an important asset, how should people be thinking in general about the value of their homes?

Larry Summers 

No one knows. My bet would be that home prices will continue to rise, at least for some interval, but much less rapidly than they have been rising. I think that the very high increase in mortgage rates is likely to slow the growth in housing prices. And we’re not likely to see further years of 20% or 25% growth in housing prices. But again, nobody knows for sure how this is going to play out. But my instinct would be that, almost certainly, we’ll see some leveling in the growth of housing prices.

Andy Slavitt  22:35

How high will mortgage rates get, I think when people think about interest rates, most people don’t have to deal with the Fed funds rate unless they’re reading the Wall Street Journal in which they kind of understand it as a benchmark. So, you know, they tend to probably to be the mortgage they pay, or if they’ve got a portfolio retirement portfolio, you know, maybe they’ve invested in corporate bonds, or government bonds or municipal bonds of some sort. But the primary factor, as you pointed out, for a lot of this demand seems to be been low interest rates. Where did mortgage rates seem to be headed?

Larry Summers 

Mortgage rates right now are in the low fives. Who knows? Again, but I think there wouldn’t, I wouldn’t be surprised if sometime in the next year or two, we saw mortgage rates with a six as the first digit.

Andy Slavitt 

Okay. So what I’m hearing you say, and I don’t want to put words in your mouth. So I just want to I want to recap to make sure I understand it, that housing prices may not rise as fast, but I didn’t hear you say that you anticipate that they would fall or lose a lot of value necessarily. I know you didn’t make any guarantees, but for just general kind of framework, and that mortgage rates have some upward trajectory. But what I didn’t hear you say, what were the kind of numbers we saw in the 1980s, 8%, 9%, 10%?

Larry Summers 

That doesn’t seem to me to be an immediate prospect, no, never say never with respect to anything. But I don’t think that the kind of 13% house mortgage rates that were prevailing when I bought my first house in 1982, are a terribly likely prospect going forward.

Andy Slavitt  24:20

And then the last factor that I’m thinking about that really impacts people is their 401K, or if they’ve invested individually in assets or investments, but for many.

Larry Summers 

I’m not going to answer that question because I think the one thing that’s very clear, is that unless you’re an extremely seasoned professional, you’re better off as an investor, setting a portfolio and sticking with it, rather than trying to guess what’s going to happen and timing the market every month. And so I don’t want to do anything that will encourage your listeners to be trying their hand at market timing?

Andy Slavitt 

I hope my 20 year old with a Robin Hood account is listening. Because I think he, first of all, I think number one, I think he believes he’s had a God given right to buy a stock, whatever it is and look at it three weeks later and have it be higher than the $50 he paid for it. Indeed, while I’m joking, there is a little bit of I don’t want to say the entitlement element to the economy, but a sense that well, things are always going to go up. And therefore, you know, and that’s what people are generally told, put away money early socked away. But what you’re saying is we can’t predict at time the market, and that if you’ve got money in the 401 K, the same things that that caused you to invest in it are the same, the same factors that that you drive today. And there’s gonna be ups and downs.

Larry Summers 

I think something like that would be right. The main point is, don’t buy because you wish you’d bought yesterday. Don’t sell because you wish you’d sold yesterday; the great source of financial error is doing today what you wish you had done yesterday.

Andy Slavitt  26:14

Well, I know I wouldn’t to buy crypto because some actor or athlete told me that they don’t understand it. But I’m an idiot, if I don’t invest in it.

Larry Summers 

That would be a bad reason to buy crypto.

Andy Slavitt 

I think like all of the crypto ads are basically like put out by the people who they’re like targeting the people who in high school did whatever the popular kids told them to do, or dared them to do without understanding why.

Larry Summers 

I think that people need to be very careful about letting their emotions be swayed as they’re making investment decisions.

Andy Slavitt 

So first of all, thank you for taking me through those impacts. I think they were very helpful and very grounding very real. I’ve been interested like at how people like Jeff Bezos, Jamie Dimon and Elon Musk have all kind of come out with these sorts of pronouncements. And I don’t know if they’re right or wrong. I’m not sure what data they’re backed by and look, I don’t equate, I don’t think the three of them are have equal levels of […]. Jamie Dimon obviously has lots of resources at his disposal to do financial analysis. But I noticed that he anticipated what he called an economic hurricane coming our way. Do you know what he means by that? Did these comments have some sort of resonance?

