All-In Summit: In conversation with Larry Summers

[Applause] um next up uh Larry Summers [Applause] we'll let your winners [Music] [Music] Larry is an absolutely incredible human being um he was the president of Harvard he was a treasury secretary under Clinton he was Obama's head of the NEC he's been on the board of some very well-known Tech startups like Square now block um he's been a great friend of mine for 12 or 13 years he taught my son calculus but I wanted to start with one very quick story Larry was staying at my house and uh he runs in to the kitchen and he says the internet is not working I have an extremely important Zoom

and I said oh yeah no problem you can just use this thing over here and he goes oh I need you to help me get on the zoom so I'm like this it guy helping him get on the zoom pops a picture of the governor of the boj the bank of Japan and I was like what's going on and he says I'm a little peckish could I just get anything you have over here to eat so I go outside my mom's like what is going on and I said oh Larry Summers has a meeting with the with the head of the boj she goes dead of the brj and she stops me on that trip we must make him something to eat and so [Laughter] we made scrambled eggs and orange juice and then at the end of it she's like who

is he this person talking to the head of the beer and I said it's Larry Summers blah blah and then once she heard that it was Clinton she hit me on the top of the head again and she worked for Clinton he said we should have given him fresh squeeze orange juice [Laughter] okay he is literally one of the most stimulating intellectual people that I know so let's start with uh the most impressing question CPI is going to come out tomorrow Larry you have basically become the shadow Secretary of the Treasury and the shadow fed Governor uh where are we going where are we in the cycle what is happening to the consumer give us just the five-minute Redux on the economy

we have a thing in politics um chamoth it's called the management of expectations and you have just failed me [Laughter] again uh in that regard look there are two kinds of economists there's those who know they don't know and those who don't know they don't know I'm in the first category so I'll give you my best guesses but that's what uh they are what Samuel Johnson said about second marriage is true of soft Landings they represent the Triumph of Hope over experience [Laughter] [Applause] there's never been a time when inflation was above four and unemployment was below four and the U.S economy didn't go into recession before that situation was

resolved that's why I've been kind of a Cassandra on uh inflation and the cyclical outlook for the last couple of years here's the way I think about uh soft Landing You've Got This Plane it's ultimately aspiring to fly very fast and then land on an aircraft carrier it was way off course and seemingly out of control pilate figured out that it was all screwed up and now the pilots got the plane on a reasonable uh course and that's good but it's still 300 yards above the deck of the aircraft carrier and it still going very fast and it's still an open question whether it's gonna hit the aircraft

carrier rather than land on the aircraft carrier or whether it's going to overfly the aircraft carrier and have to turn around and achieve a soft Landing and I think all of that is still very much at risk the people who say it's all okay we never need to worry about inflation inflation was nine inflation's now three and a half it's all under control we're all done don't know what they're talking about could turn out to be right but inflation was never on an underlying basis anything like eight or nine it was like five artificially pushed up by used cars and

airline fares and a bunch of stuff like uh that gasoline and the thing about stuff that mean reverts is that it mean reverse and so when that stuff was going up real fast we had eight percent inflation with an underlying inflation rate of five percent when that stuff collapses we have an underlying rate of inflation of four or five percent and we see inflation below that so that's what happened so if you try to measure what's happened to the actual underlying rate of inflation it's down a little maybe it's down half a percent maybe it's down a percent that's more than I would have expected and that is genuinely good news but it's a long way from where we are

now to a soft landing and I think you've got risks on both sides I think you've got risks that the consumers going to slow down hard that monetary policy operated with a lag the credit's going to be crunched and that you're going to see the economy have a bit the Wiley Coyote aspect to bit the ball rolling off a table aspect I think that risk is there I think there's a larger probably risk that we don't really have inflation on a secure path down below three and a half and that the FED thinks it's got it under control and it doesn't and that it's going to have to go back to uh raising uh rates so you are nervous okay you're nervous so if you're Jay Powell

