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folks welcome
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um I'm Anna galper and I teach law
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Georgetown uh and I am beyond thrilled
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to introduce our
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uh final uh featured speaker
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um Professor Larry Summers Who's the who
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a needs no introduction but hey
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um is uh Charles Elliott professor and
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president Emeritus at Harvard former
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treasury secretary and from my
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perspective probably the most
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stimulating free associator and funnest
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person to brainstorm with of all I know
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um we are thrilled to lure him to this
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conference and very grateful
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to have an opportunity to ask some
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questions
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um
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and perhaps free associate together some
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so
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um if you have a question please put it
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in the Q a not in the chat we will try
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to leave some uh
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q a sometime for the Q a towards the end
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of the conversation
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um and to those watching us on TV
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um
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now or later sorry you can't ask the
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questions
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um okay
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um Larry well again thank you so much
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for joining us
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um and if you don't mind uh
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let's Jump Right In because you know
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only so much time
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um so first I want to ask you uh a
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couple of current events
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uh questions but really the focus for us
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is to
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figure out to what extent we can make
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the relationship between the study of
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macroeconomics and macroeconomic policy
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and uh law lawmaking practice of Law and
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legal scholarship
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um
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in conversation productive conversation
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with each other
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um with that
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um I was excited to see that you had
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nice things to say about the inflation
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reduction act uh my excitement which is
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not so much for the merits of the
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legislation but your angle on it
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um and what it tells us about the law so
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you said that uh you know it's a good
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bit of legislation it promises stories
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revenues help boost Supply and key areas
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reduced prices and thereby on net have a
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uh uh help reduce inflation over time so
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to what extent does something like this
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a model for lawmaking
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um and more broadly other legislative
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and Regulatory interventions in the
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economy
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and it's good to be with you
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um when you and I first uh met
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um I was uh Senate confirmed official in
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the treasury Department and a fairly
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young one and you were a young lawyer in
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the treasury Department and you brought
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um
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wisdom not just saying what was legal
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and what was illegal but figuring out
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how we could do things that we wanted to
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do in the most efficient and the most
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protective uh way and I learned a lot
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about the positive functioning of
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lawyering
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um from my experiences uh working with
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you
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look I think the inflation reduction Act
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is good law I think it's good law
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because I think the benefits of
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substantially uh subsidizing a variety
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of renewable Technologies exceed the
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costs
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I think there are measures included in
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the bill that will cause taxpayers to
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get a better deal when they buy
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Pharmaceuticals and cause Health Care to
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be more widely available for
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disadvantaged Americans
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and I think there's some vitally
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important investments in uh turning the