Larry Summers 

Economic hurricane is not a technical term in the jargon of economics? I think they’re expressing each in their own way. What is a concern that I expressed a little bit earlier in this conversation. That history suggests that when you start at moments like this, there’s a substantial risk that at some point in the next couple of years, you’re gonna have a recession? And I think that is a risk we all have to face.

Andy Slavitt  28:13

Am I reading between the lines too much, just to say that, as I heard you talk through what you think some of the impacts of the economy are that you’re not necessarily predicting a kind of great recession type recession of 2008-2010?

Larry Summers

You know, I think we’ve had many recessions. And I think many people tend to gravitate to focusing on the last two, to focusing on the one when the pandemic started, focusing on the great financial crisis. And I don’t think either of those are necessarily the right paradigm for thinking about the next recession. We’ve had other recessions like the one we had, when the tech bubble burst in the year 2000, or lighten and 2001, or the recession that took place when the first President Bush was president that came out of a variety of imbalances in the economy. Those are also recessions, they’re painful, but they’re not the kind of catastrophic jarring experience, that the great financial crisis was, they’re fairly blurry in most people’s memories. For that reason, my own best guess would be that if and when the economy has its next recession, and we surely haven’t seen the last recession, that the likelihood would be, as I described it, we would not necessarily have the kind of maximally severe recession that we suffered on the two most recent occasions.

Andy Slavitt  30:20

You mentioned the pandemic just now. I’m curious, Mr. Secretary, if you have thoughts about the pandemic and how that’s kind of impacted thing.

Larry Summers 

I’ve spent a lot of time thinking about the pandemic, thinking about the pandemic, in terms of its impacts on the economy. But thinking of its impacts, more, more broadly, a million people have died. That’s more than the number who died. Any guide since the Civil War, in all the conflicts that we have had, if you attempt to put $1 value on the loss of life on the pain and suffering on the disruption from the pandemic, it is very comfortably in the many trillions of dollars, I can’t help but think that if we were able to avert, even a very small fraction of that, or we were able to make it less likely that there would be a recurrence, that would be money extraordinarily, well spent. And so, I am very concerned that we are not making what are probably the highest return investments that our could make, in better screening, in the development of new and better vaccines, and tests, in their pervasive distribution, and in forward defense of our country, by supporting the anti-COVID effort around the world, you know, virus anywhere, is a threat in a Darwinian world, to people everywhere. And I think historians will look back, and they will not be able to understand how it is that a country with an annual budget, between three and $4 trillion a year could not afford in the year, we crossed our millions death to spend a few billion dollars, saving life and preventing suffering here in the United States and around the world. Yes, there are huge issues about what attitude we should have towards vaccination. And I of course, for vaccines, yes, there are people who have turned masking into a kind of social test of concern, rather than a public health measure. But whether you are a progressive or a conservative, whether you are a public health specialist or an epidemiologist, there are ways we can spend money that will have immense returns immense returns in saving life, immense returns to being in enabling children to be able to go to school, immense returns in terms of being us all being able to safely enjoy events with large numbers of our fellow citizens spending money in ways that will build Goodwill for the United States around the world at a time when we’re in existential competition. And it is madness, that we are not spending billions directed at a problem that is measured in the trillions. And that is not something that you should blame one person or one group for, but I think all of us should be soul searching on why we can’t find our way to a solution.

Andy Slavitt

Look, that was both a very passionate and a very articulate and a very credible balance read of situations that I think most of our listeners know we face Right now, which is there’s $22 billion requested for the Congress. And the current state of affairs is if we do end up simply with a new vaccine in the fall, which is just a high likelihood that we’ll have a by Vaillant vaccine that’s more effective against Democrats, that we don’t have the ability to pay for the vaccine for everybody in this country. And, of course, the idea that we would have a vaccine, but have many people not be able to afford to take it, you know, on top of the other reasons why people aren’t getting vaccinated. You know, to me, this is like, you know, this is your stadium point on steroids.