if you had Jay Powell's job right now what is the Delta from what he's doing what would you do differently do you think I I thought Jake Powell was a million miles off course two years ago I thought he was talking about zero interest rates until 2024 he was talking about inflation being transitory it was all on a different planet than the one that I thought I was seeing starting about a year ago he has recognized that the principal problem is inflation that the Fed was way behind the curve that he needed to focus on getting inflation back to Target and so my differences would be small and on

tactics rather than large and fundamental I think the FED probably needs to be investing a bit more in its credibility by emphasizing that it's prepared to raise rates again if it doesn't see inflation uh decline I think the FED should be recognizing that the extraordinary size of the U.S budget deficit and where it is in Prospect is going to complicate the macro policy task and should be more willing to call that out than it is I think the FED on matters relating to financial regulation should be giving more attention to market prices and the market values of assets and less to a variety of Book value

regulatory Concepts than it tends to emphasize but again I think that what we did in 2021 when the FED when the government basically infused 2.9 trillion dollars into a rapidly recovering economy and when the FED promised it was going to keep interest rates at zero till uh 2024 and when the FED bought Bonds on a massive scale that put us way off course since then we've been working our way on the monetary policy side back to course in basically reasonable uh ways but that doesn't mean you know if you get all the wrong answers on the first third of the

exam you can do great on the second two parts the second two thirds of the exam and you still won't get a very good grade for the overall experience so it's a hard problem so my interpretation would happen in 2021 is in q1 they you know they passed that two trillion dollar American Rescue plan that last coveted relief bill you absolutely nailed it by warning that this could set off inflation and the politics of that was that the administration everyone who wanted the bill basically said oh no Larry doesn't know what he's talking about they sort of pooh-pooed your warnings and then sure enough the inflation came that summer and that's when they they almost I think for

political reasons have to say was transitory because they didn't want to admit that you had been right and they had been wrong three months before and as a result of that the FED waited another nine months to start raising interest rates and so everything got delayed they should have reacted back in the summer of 2021. I know that's my interpretation you know in terms of how they behave to Sax's Point are they thinking about the politics and the current Administration I or are they acting independently like they're supposed to first of all I don't I think I'm I'm a spectator and commentator not uh not the dominant uh actor by uh any

stretch I I I'll leave it to others to speculate about everybody's motives it's it's not only people in political situations who when they develop a strong View change it only slowly in response to evidence I'm basically someone who mostly goes to Washington and explains when I'm in Washington that there are limits to our knowledge and limits to our competence and so it's often true that the best thing we can do is get out of the way so I I believe that but I also think that it's a mistake to think whenever anybody makes a judgment that doesn't turn out right in Washington

that it's because they had some bad political motive and were playing politics rather than they were using their best judgment and they turned out to be wrong and like human beings in public environments they changed their mind slowly in uh the face of evidence look there's a very broad thing it you all who work in companies experience it you experience it in your personal lives we experience it in our relationships when something isn't going great you always have to decide is it that we need to give it time persevere with what we think is right double down and keep going or do we need to say we got this all screwed up you need to suddenly change

course and that's a decision we all are always making and it's not that it's always the right thing to change course at the first hint of failure and so I think a little more I think people obviously made bad decisions and they kept making them and they made them too long and I was on the other side but I think that it's a mistake really a serious mistake to go quite so quickly uh to uh to to to motive and I want to say one other thing just because it I was struck by what came before look I I really do worry a lot about regulation but it's important to understand that the largest part of the good that cops do is not that they catch people breaking

into houses or that they pull people away when they're trying to murder somebody the large reason why cops are good is because everybody knows that they're cops around and they commit far fewer crimes than they otherwise would and therefore evaluating the police only by the incidents where the police are actively involved gets a judgment about crime wrong and the same thing is true with respect to regulation and we do need to recognize that all the things that we take for granted that make this place a very different place to do business than Argentina and a much greater place to do

