Lawrence Summers on the U.S. economy: “I’m apprehensive”
In March 2008, Lawrence Summers was a featured speaker at the SIEPR Economic Summit — then in its fifth year. Serving as President Clinton’s Treasury Secretary at the time, Summers warned that the United States was facing the most serious macroeconomic and financial stresses in at least a generation.
Not long after, the investment bank Bear Stearns collapsed, setting off the largest financial crisis since the Great Depression.
Fifteen years and several Summit appearances later, Summers once again sounded the alarm. In his remarks March 3 at the 2023 event, Summers, the recipient of the 2023 SIEPR Prize, predicted a “meaningful and significant slowdown” for the U.S. economy.
“I’m apprehensive,” he said.
“John Taylor will validate me,” said Summers, in a nod to the SIEPR senior fellow best known for developing the influential Taylor Rule for containing inflation, “when I say that there is no recorded instance in U.S. macroeconomic history when the unemployment rate was below 4 [percent], the inflation rate was above 4 [percent] and there wasn’t a recession sometime within the subsequent two years.”
With the latest government data showing U.S. unemployment at 3.4 percent and inflation at 6.5 percent, conditions are ripe for an economic slowdown that will — depending on how the Federal Reserve moves next on inflation — result in “significant dislocation” at minimum or, worst-case, “a kind of Wile E. Coyote phenomenon where we go off a cliff.”
The root cause of the country’s looming malaise, said Summers: “We overstimulated the economy in a variety of ways.”
His prognosis was one of the more somber insights in a keynote address capping the daylong conference that convened more than 450 policymakers, business leaders, and academics. It was the first Economic Summit to be held in person at Stanford since the pandemic hit and led to online formats.
During the dinner keynote, Summers also reflected on the importance of policy-relevant economics research that is at the heart of SIEPR’s mission. In a Q&A moderated by Patricia McKenna, the vice chair of SIEPR’s advisory board and a principal at Hotchkis & Wiley, Summers offered his take on several pressing issues facing the United States and the world.
For example, Summers said it won’t be known for a long time how generative AI — a form of artificial intelligence that can create content like images, text or computer code — impacts the economy and, specifically, jobs. Citing the late Paul David, one of the founders of SIEPR and an economic historian who traced the decades-long lag between the invention of electricity and economic progress, Summers said the “good” and “bad” that comes from generative AI depends on how society manages the inevitable disruption.
But jobs that require a human touch will surely outlast those that don’t, Summers said.
“Who’s going to get replaced by AI first: Broker dealers who trade Treasury bonds or gardeners?” he asked, before looking pointedly into the audience. “Sorry, but I don’t think there are many gardeners in this room.”
The Summit audience chuckled aloud at that in a welcome return to in-person engagement.