Larry Summers 

If we can spend $40 billion on Ukraine, why can’t we spend 10 on vaccinating, screening, testing, protecting the health of Americans? How

Andy Slavitt 

adamant would you be that it’d be fully paid for versus not in this environment.

Larry Summers  36:01

I couldn’t care less whether it was fully paid for or not, general budget principles that govern all that, but 10 or 15 billion, is not that much money. And if we do it, and that $10 billion, saves the economy $50 billion, it will pay for itself a number of times over so I’m happy paying for it, I’d be willing to not pay for it. But for God’s sake, battling around about whether we’re going to pay for it or whether we’re not going to pay for it. It’s got to make no sense relative to not doing the investment.

Andy Slavitt 

Well, I think I heard you say that this is the highest return investment we could possibly make as a country right now, simply from an economic standpoint, let alone all the other reasons you gave the question that I think a lot of Americans have is, you know, are there structural issues or structural things about the economy that have happened over the last few years, that are causing us to be in the situation we’re in and not to be addressed now? And I’ll give you, I’ll give you a pick of the litter and you could pick the ones that you want to comment on. But, you know, we used to be in a climate with your treasury secretary, where everything you put in front of the Congress, you had something called PAYGO, you had to make sure you were paying for it. That seemed to go away. I don’t know exactly went away. Maybe it went away. In the Trump years, maybe it was before, it seems to the pandemic was an excuse for it to go away. And of course, Congress loves spending money without paying for it. I don’t care which party they’re in. I tell Paul Ryan, that all the time. Tax rates, you know, issue, corporate tax rates, and progressive tax rates, and income inequality and the safety net, trade issues kind of are the dependence we have on foreign countries and for low for low cost goods, anti-trust issues. I know there’s a whole array, you could probably write a treaties on each one of these things. So I’ll give you your choice and the time we have, you know, are there things that are structural in the economy, that are really showing themselves here to be real problems?

Larry Summers  38:25

Andy, I have tried to discipline myself to never use the word structural. Because I think when people talk about structural policies, or structural problems or structural anything, everybody’s eyes glaze over, and they think it’s another guy from the government going, blah, blah, blah, blah, again, so I’m going to try not to use the word structural. But I’ll tell you some things that I believe we’ve got an extraordinary infrastructure deficit in our country. I’ve been flying from Boston to Washington for 45 years. It used to take an hour and a quarter. Now it takes an hour and 45 minutes, the planes haven’t gotten slower. The airports haven’t gotten further apart. That is all about core infrastructure. In Massachusetts, we bear a cost equal to a 75 cent a gallon gas tax, and extra repairs on our cars. Because of potholes in the roads. According to the American Society of Civil Engineers. I’m lucky enough to travel around the world, the phone service between Alma Alta airport and the center of Alma Alta in Kazakhstan, and my office in Boston works better than on the Dulles Toll Road, driving in to our nation’s capital. Those are crazy I gaps. And in a world of 1% 2%, even 3% interest rates in a currency we print ourselves, it is crazy that we are not fixing those things and making those investments. We have an education system, where there is something we lead the world in, among our kids. And that is self-esteem. Our kids think they’re better at math than kids anywhere else in the world think they’re good at math.

Larry Summers  40:37

The only problem is, they’re actually very mediocre, actually, by international standards, we need an educational system that does what gets done in what you do, or what I do. The people who teach the best should get rewarded the most, not simply get paid on a union set. Seniority scale, the customers family and parents should get some choice. If they don’t like the product that they’re getting. That’s why appropriately designed charter schools are so profoundly important. And we need to celebrate excellence, again, in education. That’s what built this country. And we are lagging, call it education, call it human capital, call it whatever you want. But we can do a lot better than we are doing than doing as a country. And the third example I would mention is our innovation, policies and our support for science and technology. In many ways, we are a remarkable success story. If you think about all the great technology companies, all the great information technologies, almost all of them were incubated in the United States and built out of the United States. It is a huge strength, to be the only free country where you can raise your first 100 million dollars before you buy your first suit. Those are a profoundly positive thing. But it rests on a broad innovation system depends upon the quality of our science and mathematics education, which all too often has become politicized and is lacking. It depends also on how the government allocates money, you know, the National Institutes of Health did not fund mRNA.