business than it was a hundred years ago have to do with institutions and regulations and so I think that's a perspective you all need to keep in mind if there had not been major regulation that was regarded as oppressive totalitarian wrong and anti-market beginning in the late 1940s it would be impossible for this Gathering to exist because the smog in Los Angeles would be so profoundly serious where their excesses was the craziness of course there was but let's also keep in mind that you need Frameworks in which Freedom can flourish let me ask you a basic question

we had Ray dalio yesterday um and he was you know going over the arcs of history and maybe America being you know past its peak in Decline uh and I'm curious what you think about the perhaps existential crisis for America in terms of our spending Trump added a trillion to the deficit Biden already four trillion we've had this debate on the pod are we in an existential crisis in terms of how much we're spending debt to GDP ratio is that the most acute issue for America and then what are your thoughts about America on the global stage versus other emerging Powers China and India so there are a lot of parts of that question yeah

I think the most important theme in American history is resilience I'm old enough I'm not that old but I'm old enough I'm old compared to the people in this room I guess um but I'm old enough to remember when Jimmy Carter declared a crisis of the national spirit and a pervasive malaise I'm old enough to remember when the country was being torn apart by the Vietnam War and the president United States couldn't go speak anywhere in the country pretty much except on a military base and where there was gunfire on college campuses I'm old enough to remember when I'm not old enough to remember but I've read

about when Joe McCarthy had the country uh in his thrall and people on University campuses were afraid to express Progressive beliefs if you read the history almost everyone advised FDR in 1932 that he needed to use his inaugural address to declare dictatorial powers to take the country over to deal with the depression because democracy wasn't up to it Patrick Henry said in 1792 1792. that the spirit of the revolution had already been lost and so I think the theme in American history is the capacity for self-denying prophecy it is the capacity for the Jeremiah's

that generate all this alarm that set in set in motion the processes which uh lead uh to renewal and it won't be that way always they'll come the end just as there comes that come the end for everything uh uh great historically but I'd rather be playing the hand of the United States than the hand that Xi Jinping has played then the hand that India is playing certainly then the hand that Societies in Asia where they're only going to be half as many people a century from now are playing certainly than the societies of Western uh Europe that doesn't mean that those of us who are financially minded don't need to be terribly terribly

concerned that the government's finances are not on a sustainable path and won't be on a sustainable path until we figure out how to raise the revenue that a society facing grave National Security threats and aging population and a rising price of medical care and education relative to flat screen TVs and houses needs to finance its government that doesn't mean that there aren't huge challenges as well as opportunities associated with everything that's coming out of information uh technology that doesn't mean that I'm not fearful of so much that's happening

in our educational uh system and I think that we have in our educational system and this is true of our great universities and it's true of our unionized elementary schools we have gone from thinking that self-esteem comes from Achievement sort of thinking that achievement comes from self-esteem and that is a embarrassment that the grade point average of the average student at Harvard University is above 3.7 that by far the most common grade is a right and that the big education reform idea of the moment is to eliminate standardized tests that actually measure what people uh what what people know

and so this kind of moves away from Traditional Values of Excellence achievement the importance of learning is something that I think is very much uh uh a uh a problem so yeah am I worried about the national sociology problem represented by the fact that we used to be a country 60 years ago where four percent of men between 25 and 54 were not working and now we're a country where 14 are not working at any point in time and a quarter of them don't work for more than three months within a two-year period am I worried about that yeah I absolutely am am I worried about the finances am I yes am I worried about uh

our inadequate investment in technology leadership am I worried about a kind of broad constipation um there's many of you have probably been to Harvard Square there's a bridge the bridge goes over the Charles River it's 362 feet long it had been around for a hundred years it needed to be fixed did need to be fixed 62 months five years and two months with one lane of traffic closed in order to renovate a 362-foot bridge to put that in perspective patent built a bridge over the Rhine 3000 feet in one day but but they're better things about spending