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IRS around and I think those are all
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good things
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I think the cumulative impact of the
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bill
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is likely to be to reduce a little bit
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the inflation rate by reducing Energy
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prices through more Supply by reducing
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pharmaceutical prices through better
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bargaining power
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and through some reductions over time in
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the government budget deficit which uh
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reduced demand at a time when the
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economy is overheated
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I don't think if you were describing the
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primary impacts or primary thrusts of
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the bill you probably would have titled
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it the inflation reduction act and that
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was a reflection of the moment and uh
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the various political imperatives
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involved but I think it was a good thing
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uh for our country uh to uh do I think
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no one should be under an illusion that
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that bill can be the center of a
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national effort to control inflation I
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think that such an effort has to be
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centered on monetary policy and insofar
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as there are other policies they are
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probably Regulatory and uh tariff uh
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policies of a Kind primarily not
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addressed in uh the inflation reduction
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Act
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well this is super helpful and and and
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and generous now
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um on you mentioned and thank you
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regulatory
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um
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should regulation then be more
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counter-cyclical than it is right so I I
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think
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[Music]
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um
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I think something I mostly disagreed
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with
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in the law and macroeconomics movement
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is a desire to
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center of the analysis of a variety of
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microeconomic policies
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around
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macroeconomic considerations
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and there's always a question when you
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envision any change
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what you hold uh what you hold constant
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if I if I want to analyze the effect of
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moving my left foot forward on my
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Locomotion I have to make an assumption
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about what my right foot is going to do
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and we sort of make a natural Assumption
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of what's going to happen is my right
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foot is going to move along with uh a
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walking motion
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and there's a question when we consider
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a regulatory action
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um say you mandated that firms hire more
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people
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and one line of analysis would be that
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that would have a multiplier effect
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because the firms would pay people uh
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would pay the extra workers they hired
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and uh those workers would spend money
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and those workers would spend money and
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you'd have a multiplier effect and you'd
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stimulate the economy
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a different view would be that the FED
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has a view about how much aggregate
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demand it wants to achieve
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and it targets the aggregate demand
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level that it wants to achieve and so if
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other things happen
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those will be offset by the FED because
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it's still targeting the same aggregate
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uh demand level so if you have a room
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with a thermostat and you open the
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window a little bit
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you will not change the temperature of
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the room
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you will change how much the heating
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system uh operates
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and I think inside I'm not deeply
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familiar with it but insofar as I've
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been exposed to the law and
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macroeconomics movement
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it has a tendency to forget that lesson
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and it has a tendency as as I see it to
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and by the way I'm not authoritative
