Charlie Rose Talks to Lawrence Summers
What is necessary to restore economic growth and at the same time lower the unemployment rate?
Let’s be clear. The economy is growing. Income is greater each quarter than the previous quarter. The number of jobs being created has been positive every month for over a year. So we’ve got serious problems, but let’s not make them worse than they are. What we need to do to accelerate …
O.K. Fair enough. Accelerate.
We need, in the short run, more demand. The payroll tax cut should be extended, and the payroll tax cuts should be given for employers as well as for employees. It is a crazy time to be eliminating extended unemployment insurance. The easiest jobs to create are the prevention of the destruction of jobs in the state and local sector. There is no reason why kids should be going to school only four days a week because we can’t support state and local governments. And we can put people back to work. One of the important deficits we have in this country is an infrastructure deficit. When kids are going to school in classrooms where the paint is chipping off the walls, that’s an infrastructure deficit.
Is there anything else?
One crucial source of demand is the variety of things the government can do. Another is increased exports. I think we’ve suffered as a country from having inadequate export consciousness. It’s something we worked on very hard in the Clinton Administration. We’ve been trying to bring that back, and we’ve also been trying to recognize that exports isn’t just about manufactured goods. We badly underperform as a country in terms of attracting tourists from abroad. And if you think about jobs for ordinary people, that’s an area where we can do much better. There’s also a need for us to take steps to improve business confidence.
Why isn’t there business confidence?
The center of it is demand. As long as you have empty malls, nobody’s going to want to build a new mall. It doesn’t really matter what the zoning regulations are.
Look at the negotiations [over the debt limit]. Assess what’s happening in Washington.
It’s not an inspiring picture. The idea that anybody would take the creditworthiness of the United States as a hostage to serve any objective really is wrong. And that is, in essence, what the House majority is saying. The second thing I think is discouraging is that all of the energy is on the projected deficit over the next 10 years … when the problem right now is that the economy’s in danger of stagnating from lack of demand. I’d like to see the jobs deficit be as much of a focus in this conversation as the budget deficit. The third thing I find discouraging is the long-run problem, which is a serious one. The President has been prepared to discuss all of the possible solutions. He’s raised ideas that are unthinkable to many in his political party. … Changing the Medicare age and pushing it up to 67. And the other side has rejected tax reform even when the tax reform in question is a few billion dollars in special generous breaks for corporate jets and a few billion dollars in special breaks for private equity. If the congressional side is unwilling even to contemplate those most minimal and legitimate of revenue measures, then you really are in a situation where it’s very difficult to have compromise.
Lay out for us, as you see it, the consequences of a default.
Post-Lehman [Brothers] event on steroids. The buck will be broken in money market funds. Americans will rush to get cash and put it under their mattresses. Major corporations will be unable to borrow. The stock market will crash, and quite likely, the basic mechanisms of payments that keep the economy going will break down.
Tottering into a recession.
Easily, easily pushing us into recession.
What do you think happened to our politics?
Well, I think in the end, Churchill’s doctrine that the United States does the right thing after exhausting all the alternatives will probably play out here, too.
But the grand design is off the table, it looks like. It’s no longer going to be a $4.5 trillion deduction over 10 years.
And that’s too bad. But let’s distinguish degrees of bad. I still am confident, as the President has said, as Tim Geithner has said, indeed as [Mitch] McConnell has said, that a default will be avoided. What the deal will be that will avoid a default is in some sense not the most important question relative to making absolutely certain that we avoid a default.