Larry Summers on Job-Taking Robots and Permanent Economic Stagnation

Larry Summers, a former Treasury Secretary, Harvard president, and front-runner to take over the Federal Reserve before bowing out this fall, was interviewed at the Wall Street Journal CEO Council in Washington, D.C. this week. 

Here's my partial transcript of his remarks, lighted edited for clarity.  

On computers and robots taking our jobs: There were some guys who wrote a book nine years ago about technology and its impact on employment. They said computers can do some things, but they won't be able to do others. The example of things they couldn't do was make a left turn against ongoing traffic. Well, Google nailed that one within less than a decade.

Since leaving government I've spent time in Silicon Valley. The set of things they can set technology to do is mind-boggling. Now, it's always been true with technology that jobs were eliminated in one sector and went somewhere else, and there wasn't net loss. People thought it couldn't happen -- it was true with agriculture, with the Luddites, it's always been true that lost jobs somewhere go someone else. But the fact that it's always been true doesn't mean it will always be true. It used to always be true that housing prices only went up. It's not a conclusive arch over time.

An example I like is, George Eastman had great ideas on photography, and it not only benefited him, but along with his success the city of Rochester supported success for generations. Compare that to Steve Jobs. His ideas benefited him and his shareholders, but there was no comparative large-scale middle-class job creation.

That's what we have to work through. It requires becoming much more imaginative with regard to service jobs, and the dignity of work in the service sector. I'm all for doing everything we can, and there's lots still to do regarding a renaissance in American manufacturing. But I want you to think about this: China has gained competitiveness, gained share, been incredibly innovative and gained efficiency, but there are actually fewer workers in Chinese manufacturing today than there were 20 years ago. So success if and when it comes is going to come from various kinds of service works, various kinds of greater customization. Look, it's a tragedy, on the one hand you're saying there's not enough work to do. On the other hand, there are several million kids in this country who profoundly need individual attention in a way they are not close to getting. We have no way of bringing people who want to work together with those.

On whether economic growth will stay low for long periods of time: I'm not predicting it, but I don't know how you can look at the data and not say it's a substantial risk. Four years ago right now financial repair had happened, TARP had been repaid, credit spreads had normalized. There was no more panic in the air. Four years ago. We have not grown the share of adults working in the U.S. at all since that time. We have not gained at all on the potential of the economy.

The forecasts have been persistent, absolutely consistent, that we would return to accelerated growth nine months in the future, and it's always been wrong. Maybe that's right now, and we'll be faster nine months from now, but I don't know how you can be certain it will. 

There was a troubling feature before the crisis. Think about 2004 to 2007. We had what the consensus thinks were excess budget deficits and easy monetary policy, a credit bubble and a housing bubble. You might think that with all these things going, we'd have an economy overheating. But it wasn't. The underlying real economy [employment and productive capacity], with a huge support of demand, was not overheating by any stretch of the imagination. It's been more than a decade since we've grown at a healthy rate in any sustainable way. That is a deep concern as we look to the next decade.

When I came into the Clinton administration in 1993, we did a comprehensive exercise, using growth forecasts from the Fed and IMF, forecasting Japan's long-term growth rate. There was a debate. The pessimists thought 3% a year for the next 16-20 years. The optimists thought 4% a year. It has in fact grown by 0.6% a year since. So GDP is slightly more than half today what we universally believed back then. We didn't think permanent stagnation was conceivable. But it happened.

Is there a risk of this in the United states? Absolutely. I have to say that between pessimistic or hyper optimistic, I'd choose pessimistic. My guess is it'll be better than that, but the thing policymakers should be obsessing about is risk of secular stagnation. That is where the concern ought to be. 

In part two, I'll share Larry's thoughts on international taxes and the rollout of the Affordable Care Act. 

No Pitch


Read/Post Comments (14) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 26, 2013, at 5:09 PM, kyleleeh wrote:

    <<China has gained competitiveness, gained share, been incredibly innovative and gained efficiency, but there are actually fewer workers in Chinese manufacturing today than there were 20 years ago.>>

    Couldn't find numbers from 20 years ago but BLS says from 2002-2009 Chinese manufacturing employment grew from 85.9 million to 99 million. To put that into perspective at the height of manufacturing employment in the US we had about 1/4 that number.

    http://www.bls.gov/fls/china.htm

    <<it was true with agriculture, with the Luddites, it's always been true that lost jobs somewhere go someone else. But the fact that it's always been true doesn't mean it will always be true.>>

    What often gets forgotten is that reabsorption into new sectors took decades to occur. It's way to soon to say what the effect of digital technology will be on employment. For the entire first half of the 20th century there was so much surplus labor from displaced agricultural workers that manufacturing didn't even need to pay subsistence wages. It was only for a few decades after WW2 that labor became scarce enough that manufacturing became a "good job". There's no economic law saying that same can't happen with recreation and hospitality, or food service workers.

    It's also always been true that the labor force gets bigger every year...that may not be true anymore.

  • Report this Comment On November 26, 2013, at 5:14 PM, kyleleeh wrote:

    <<An example I like is, George Eastman had great ideas on photography, and it not only benefited him, but along with his success the city of Rochester supported success for generations. Compare that to Steve Jobs. His ideas benefited him and his shareholders, but there was no comparative large-scale middle-class job creation.>>

    Over 500k people globally are employed making Apple products and the components that go into them.

  • Report this Comment On November 27, 2013, at 6:37 AM, kyleleeh wrote:

    Here's a better way to view manufacturing employment trends. US manufacturing employment peaked in 1980 at around 20 million, since then it has dropped to about 12 million.