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about what's true but I am authoritative
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about what I perceive
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um the
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um has a tendency to forget that lesson
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now you know you can argue that
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sometimes we're at the zero lower bound
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and sometimes policy operates with lags
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and so it's more complicated than I just
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said but I think as a general matter if
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we ignored aggregate demand effects when
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we thought about regulatory questions
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we would get it more right than if we
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try to always analyze the aggregate
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demand consequences so for example when
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people in the financial industry say
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that we're cutting back on lending by
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imposing excessive Capital regulations
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on financial institutions
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I mostly disregard that because if
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that's causing a shortage of demand I
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imagine we'll have lower interest rates
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as a consequence uh of that so while
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there are some particular exceptions
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that one can do I think that far more
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Mischief is accomplished
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by allowing Keynesian aggregate demand
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effects to enter the conversation about
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micro policies
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than any benefits that ever result
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so let's pull back a little bit and this
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is extremely helpful and also kind of
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defining the terms on the bright side
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online macroeconomics movement Trend
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ethos whatever we want to call it
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um is at least at this stages sort of
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open enough to definition that I think
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we can play around quite freely
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um with that but and really the big
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question to my mind and I certainly
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don't have a monopoly on this is sort of
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how to we engage with macroeconomic
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Concepts and
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um several of the things you mentioned
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uh actually raised interesting kind of
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legal institutional questions so let's
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say you know regulations should not
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um primarily uh Target aggregate demand
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maybe not even you know take account of
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it let's just rely on the FED but then
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the FED does not operate in an
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Institutional vacuum nor does the ECB
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nor does you know so of what I'm
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the way the transmission mechanisms
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right operate quite differently well I
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okay wait like Europe and the US did
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very different things about unemployment
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in the middle of covet right sort of the
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how
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we deal with recessions crises downturns
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institutionally either makes things
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easier or more complicated for
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let's say the fed and and not even just
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easier I think I really I I think I
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pretty much disagree with everything you
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just said all right I I think that the
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right assumption for microeconomic
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analysis
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is that the level of demand is
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determined and it's determined by
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monetary policy out of some set of
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considerations having to do with
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unemployment having to do with inflation
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having to do with financial stability
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whatever and that any effects on those
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things that come from your microeconomic
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policies are going to be sterilized
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and so I don't think in rooms with
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thermostats it's very interesting to
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think about the impact of uh opening the
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window on the temperature or or having a
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fire or uh putting on a sweater or
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anything right I mean it's all the
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things like that so that doesn't mean
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it's not an important question whether
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you should open the window right you
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should decide the question about opening
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the window on the basis of whether you
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think the air is going to be fresher on
