Larry Summers Interviewed by International Magazine

link here to article

Larry Summers played a critical in shaping economic policy in the Clinton administration and in the Obama administration. This is an extensive interview which took place after he left the Obama administration. He had several comments about China but the one that I found most interesting was the idea that concerns about China's economic growth might be good for the US. It would be good if it functioned like the US concern over Russia's Sputnik that caused the US to invest in education and scientific development. (That is what the Obama administration would like to do but it has been held back by GOP opposition.) His view of the US economy is that economies do not function normally when they are in a liquidity trap as we are at present. Interest rates can't fall below zero and even historically low interest rates have not stimulated investment. Business will not invest until demand exceeds its capacity to produce. Banks have the money to lend, and there is an ample supply of creditworthy customers, but they are not borrowing to increase capacity. Concerns about inflation during a liquidity trap are overblown but things sometimes feel like they take forever to happen but then they happen faster than we had imagined.

Investment in new homes has played a critical role in recovering from previous recessions. The Fed was able to accomplish this by lowering interest rates. This can't happen today because of the extensive inventory of existing homes on the market.

The economic challenge over the next decade will be the fixing the problems of the middle class which has had little growth in income and a decline in its sense of well-being. It has benefitted from lower real prices for many consumer goods e.g., TV sets but its has seen rising prices for some critical services such as health care and child care. That is why the Obama administration
focused on health care reform. The goal is the provide greater access to healthcare while reducing the costs of healthcare. The biggest challenge will be to find jobs for less educated males who expect to find work with their hands.