    So that means that during a single seven year period from 2002-2009 china created about 1.6 manufacturing jobs for every manufacturing job the US has lost in the past 34 years.

    Even economists as bright as Larry Summers seem to have trouble severing that emotional connection that prevents people from realizing that "The" economy and "Your" economy are not always on the same trajectory.

  • Report this Comment On November 27, 2013, at 5:45 PM, xetn wrote:

    Several factors influence jobs, not just automation. Government regulations cause loss of jobs by forcing companies off-shore to avoid the added cost without an added benefit. Higher taxes does the same thing.

    Also laws such as the minimum wage (which really should be renamed as the guaranteed unemployment law) forces companies to either not hire low (no) skilled, or under educated to now hire.

    Then there is the effect of Obamacare which is already having the effect of forcing employees to work less than 30 hours per week to keep from having to pay for their "insurance".

  • Report this Comment On November 27, 2013, at 6:18 PM, ddepperman wrote:

    Frankly, Dudes:

    I'm looking forward to becoming a cyborg. All you need is a wall outlet, and maybe some friends.

    You can access what's online, and if you can hack you can read secret documents too. Whatta "life"!

    Cheers,

    d

  • Report this Comment On November 27, 2013, at 6:46 PM, wjcost wrote:

    Why not tax robots?

  • Report this Comment On November 27, 2013, at 7:36 PM, todamo13 wrote:

    More people are starting to come back to agriculture because they want real, sustainable, chemical-free food rather than industrial low-quality junk food. And they are looking to reconnect with nature and find meaning in their lives after working in cubicles.

    The market for organic food is growing rapidly, despite the economic downturn, so there will be increasing opportunity for small organic farmers. I think that agriculture is one sector where the trend toward automation and industrialization will actually reverse.

  • Report this Comment On November 27, 2013, at 8:02 PM, KongPL wrote:

    bought a small farm 15 years ago - not fancy, just affordable. Look forward to retire soon and grow my own, healthy food. Doing something that actually benefits my life - and maybe that of a few people around me as well. Engage with my neighbours, enjoy their company - real rather than virtual interaction. People who show me that they really like me, not through some fake Facebook "like" or LinkedIn "endorsement".

    Get real, folks, the vritual world will not create a single bit of healthy, good food. But then, most people don't know how real food tastes anymore.....

  • Report this Comment On November 27, 2013, at 9:07 PM, wjcost wrote:

    I will ask once again, why not tax robots? Why not a value added tax just on robots? Humans doing robotic work need medical care, social security, vacations and so forth. That costs big time. Our problem is jobs. To grow the economy we need consumption. Robots do not consume. In case you have not noticed, robotics is a very mature technology not needing protection and very capable of supporting reasonable taxation. In the extreme case, which I believe to be the situation, robots will prove to be so superior to humans that they will prevail even when taxed. That is OK. The tax revenue will support welfare for the incapable and the effective education of their children. Once those children are educated to the point that they can contribute to the modern economy, we will still not be able to generate sufficient jobs. SO WHY DONT WE REDUCE THE WORK WEEK AND ENJOY THE FRUITS OF THE LABORS OF ALL THOSE ROBOTS?

  • Report this Comment On November 27, 2013, at 10:22 PM, modeltim wrote:

    How about job programs to rebuild America's crumbling infrastructure? There are plenty of things that need to be worked on but there is no will to do these things by those in charge of unfettered capitalism and their idolatry of money above all else. Pope Francis is correct.

  • Report this Comment On November 27, 2013, at 11:55 PM, wolfman225 wrote:

    ^There's no such thing as "unfettered capitalism" anywhere in the world. As for a "jobs program", wasn't that the whole point of $timulus? You know, "roads & bridges" and "shovel-ready projects" that, to quote out President, "Weren't as, uh, <chuckle> shovel ready as we thought."

    Oh, BTW, I much prefer the "idolatry of money" to the idolatry of gain without productive work.

  • Report this Comment On November 27, 2013, at 11:56 PM, wolfman225 wrote:

    That should be "our President". We need an edit function.

  • Report this Comment On November 28, 2013, at 2:55 PM, SkepikI wrote:

    <Four years ago right now financial repair had happened, TARP had been repaid, credit spreads had normalized. There was no more panic in the air.>

    I suppose that depends on how Larry defines "TARP", "repaid" and "panic"

    On further reflection after reading this article, perhaps I don't have to revise my already low opinion of Larry Summertime.

  • Report this Comment On November 29, 2013, at 3:14 PM, AGrasKzoo wrote:

    How times change, from competition for good employees (think offering health insurance in 1950) to a glut of employees (think school teacher graduates applying at a rate of 200 + per job in 1970) etc... we still have too many people wanting jobs. Over productivity. How nice we have so much productivity, we lack for nothing, we have too much stuff. Not enough time. If it weren't for no fault divorce maybe moms could be valued again for staying home, excuse the politically incorrect comment, maybe some dads could instead. The children sorely need supervision let alone attention and guidance. I still believe there is truth to "The hand that rocks the cradle rules the world" So, that dates me. Millennials probably never heard that one. Value is more than $$$ in take home pay. WHO'S ROCKING YOUR CRADLE????

    We used to work to earn a living instead of living to earn a working. One job and one homemaker per family might even things out and restore some balance, but that sounds so anciently looney it will never catch on.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2744030, ~/Articles/ArticleHandler.aspx, 8/30/2014 4:15:56 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 17,098.45 18.88 0.11%
S&P 500 2,003.37 6.63 0.33%
NASD 4,580.27 22.58 0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes


Advertisement