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the basis of what you think is going to
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happen to the electricity bills if you
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do it on uh the basis of weather bad
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stuff's gonna blow in uh when you open
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the window but not base not based on
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anything much about the temperature of
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the room so I don't know whether the
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approach of paying people on employment
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insurance or the approach of paying
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people to paying firms to retain uh
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their uh workers or the approach which
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of those approaches is the was the right
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one to respond to the downturn
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but my judgment about that would be
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based on which would be
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microeconomically efficient in finding
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the right balance between on the one
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hand promoting labor Mobility which is
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good and on the other hand preventing
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the severance of important attachments
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um which is bad and those would be the
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considerations that I would think was
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important not one of them will lead to
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more demand in the economy or less
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demand in the economy and therefore do
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more recession prevention than the other
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solar like got it but it also I think it
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depends on whether you're you know sort
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of operating the windows or are you know
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are in charge of the thermostat right
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and what you're doing in the room
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relies on the thermostat working
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properly so right and I think the I
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think all who designs
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I'm sorry so who designs the thermostat
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who pushes the buttons you know like the
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easy thing
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I I think
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almost every time
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somebody tries to do a microeconomic
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policy
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that is Promised on some theory of some
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flaw
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in the way the macroeconomic things work
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we're much more likely to see a confused
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mistake
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than an affirmative benefit
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so macro Prudential regulation eh
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no macro Prudential regulation if the
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reason we're doing macro Prudential well
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I'm Sorry by macro Prudential regulation
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do you mean variable Capital
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requirements and the like variable
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Capital requirements
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that should be based on judgments about
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preventing Banks from failing and that
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it's inefficient and costly when Banks
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fail not based on prevent not based on
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maximizing employment
00:17:01
by maintaining continuous aggregate by
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maintaining continuous aggregate demand
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in fact I'm pretty skeptical of macro
00:17:12
Prudential regulation because my general
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view is that by and large the smartest
00:17:20
macro traders in the world
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can't time markets and so I'm highly
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highly skeptical that politically
00:17:30
motivated 150
00:17:32
000 a year bureaucrats
00:17:35
will be able to time uh markets and so
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when people are deciding whether there's
00:17:43
a speculative bubble or not and then
00:17:46
adjusting the capital requirement or
00:17:49
whatever I think they're much more I
00:17:52
think there is likely to be wrong as uh
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to be right and I'm pretty familiar with
00:18:00
the academic literature on this which is
00:18:03
a bunch of regressions showing that when
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credit expansion is high then you're
00:18:09
more likely to have a bubble and stuff
00:18:11
like that and my reaction is if those
00:18:14
regressions were so terrific and were so
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substantially predictive there would be
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people who would be able to make huge
00:18:22
sums of money shorting Bubbles and going
00:18:26
long troughs based on those regressions
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and mostly there aren't and I think
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that's because there are a variety of
00:18:37
sort of epistemological problems of what
00:18:40
constitutes certainty but I have no
00:18:43
objection in principle to macro
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Prudential uh regulation I would note
00:18:50
that the poster child for macro
00:18:54
Prudential regulation in 2006 and 2007
00:18:58
was Spain which had roughly the worst
00:19:03
egregious overbuilding of uh capital I
00:19:09
would note that Alan Greenspan was a
00:19:12
pretty shrewd guy and he declared
00:19:15
irrational exuberance in the stock
00:19:17
market when the Dow was at 6300 and
00:19:20
proceeded to double over the next uh to
00:19:24
over the next two years I think four
00:19:26
next uh four years
00:19:29
um so I sort of skeptical of the
00:19:32
Enterprise but insofar as it's a useful
00:19:36
Enterprise it's an Enterprise that's
00:19:39
