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October 19, 2017

Former Treasury Secretary Talks Economic Growth

Is 3 percent growth possible? Yes, but economists could be wrong, answered Lawrence H. Summers. Summers, an economics professor and former president of Harvard University, addressed a crowd of over 400 students and faculty at the Logan Center on Wednesday. The event was organized by the Becker Friedman Institute (BFI) and moderated by Michael Greenstone, the Milton Friedman Professor in Economics and Director of BFI.

Summers has a distinguished career at the intersection of academia and public service. “I could spend the whole hour going through his remarkable career,” said University president Robert J. Zimmer in the introduction.

Summers began with a remark on the impact of economic analysis: “The point [of economists] is to provide ideas, thoughts, modes of analysis that will over time shape the conventional wisdom in which Washington operates.” He spoke of UChicago economists Milton Friedman and Gary Becker as examples.

In response to Greenstone’s question, “Is 3 percent growth possible?”, Summers was reluctant to make predictions about the economy. Since 2008, the economy has grown at 2 percent, at the slow end of what economists thought the potential was. The Fed’s 2 percent inflation target, according to economists’ forecast, also deviated from what happened.

Turning to the question, “What would be the prescription for today?”, Summers made the case that the inflation target in the short term should be a bit above 2 percent, and that the government should increase public infrastructure investment. He said he opposes the current administration’s tax policy, and instead espoused raising taxation on profits that one made abroad and remained there, and lowering taxation on the profits one made abroad and took home to “bring money home” for economic development.

Greenstone asked if cultural divide is connected to the economy. “Gary Becker’s work tells us any question about culture is potentially amenable to economic analysis,” said Summers, “particularly when the range of economic analysis has been broadened by the behavioral perspectives, for which Richard Thaler so deserved the Nobel Prize.”

He also touched on what he learned from Thaler: There are patterns of human decision-making that are not perfectly rational, but substantially predictable and therefore relevant to scientific research.

A second-year undergraduate student asked Summers about his view on China’s future economic growth. “I still think China will grow more rapidly than we will,” Summers said. But he also cautioned that extrapolation based on the upward trend could lead to false optimism.

Another audience member asked him if academia has a place in policy making. Summers conceded that, for academics to engage in policy making effectively, one needs reputation, political polemic, and authoritative analysis. However, he said, imagining academia as a soccer game, “if you look at the most successful research careers, mostly they’re people who stayed where the ball wasn’t, and [when] eventually the ball came to their corner, they were there all alone, ready for the moments of glory.”

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