your life hanging around in a university and so I wandered over to the classics Department one day and I learned that Julius Caesar Julius Caesar built his Bridge Over the Rhine three thousand feet not 300 feet in nine days and this is what it took us so do we have huge problems yes is this the first time we've had huge problems hell no is there the prospect that we can solve those problems yes I think uh there is do I think we all things considered have a more solvable set of problems and a more Dynamic Society for solving them yeah I do then uh the other places and never forget them never forget this

no we always forget it when we make policy in the relevant area Larry but but the best the best test is we are the place that people from every part of the world want to come to [Music] um I want to ask you a question let's just actually go to that quickly which is you were the president of Harvard there was a very let's call it important divisive foundational case that just went through the Supreme Court on affirmative action um you wrote actually a pretty interesting op-ed about all of this give us your thoughts about what is working inside of higher education what you think about that ruling just Society in

general as a reflection of that I wish that ruling hadn't happened I wish that great universities were in a position to set their course and to compete with each other and to admit students as uh they uh saw fit but I think after that ruling it is clear what the right theme should be and that theme is opportunity the great strength of our universities should be that they make it certain everyone has an opportunity to succeed and get to the top no matter where and in what circumstances that they were born and I think there's much more that our great universities can do and they're things that are much more

important than arguing about diversity policies that could get us there here are some of them whatever the right way to think about this was 40 years ago the time for legacy admissions is over problem solved if there are scarce spots in our great universities having your father hire a fantastic coach to teach you to play a country's Club sport at an extraordinary level should not be a path to admission to our leading intellectual institutions let's end athletic recruiting for Aristocrat for aristocratic uh Sports it's really a nice thing it's a nice

thing it's a good thing it has a lot of good things for most of the people in this room that there exists early decision and early action but it basically Works to help the privileged and it basically prevents the underprivileged less privileged from shopping their financial aid authors and getting the deals they should we would not permit Goldman Sachs to make exploding offers to our MBA students why should great colleges make exploding offers to admitted students you guys it's like the word like I didn't I didn't really know until I got involved with Silicon Valley that scale was a verb as distinct from a noun I

thought it was something you kind of stepped on in uh the bathroom about it any Institution almost any in the society nearly a tenth as successful as Stanford or Harvard would have far more customers today than it did 50 years ago right obviously and yet our universities have not grown their size of their students on campus and they have moved only glacially to use the incredible opportunities that technology presents provide education which and this is what's remarkable about educational technology if you think about it it can be much vaster scale and at the same time be much more personalized

you can go at your own pace you can hit you can hyperlink you can go deeper in things that you're interested in and so scale plus personalization creates incredible possibility and our great universities have only scratched uh the surface of what's possible so there's an immense amount they can do last question because we're running out of time I just want to make sure you touch free speech on campuses and how it's actually affecting the rest of society as well look uh uh vigorous argument in which all ideas can be put forward and in which no idea gains its Authority from who said it or some fashion

rather than its Merit in open debate that is the essence of liberal Society that is the essence of great Universities at their best it is the essence of a great University at its best that when I was president of Harvard and I was teaching a freshman seminar some freshmen some some freshman could come in and read my paper and explain how those kind of an interesting paper by President Summers but it was really pretty completely confused thing he wasn't right but it was a fantastic it was a fantastic thing and yet so much of what we should be able to argue about and discuss is off limits some of that is the speakers who get

disinvited and that's terrible but much more of it is a culture that there are only certain views you're allowed to have on questions about identity that they're only certain questions you're allowed to have on questions about markets and redistribution that there are only certain views you're allowed to have about how children should be raised there shouldn't be any views you're not allowed to have [Applause] freedom be an app an absolute but academic freedom does not mean freedom from criticism freedom from debate freedom from challenge that is what that is the essence of the most successful human

institutions and our universities should be modeling and demonstrating that rather than leading a charge is it too often seems they are towards an orgy of mutual self-regard respect and care rather than getting closer to the truth in the most excellent way ladies and gentlemen Larry Summers another standing ovation and Summers [Music] you'll let your winners [Music] we open source it to the fans and they've just gone crazy [Music] besties [Music] rolling [Music]