about the micro economic efficiency of
00:19:44
the financial intermediation sector not
00:19:47
the efficacy of counter-cyclical
00:19:50
aggregate demand management okay
00:19:53
um so and also something that you said
00:19:56
earlier about uh the bankers complaining
00:19:59
about high Capital requirements Etc et
00:20:01
cetera so that that it's sort of it this
00:20:04
position strikes me as going with that
00:20:06
yeah
00:20:08
it's a position that
00:20:13
um by and large
00:20:16
um I think it is better to have more
00:20:21
focused policies with more specific
00:20:25
outcomes accountability for outcomes
00:20:29
close to those policies so this in
00:20:34
general for example I tend to think that
00:20:37
we have a whole set of tax and transfer
00:20:41
instruments in the society if it were up
00:20:44
to me I would make them more generous
00:20:47
um but we have all of those instruments
00:20:49
and so if somebody says
00:20:54
how should we regulate trains and
00:20:58
somebody says well we should do x with
00:21:01
trains because that will benefit poor
00:21:03
people
00:21:04
I tend to think no if we want to benefit
00:21:08
poor people more we should do different
00:21:11
taxes and transfers and the taxes and
00:21:14
transfers we do reflect some political
00:21:18
equilibrium and if we do something with
00:21:20
railroad policy that has a major change
00:21:24
has a Major Impact it will intend it
00:21:28
will tend to be in political equilibrium
00:21:31
offset by other things so I tend to
00:21:36
prefer my prefer the conduct of
00:21:39
microeconomic policy to be focused on
00:21:44
efficiency within its sphere
00:21:47
so let's talk about can we just spend a
00:21:51
nanosecond on thermostat design
00:21:54
right it's all macroeconomic policy it's
00:21:57
all in one place
00:21:59
but we have a wide variety of Central
00:22:03
Bank designs
00:22:05
um both uh you know objectives mandates
00:22:08
instruments uh you know most recently
00:22:11
there was a paper in the conference on
00:22:15
um
00:22:16
uh you know the TPI the transmission
00:22:18
protection instrument
00:22:21
um I may be mingling the you know of the
00:22:23
ECB
00:22:25
um there are certain things that to play
00:22:29
eyes and maybe two lawyer lay eyes
00:22:34
um
00:22:35
don't necessarily look like adjusting
00:22:39
the thermostat
00:22:41
um but look more like messing around
00:22:44
with the room right and my sense is that
00:22:46
their the design of central banks and
00:22:50
the instruments that the central banks
00:22:52
deploy
00:22:55
um
00:22:56
differ quite a lot and so does that is
00:23:00
that uh just sort of noise to your mind
00:23:03
does that matter does it matter that the
00:23:06
fed's authorities were expanded in some
00:23:09
ways you know constrained in other ways
00:23:11
and Dodd-Frank right does it matter that
00:23:14
the ecb's Mandate is what it is does it
00:23:17
matter the way the banking Union you
00:23:19
know fits in with the ecb's
00:23:22
um monetary policy mandate I'm just
00:23:24
trying to get it
00:23:27
I think there are a few different things
00:23:29
to say there okay the first is that
00:23:32
institution design is profoundly
00:23:35
important the rules on what Boards of
00:23:39
directors do in companies and what
00:23:42
powers and authorities they have in what
00:23:45
ways shareholders can and cannot select
00:23:48
challenge Boards of directors are very
00:23:50
important and it's something similar is
00:23:55
true with respect to public institutions
00:23:57
so the questions to which the federal
00:23:59
Federalist Papers were addressed were
00:24:02
profoundly important questions and an
00:24:06
important part of legislation is the
00:24:09
design of Institutions will a regulatory
00:24:12
Authority be an independent agency or
00:24:14
will it report to the president will it
00:24:17
have one chairman one person in charge
00:24:20
of it like the EPA or will it have a
00:24:22
council of five people like the SEC
00:24:24
these are all immensely important
00:24:27
questions and there's a body of learning
00:24:31
um about how to think about those kinds
00:24:34
of questions and it's more of a legal
00:24:37
body of learning than an economic body
00:24:39
of learning so I'm not that
00:24:40
knowledgeable about it but I think it's
00:24:43
an immensely important question
00:24:46
there's a second
00:24:48
broad set of questions which is in a
00:24:54
Democratic Society where you have
00:24:58
independent institutions how should one
00:25:02
think about the remit of those
00:25:04
institutions and which choices are
00:25:09
delegated to Independent institutions
00:25:12
and which choices need to be politically
00:25:17
accountable and that's the subject of a
00:25:20
very good book Paul Tucker has written
00:25:22
called unelected Power focusing on
00:25:25
central banks but also considering a
00:25:28
wide variety of institutions my general
00:25:31
view there is that institutions that are
00:25:36
independent
00:25:38
um Independence needs to be reciprocal
00:25:42
that if the president doesn't get to
00:25:45
tell the FED what to do about monetary
00:25:49
policy the FED should not be using its
00:25:52
moral authority to tell the president
00:25:54
what to do about climate change or
00:25:57
criminal justice uh policy in general I
00:26:02
think that independent that
00:26:05
power should be more circumscribed to
00:26:09
areas where there's an important Dynamic
00:26:12
consistency problem which is what led to
00:26:15
the creation of the independent
00:26:16
institutions so I am
00:26:19
pretty spectacularly unenthood I was
00:26:22
extremely unenthusiastic when the
00:26:25
Minneapolis fed chose to participate in
00:26:29
the debate over some kind of education
00:26:32
referendum in uh Minneapolis
00:26:36
when uh central banks
00:26:40
seek to
00:26:43
um
00:26:44
get involved in green issues
00:26:49
if there's anything that's going to
00:26:50
cause Banks to fail their supervisory
00:26:53
authorities should pay attention to them
00:26:56
but I don't think the fact that there's
00:26:58
some conceivable Nexus between
00:27:03
um an issue and a bank failing means
00:27:06
that central banks should get centrally
00:27:09
involved in environmental policy I think
00:27:14
the idea that for example a central bank
00:27:18
that is doing corporate QE
00:27:21
should
00:27:22
favor green bonds rather than non-green
00:27:25
bonds is an appalling one
00:27:28
um because I don't think that's I don't
00:27:31
think making those choices is the
00:27:34
appropriate uh remit of uh uh of uh
00:27:40
Central central banks
00:27:44
um so and then there's a yeah
00:27:47
just I just want to ask about this
00:27:50
particular so then on again going back
00:27:54
to the sort of thermostat setup the
00:27:57
Central Bank buys all of the bonds no
00:28:00
amount you know green purple yellow with
00:28:02
polka dots
00:28:03
but then say the fiscal Authority or The
00:28:07
Regulators adjust
00:28:09
to the extent that this has undesirable
00:28:12
effects on environmental policy on
00:28:15
distribution etc etc is that is sort of
00:28:19
the division of the institutional
00:28:22
division of labor ensures that we're not
00:28:26
all confused with feedback effects and
00:28:28
various kind of Dynamics I think
00:28:29
something I think yeah I think I think
00:28:31
something like that I mean there there
00:28:33
are complicated cases to sort out
00:28:38
um I think we kind of make a model in
00:28:41
the United States
00:28:43
um we had moments like the first few
00:28:46
years of the Obama Administration where
00:28:48
the Fed was proudly doing QE and
00:28:52
explaining that selling long-term debt
00:28:55
and buying back short-term debt was
00:28:57
going to stimulate the economy in a
00:28:59