Larry Summers  43:12

It did not fund CRISPR. Those are the two most fundamental technologies of a life sciences in the last 20 years. They were funded out of the Defense Department, through DARPA, we’ve got to learn the lessons of those successes, and find much more flexible and effective ways of funding. We need to set high sights as a country. And we need and this is particularly the challenge for progressives like you and me. We need to show that government can do things and can do things effectively. Nobody’s boss, gives them new responsibilities, until they prove that they’re totally in control of the responsibilities they already have. And until government gets better at some of the core tasks that it has. I think progressives are making a mistake to try to ever widen the ambit of responsibility of government. So there is a lot we can do to build a stronger foundation. I think that it’s America’s history that when people are most afraid. That’s when we have the most prophecies of doom. And those prophecies prove self-denying, and the best days lie in the future. I dare to hope that that will be true again.

Andy Slavitt 

You know this, you do not sound pessimistic to me about this country, you don’t sound pessimistic about the future, you don’t even sound particularly pessimistic about the near term relative to I think, what I do perceive to be this sense that when things are good, no one wants to hear bad news. And then, so they have a tough time accepting that things might be changing for the worse. And then when things do, of course, start to change, for the worse, people then flip to the other side and say, well, things are never gonna get better and things are going downhill. And whether it’s climate policy, whether it’s health care policy, whether it’s education, policy, all these things need investment. And what I hear you saying is we can afford; we have to be able to afford and we have the capability to afford to be able to invest in these things that make our country better. And then I also heard you just say, at the very end there, that the issue isn’t so much being able to afford it, it’s showing that you can execute it and showing the country that they should have made the government executed. And that is a bigger issue.

Larry Summers  46:10

I that is exactly right, particularly Andy, in your emphasis on execution, Winston Churchill never said. But it was a true statement, that you can always count on the United States, always count on the United States to do the right thing, but only after it exhausts the alternatives. But I think that captures a fundamental truth, I think, and I hope and I trust, that we will again, see the power of self-denying prophecy. And all the pessimists will again be proven wrong.

Andy Slavitt 

Thank you. And I know this is very much appreciated by everybody listening in by me as well. So hopefully, we’ll have you back some time.

Larry Summers 

Thank you.

Andy Slavitt 

Let me tell you what’s coming up in the bubble. Wednesday show, we’ve got a ray of COVID News. We’ve got some insights into what the next set of vaccines are gonna look like. We’ve got a new vaccine approved later on this month. We’ve got lots of other great shows Adam Conover, who you might know from Adam Ruins Everything. He’s got a new show on Netflix about the government. We’re going to talk to him. Beto O’Rourke is coming on. He’s going to talk about what’s going on in Texas after the shooting and the role that he’s playing, very interesting as always. Jason Kander, who you might know, was, at one time talked about as a presidential candidate. And his political career took a turn in a different direction when he talked about publicly having PTSD, and that kind of blend of what post-traumatic stress disorder and a high public profile and how that came together is an amazing story. And he’s a really interesting person. Lots of other good things, including, of course, our Friday conversations coming up on Friday, so please stick with us, and more importantly, enjoy the rest of the day. And we’ll be talking to on Wednesday.


Thanks for listening to IN THE BUBBLE. We’re a production of Lemonada Media. Kathryn Barnes, Jackie Harris and Kyle Shiely produced our show, and they’re great. Our mix is by Noah Smith and James Barber, and they’re great, too. Steve Nelson is the vice president of the weekly content, and he’s okay, too. And of course, the ultimate bosses, Jessica Cordova Kramer and Stephanie Wittels Wachs, they executive produced the show, we love them dearly. Our theme was composed by Dan Molad and Oliver Hill, with additional music by Ivan Kuraev. You can find out more about our show on social media at @LemonadaMedia where you’ll also get the transcript of the show. And you can find me at @ASlavitt on Twitter. If you like what you heard today, why don’t you tell your friends to listen as well, and get them to write a review. Thanks so much, talk to you next time.

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