desirable way and the treasury was
00:29:02
proudly announcing that it was taking
00:29:04
advantage of low long-term interest
00:29:06
rates to term out the debt and was
00:29:10
issuing less short-term debt and more
00:29:12
long-term debt and between the two of
00:29:15
them there were some Brokers making
00:29:16
money and the whole thing didn't seem to
00:29:19
me to make any sense it seemed to me the
00:29:21
United States ought to have one debt
00:29:24
management policy and there ought to be
00:29:26
some mechanism for arriving at the one
00:29:29
uh debt management uh policies I think
00:29:33
there are hard cases as there always are
00:29:36
you know just like in private life there
00:29:40
aren't just competitors and mergers
00:29:42
they're people there are firms that in
00:29:45
some spheres compete and in other years
00:29:48
cooperate and part of what good lawyers
00:29:51
do is structure agreements and policies
00:29:55
that in an imperfect world of greedy
00:29:58
people cause that to work out as well as
00:30:02
it can be worked out and I think that
00:30:04
kind of thinking is important in uh the
00:30:07
public sector as well and and just what
00:30:11
you just said though I mean it really
00:30:13
does get to
00:30:15
at least in my view what lawyers tend to
00:30:18
be very good at which is you know
00:30:20
figuring out where the institutional
00:30:24
structure leads us to stumble all over
00:30:26
one another and saying all right you
00:30:28
know fire exit to the right
00:30:31
um but it's not just
00:30:34
sort of the traffic tweaks right it's
00:30:37
building design that I think matters and
00:30:40
in some ways it's a more challenging
00:30:43
um yeah I think it's I I think that's I
00:30:46
think that's right I I I sort of believe
00:30:49
in
00:30:52
social science
00:30:54
and I I tend to I tend to find and maybe
00:30:59
this is unfair and reflects the limits
00:31:02
of uh my knowledge
00:31:05
whereas I I find your
00:31:09
pronouncements on debt to be uh
00:31:13
substantially informed by empirical
00:31:16
study of a substantial range of debt
00:31:20
restructurings and what happened and
00:31:23
what didn't happen and when it worked
00:31:25
better and when it worked worse
00:31:27
I find a substantial part of legal
00:31:32
scholarship on these matters to consist
00:31:37
somewhat more of identifying what
00:31:41
various thinkers have said at various
00:31:43
points
00:31:44
and the author offering an opinion as to
00:31:49
what the author thinks is best
00:31:52
with less grounding
00:31:55
in uh the world of experience so where
00:32:03
um
00:32:04
#bless you and thank you and
00:32:07
um the uh I do think that we need to uh
00:32:12
fix up your pipeline of legal
00:32:14
scholarship somewhat even though I'm I
00:32:17
find myself to be a an unwitting
00:32:20
beneficiary of the distortions in that
00:32:22
I'm sure that's I'm sure that's right
00:32:24
and I I welcome
00:32:27
all uh I I welcome all of that but I
00:32:31
think it's um
00:32:32
you know I was uh I was involved in the
00:32:36
creation of the cfpb and uh the Consumer
00:32:42
Financial products Bureau and there were
00:32:45
a set of questions should it have one
00:32:50
had should it be should it report to the
00:32:53
President should it be independent how
00:32:56
should its budget be set there were a
00:32:58
set of institutional design questions
00:33:02
and I would say I was concerned to get
00:33:07
empirical Knowledge from the
00:33:12
carefully considered experience of the
00:33:14
hundred or so government agencies that
00:33:16
exist
00:33:18
and as of that time I was not hugely
00:33:22
impressed by the body of
00:33:28
empirical evidence on the question as
00:33:31
distinct from
00:33:33
consideration of the wise but that was
00:33:37
13 years ago and I may have been poorly
00:33:39
advised at uh that time we just need to
00:33:43
we need to curate that Pipeline and
00:33:47
um I would like to take them this moment
00:33:49
to tell all the people who are dming
00:33:51
texting and emailing me God love you to
00:33:54
put questions in the Q a
00:33:57
um where you will get uh preference
00:34:01
um and uh again with massive thanks to
00:34:05
all my friends Larry you're uh
00:34:07
eight
00:34:09
being insightful and provocative as
00:34:12
expected but I'm also being a
00:34:14
disproportionate beneficiary of that so
00:34:16
Caleb um Nygaard is uh asking a very
00:34:20
interesting question here about the
00:34:23
recent scandals that the FED
00:34:27
um and uh
00:34:29
this question of uh structural
00:34:32
governance reform
00:34:34
um that is percolating perhaps more
00:34:37
actively than uh than it uh has been
00:34:41
um are there any structural changes that
00:34:44
you might recommend and then we have
00:34:47
um a few more questions
00:34:49
here but let's start with fed uh
00:34:53
structure and uh and reform
00:34:59
I would
00:35:00
um probably
00:35:03
allow the
00:35:05
uh Board of Governors
00:35:07
to appoint
00:35:09
the presidents of the regional feds
00:35:15
and I would probably
00:35:19
um cause the current Boards of directors
00:35:22
of the regional feds to be
00:35:26
um advisory boards
00:35:28
because I think the
00:35:30
I I think it's just hard to it's just
00:35:33
really hard to understand why
00:35:36
um Bankers should be involved in the
00:35:38
governance of their regulators
00:35:40
and you know the extreme case which has
00:35:44
been fixed was when the board chairman
00:35:48
of Goldman sat when he was before the
00:35:52
financial crisis when the New York fed
00:35:55
had three categories of directors Banker
00:35:59
directors business directors and public
00:36:02
interest directors and the chairman of
00:36:05
the board of the Goldman Sachs
00:36:06
Corporation was a public interest
00:36:09
director that was a kind of extreme
00:36:12
absurdity and that is no longer the case
00:36:16
but I still think there's a kind of
00:36:19
private sector involved business private
00:36:22
sector involved in its own regulation
00:36:25
that I think is inappropriate so I would
00:36:28
put more responsibility for the whole
00:36:31
Federal Reserve System on the governors
00:36:34
and I would take the various governance
00:36:37
structures surrounding the regional feds
00:36:41
and I would make them into a Advisory
00:36:46
Board type structures I would not
00:36:51
um I would I would not
00:36:54
um favor the proposals to make uh
00:36:58
presidents of regional feds subject to
00:37:02
Senate confirmation
00:37:03
because I think if anything the FED is
00:37:07
too atomized right now after all if we
00:37:10
can make decisions about War and Peace
00:37:13
with one Secretary of Defense why do we
00:37:16
make why do we need to have a committee
00:37:18
of 13 voting on monetary uh policy
00:37:24
um I think the reason we have a
00:37:26
committee is because given that the job
00:37:31
is given that uh the agency is
00:37:35
independent and not subject to political
00:37:39
oversight you can't give it to just one
00:37:42
person
00:37:44
um because suppose they go wrong and so
00:37:46
in a sense the function of having a
00:37:48
committee is to act as a check and
00:37:51
balance on that but that requires that
00:37:55
there be a committee but not that each
00:37:58
member of the committee be overly uh
00:38:03
empowered so in general I think the FED
00:38:08
where there's a kind of moderately
00:38:12
strong quite strong presumption of
00:38:15
deference to the chairman is a more
00:38:18
effectively functioning institution than
00:38:21
the bank of England where the chairman
00:38:24
is more like the Chief Justice of the
00:38:27
Supreme Court kind of first among equals
00:38:30
but sometimes they get out voted and
00:38:34
that's just kind of the way it happens
00:38:35
and you've sort of got a jury of people
00:38:38
each of whom gets one vote who make
00:38:40
their decision so that would be the
00:38:43
change I would make uh in administration
00:38:46
so this is fast in a number of ways
00:38:49
including because it tells our historian
00:38:54
friends uh about you know it sort of um
00:38:58
the importance of
00:39:00
um
00:39:01
their work on things like the FED
00:39:03
founding and the FED structure and the
00:39:05
historical path dependence and the
00:39:07
political factors animating this beyond
00:39:11
the functional uh reasons that you've
00:39:14
articulated and I wanted to commend to
00:39:17
the folks of uh Post in the Q a by
00:39:20
um my dear friend and co-host Rosa
00:39:24
lastra on kind of some of these factors
00:39:26
in the European context of course but I
00:39:30
want to turn to a set of questions on
00:39:34
uh fiscal policy in particular and
00:39:39
um then ask a uh kind of a culture uh
00:39:44
slash Personnel governance question but
00:39:48
then I am not letting this go without
00:39:51
turning to IMF and World Bank and the
00:39:55
international uh economy which is in uh
00:39:58
area that obviously is uh uh of great
00:40:02
concern to both of us and so just
00:40:05
planting that
00:40:07
um on fiscal policy I guess there are
00:40:10
two sets of questions
00:40:12
um one is uh
00:40:16
the what you're describing in terms of
00:40:20
again Windows thermostat uh May well be
00:40:22
the platonic ideal but in a world where
00:40:27
um the thermostat is broken or the
00:40:31
window locks are broken right instead of
00:40:33
where one channel is shut off
00:40:37
isn't that the unusual case where the
00:40:40
other channels should somehow try to
00:40:42
figure out how to compensate and then I
00:40:44
would add so how should legal designs
00:40:47
and mandates and institutions that have
00:40:49
accommodate that possibility if at all
00:40:53
or should we just force a crisis in
00:40:57
order to force reform in other words
00:40:59
shouldn't we should we not try to
00:41:01
compensate for the dysfunction in one
00:41:03
channel
00:41:05
um through the if the IMF isn't working
00:41:07
should the World Bank shouldn't be doing
00:41:09
its job and vice versa or by any means
00:41:12
necessary that's sort of one translation
00:41:14
but the other is
00:41:16
you know why um and I'm reading uh so uh
00:41:20
this is based on Alex uh mechanics
00:41:23
question here
00:41:25
um and then yair listiken uh asks why
00:41:29
should there be any role for fiscal
00:41:31
policy macro stabilization given fed
00:41:34
offset why shouldn't fiscal policy also
00:41:37
strive to get it right on micro grounds
00:41:40
entirely without worry about macro
00:41:42
considerations isn't this in line with
00:41:45
the thermostat analogy
00:41:47
so look let me say a few things I
00:41:52
um first of all Anna just show everybody
00:41:54
who's listening is clear I made a
00:41:57
judgment coming on here that I hope is
00:42:00
appropriate that I would most usefully
00:42:04
contribute to your dialogues if I said
00:42:08
what I really thought based on what I
00:42:10
based on what I know recognizing that I
00:42:14
this is not a literature in which I've
00:42:16
been uh fully immersed and with the view
00:42:19
that a clearly stated opinion even if
00:42:22
wrong is a more useful Target for
00:42:25
inquiry than a bunch of polite mush
00:42:29
absolutely so I have tried to very much
00:42:32
take that position
00:42:33
I actually think that
00:42:36
yair kind of got it right
00:42:38
um the basic premise of clintonomics was
00:42:41
exactly that the basic premise of
00:42:44
clintonomics was that for a set of
00:42:47
microallocative reasons even though the
00:42:51
economy was somewhat sluggish at the
00:42:53
beginning of 1993 the right thing to do
00:42:57
in order to have lower Capital costs
00:43:00
lower interest rates and more investment
00:43:03
was to reduce the budget deficit even
00:43:07
though ceteris paribus that might be
00:43:11
contractionary
00:43:13
um but that the FED would the fed and
00:43:16
the markets would offset that so for the
00:43:19
most part I would apply the logic and I
00:43:22
think in the vast majority of normal
00:43:24
times fiscal policy should not be used
00:43:28
as a stabilization uh policy instrument
00:43:33
I think there is a particular extreme in
00:43:36
case around uh the zero lower bound and
00:43:42
possibly a particular extreme case
00:43:46
around circumstances where interest
00:43:50
rates being too low or too high would
00:43:53
have various other kinds of
00:43:55
distortionary effects which might cause
00:43:58
one to deviate from uh that Doctrine but
00:44:03
that that is not
00:44:05
um but that is uh not uh the uh usual
00:44:11
case and that the more usual case is
00:44:13
that fiscal policy decisions should not
00:44:16
be made on uh aggregate demand and
00:44:21
macroeconomic stabilization grounds I
00:44:24
think there's a kind of
00:44:27
common fallacy in this area
00:44:29
which is
00:44:32
macroeconomic policy is not being
00:44:34
carried on very well
00:44:37
or we don't like the way it's being
00:44:39
carried on
00:44:41
therefore we should try to use these
00:44:44
other instruments to serve macroeconomic
00:44:48
objectives
00:44:49
you know if you think the FED is too
00:44:52
contractionary
00:44:54
I don't think that's particularly a
00:44:56
reason to forgive student loan debt in
00:44:58
order to stimulate demand
00:45:01
because I think if the fed's too
00:45:03
contractionary that will also influence
00:45:06
its response to the fact that you
00:45:09
stimulated Demand with uh your student
00:45:13
loans so it's back to uh the thermostat
00:45:20
and I think one has to be
00:45:23
careful and this is a kind of
00:45:28
General point where you sort of have to
00:45:31
use your judgment
00:45:34
if you're a smart creative person
00:45:37
you're likely in any context to be able
00:45:41
to think of some reason why the
00:45:43
thermostat analogy is not perfect
00:45:46
but you also have to think about all the
00:45:50
flaws that come in
00:45:53
terms of less Focus diverted
00:45:57
accountability
00:45:58
all of those uh things when you start
00:46:03
licensing all arguments on all subjects
00:46:07
so it's like the idea that I think is a
00:46:12
common feature of naive economics
00:46:14
courses particularly taught by
00:46:16
progressives which is you should only
00:46:19
have a you should only have government
00:46:22
intervention if there's a market failure
00:46:25
but if you have a market fee or anything
00:46:27
goes and anytime something if if
00:46:31
something is bad for my health will make
00:46:33
you sad that's an externality and that's
00:46:36
a market failure and when you go down
00:46:39
that road you get a
00:46:42
um you can easily get on a very slippery
00:46:45
slope to an enormously interventionist
00:46:48
approach about which I think one should
00:46:52
be cautious recognizing that there are a
00:46:56
variety of failures that come uh from
00:47:00
public sector interventions as well as
00:47:04
private sector uh interventions so Larry
00:47:08
I want to say that I'm really grateful
00:47:10
and I think we all are recognizing that
00:47:14
um you know this is not only have you
00:47:17
got into an
00:47:19
sort of unknown uh
00:47:22
um
00:47:22
field shall we say but one that doesn't
00:47:25
that may or may not exist in quite the
00:47:27
form than it will end up in so really I
00:47:30
do appreciate and I think we all are
00:47:33
engaging in kind of the finding the
00:47:37
elephant project in good faith and um
00:47:41
absolutely and I I think you know I
00:47:44
think to be clear I think the
00:47:47
institution design
00:47:50
aspects of all this
00:47:53
are the most
00:47:56
institutional design and
00:48:00
institutional conduct
00:48:02
are I think to me the most interesting
00:48:07
and profound of these questions to take
00:48:10
for example a question that it seems to
00:48:14
me that a group of
00:48:17
policy-oriented lawyers
00:48:20
ought to be good at thinking about where
00:48:22
I have never seen good systematic
00:48:26
thought
00:48:27
uh how should one think about
00:48:29
transparency
00:48:31
to take a setting apart from the public
00:48:34
sector
00:48:35
why don't transparency is good
00:48:38
firms have information
00:48:41
why don't we require them to share their
00:48:43
information every day
00:48:46
or every week
00:48:47
rather than just do a quarterly
00:48:50
statement
00:48:51
and presumably it's because we think at
00:48:54
a certain point too much information
00:48:56
becomes noise
00:48:59
um well you know there's the same set of
00:49:01
questions around the fed maybe the Fed
00:49:03
chair he sees every piece of data market
00:49:07
participants would be really interested
00:49:09
in knowing what he thought about it it
00:49:11
would give them more predictability and
00:49:13
more clarity if they knew maybe the Fed
00:49:16
chair should have a press conference
00:49:17
every Monday
00:49:20
but probably not but what are the set of
00:49:24
considerations and how should one think
00:49:27
about those aspects of the conduct of
00:49:31
policy
00:49:32
um to take another example in the FED
00:49:35
context I've always found it mysterious
00:49:37
that
00:49:39
when I was treasury secretary and you
00:49:43
and others would gather and we would
00:49:45
discuss a policy issue we always
00:49:49
regarded it as important that our
00:49:51
discussions be private and we regarded
00:49:55
as inappropriate if either a summary was
00:50:00
provided of our discussions apart from
00:50:03
whatever decision I announced as
00:50:05
secretary
00:50:07
um if a full discussion of a summary of
00:50:11
our deliberations were provided or if
00:50:14
several years later
00:50:16
a full transcript of our meeting was
00:50:18
provided
00:50:19
we would have regarded that as appalling
00:50:22
I think the Supreme Court would regard
00:50:25
it as appalling uh if it was suggested
00:50:28
that with a 10-year lag all judicial
00:50:31
conferences be recorded
00:50:33
and made available to historians and
00:50:36
Scholars who wanted to better understand
00:50:39
the basis of Supreme Court decision
00:50:41
making
00:50:42
and yet it's somehow taken as axiomatic
00:50:45
that it's appropriate for the minutes of
00:50:48
the FED to be given in partial form
00:50:51
after three weeks and after five years
00:50:54
for them to be made public maybe that's
00:50:57
the right thing to do because there's
00:50:59
something different about the FED but I
00:51:02
don't know what it is and how those
00:51:04
kinds of decisions should be designed
00:51:06
and thought through seems like an
00:51:09
enormously important question
00:51:11
uh well secretary Summers it's quite
00:51:14
fascinating that
00:51:16
in the process of you know freelancing
00:51:19
and us re-associating to some extent I
00:51:22
think you've gotten a couple of PhD
00:51:24
dissertation topics out there
00:51:26
um for which we are grateful and also
00:51:29
you've given some of the friends who've
00:51:31
written in these areas
00:51:33
um uh another reason to tweet out their
00:51:36
research but um I want to ask two
00:51:39
completely unrelated questions
00:51:42
um in the
00:51:44
um 63 seconds we've got remaining
00:51:46
because I'm getting kicked out of my
00:51:48
hotel room quite literally
00:51:51
um and we've imposed on your time one is
00:51:54
how do we deal with
00:51:57
um
00:51:58
group think at central banks
00:52:02
um and is there a reform project there
00:52:05
and two is
00:52:09
um should we ditch or radically reform
00:52:11
the Bretton Woods system after what
00:52:13
you've described as a massively
00:52:16
disappointing outcome of the annual
00:52:18
meetings and you can take either both or
00:52:21
neither depending on how much time you
00:52:23
want to uh spend
00:52:27
on the Bretton Woods institutions I
00:52:30
think it's more a matter of they need to
00:52:34
make
00:52:35
different policy decisions that are
00:52:38
wiser and better
00:52:39
rather than that there needs to be a new
00:52:43
set of Articles of agreement or a new
00:52:46
institution
00:52:48
um established
00:52:50
um and I think so I think it's a matter
00:52:53
of the judgments that uh those ins those
00:52:58
institutions
00:53:00
um
00:53:01
are uh are making
00:53:05
not sure that the problem in
00:53:08
central banks is group think
00:53:13
rather than wrong thing
00:53:17
um I obviously have thought over over
00:53:20
the last year that the U.S central bank
00:53:23
has not so much recently but in the in
00:53:28
the in the
00:53:29
12 months from uh May uh April or May of
00:53:34
2021 to April or May of 2022 I haven't
00:53:39
been shy about saying that I thought our
00:53:42
Central Bank lost its way
00:53:46
I don't think they lost their way
00:53:48
because they were unaware of what I was
00:53:51
saying or unaware of the arguments that
00:53:55
I was making I just think they were
00:53:58
wrong and so I don't know whether and I
00:54:01
think it's another good research
00:54:04
question how to think about
00:54:08
um group think versus
00:54:12
um you know excessive Group Thing versus
00:54:15
successive wrong thing and are they the
00:54:18
same thing I am aware of the
00:54:24
streams of research
00:54:26
suggesting that more diverse groups of
00:54:30
decision makers make wiser to make wiser
00:54:35
decisions
00:54:36
I'm not hugely convinced by all of that
00:54:41
uh by all of that research and I think
00:54:46
there are a lot of different dimensions
00:54:48
of uh diversity that go into it and I
00:54:53
suspect that an important element
00:54:58
is missing in all the experimental work
00:55:02
which is that if I'm a group of if I'm
00:55:05
part of a decision-making group
00:55:08
two elements are really important one is
00:55:11
that there be a variety of perspectives
00:55:14
and they all get feeded in
00:55:16
and the other is that people can be
00:55:19
completely candid
00:55:22
relaxed and willing to change their
00:55:25
minds with each other
00:55:28
and there tends to be some tension
00:55:30
between those two things if you let me
00:55:33
be advised by three people who I've
00:55:35
known for 20 years I'm probably there's
00:55:37
probably going to be more risk of group
00:55:39
think but I'm probably going to be more
00:55:41
comfortable putting forth an idea and
00:55:44
then withdrawing it
00:55:46
and I suspect that some of the
00:55:50
experiments are done in ways that
00:55:53
capture the benefit
00:55:54
but don't really capture some of the
00:55:57
potential cost of force and choice so
00:56:01
you could say for example
00:56:04
corporate board of directors will always
00:56:07
be better if you insist on you know
00:56:12
every oil company
00:56:14
deliberation will be better if you
00:56:17
insist on there being a staunch
00:56:19
environmental Advocate pressed and that
00:56:23
that's a reasonable argument most of the
00:56:26
time when it's considered the fact that
00:56:29
probably if you do that given the nature
00:56:32
of human nature you will substantially
00:56:35
increase the probability that
00:56:38
something will be leaked from the
00:56:41
meetings
00:56:43
um probably Bears on
00:56:46
um how that will impact on the
00:56:48
deliberations so I I'm open to the idea
00:56:52
that there should be some set of
00:56:54
policies to uh resist a group thing but
00:57:00
I'm I don't regard that at all as being
00:57:04
a uh proven case
