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Speaker 1: I'm David Western. We are joined once again this week

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Speaker 1: we are our very special contributor Larry Summers of Harvard. Larry,

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Speaker 1: thanks so much for being being this We have to

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Speaker 1: start with those Wow, as some people are calling them

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Speaker 1: jobs numbers. They came out way above expectation. What did

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Speaker 1: you make of them?

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Speaker 2: Look, the economy has been surprising on the upside for

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Speaker 2: a while, so I was surprised, not shocked that the

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Speaker 2: job numbers came in that way. It was a pretty

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Speaker 2: broadly strong report household survey, business survey wage numbers, especially

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Speaker 2: given that the weather was pretty bad in January in

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Speaker 2: many parts of the country, which probably held the numbers

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Speaker 2: down below what would have been their normal level. And

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Speaker 2: what that suggests is that despite the interest rate hikes

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Speaker 2: of the Fed, there's a lot of strength in the economy.

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Speaker 2: My instinct is that that is telling you, as I've

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Speaker 2: been saying for some time on your show, David, that

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Speaker 2: some coation of a higher neutral rate is the world

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Speaker 2: we're living in, and possibly quite possibly spending has become

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Speaker 2: less intrasensitive over time because there's less housing in the

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Speaker 2: economy relative to GDP, because durable goods are less durable

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Speaker 2: and so long live than they used to be because

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Speaker 2: there's more flow of income to the rest of the

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Speaker 2: economy from larger government debts, and that makes interest rates

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Speaker 2: operate in the other direction. So I think what we've

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Speaker 2: learned is that what we might have thought would be

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Speaker 2: substantially restrictive monetary policy based on the magnitude of the

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Speaker 2: intrastrate hikes really wasn't well.

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Speaker 1: And we heard from the Treasure sector of Janet Yellen

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Speaker 1: this week saying she's not sure that the interests, the

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Speaker 1: longer term interest rates will come back down. They may

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Speaker 1: remain elevated, in part because of how robust the economies.

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Speaker 1: We also heard the FED Chair J Powell say his

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Speaker 1: concern isn't so much about reacceleration of inflation, but it

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Speaker 1: just won't come all the way down. On the other hand,

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Speaker 1: despite the wage increases, productivity is at high levels right now.

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Speaker 1: I just checked it. I think it's like three point

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Speaker 1: two percent right now. Might that save us?

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Speaker 2: The answer is yes, yes, and yes, I welcome Secretary

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Speaker 2: Yellen's recognition that given prospective budget deficits, given perspective increases

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Speaker 2: in investment demand, we really don't know where neutral interest

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Speaker 2: rates are going to be. I'll be interested in seeing

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Speaker 2: what's in the administration forecast when it comes out. I

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Speaker 2: think one would want to be guessing that Treasury bill

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Speaker 2: rates will be averaging well above three percent through the

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Speaker 2: rest of this decade.

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Speaker 1: Larry, we talked with your economist colleague Paul Krookman this

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Speaker 1: week about inflation and what we should have expected, and

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Speaker 1: he admitted that he actually underestimated the issue of inflation.

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Speaker 1: He thought it would not be as big and glasses long,

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Speaker 1: and he sort of called you up by name, saying

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Speaker 1: he thought you'd stayed too long on the old models,

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Speaker 1: that you hadn't appreciated that this was really a once

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Speaker 1: in a lifetime experience with the pandemic and the shutdown

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Speaker 1: of the supply. What do you have to say about that?

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Speaker 1: Do you in retrospect did you over predict the need

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Speaker 1: for unemployment to get inflation down?

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Speaker 2: Look, I think we're having a softer landing than I

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Speaker 2: would have expected so far. We'll see how inflation settles out.

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Speaker 3: But we are having that.

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Speaker 2: I think Paul tends to attribute it to a whole

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Speaker 2: set of stuff on the supply side. I see the

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Speaker 2: largest fiscal stimulus by far since World War two. I

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Speaker 2: see nominal GDP growth rising in double digits. I see

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Speaker 2: it economy that gives evidence of booming, and gave evidence

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Speaker 2: of booming before the supply stuff was fixed, and so

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Speaker 2: I think demand is a pretty big part of the story.

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Speaker 2: But yes, the outcome.

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Speaker 3: Has been more benign than those.

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Speaker 2: Of us who drew the implications from standard models predicted.

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Speaker 2: I think if you look back, we recognized that there

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Speaker 2: was enormous uncertainty. But yes, things did come back in

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Speaker 2: a way that was more favorable than standard models would

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Speaker 2: have expected. Though I'm much less prepared to declare that

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Speaker 2: it's all over.

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Speaker 3: We have not yet landed this plane.

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Speaker 2: No one, to my knowledge thinks the kind of job

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Speaker 2: growth we see over this month or over the last

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Speaker 2: quarter is medium term sustainable, and that means and no

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Speaker 2: one thinks we're all the way back to two percent

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Speaker 2: inflation on a durable basis, and so that means that

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Speaker 2: there are still issues.

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Speaker 3: Around the landing.

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Speaker 1: Larry, we also talked to Paul Krugman about what happened

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Speaker 1: in the nineteen nineties you were in the administration of

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Speaker 1: the time, because we talked about whether there was a

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Speaker 1: need to really address the debt and death that something

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Speaker 1: that was done with the ninety three Clinton Budget Reconciliation Act,

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Speaker 1: And he surprised me at least by saying he didn't

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Speaker 1: think that the growth we had in the nineties was

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Speaker 1: a tripa to that at all. There really was a

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Speaker 1: matter of technology coming online for businesses. We've talked to

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Speaker 1: you about that before. What's your take on what really

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Speaker 1: happened in the nineteen nineties and the relationship between that

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Speaker 1: ninety three Act and the tax increases and spending cuts

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Speaker 1: on the one hand and growth on the other.

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Speaker 2: Look, there's no question that the economy hit good fortune

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Speaker 2: from technology in the nineteen nineties, and that's an.

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Speaker 3: Important part of the story. But you know, when you bring.

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Speaker 2: Down capital costs, that's when people tend to take a

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Speaker 2: longer view. That's when there's more investment in technology that

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Speaker 2: produces growth. And I think what those of us who

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Speaker 2: were in the Clinton administration always felt was that by

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Speaker 2: cutting interest rates, you could turn a vicious cycle of

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Speaker 2: high capital costs and low investment into a virtuous circle

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Speaker 2: of lower capital costs, more investments, more growth, lower deficits,

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Speaker 2: and the cycle goes round again. And I think you

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Speaker 2: can never replay history but gosh, I think if we

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Speaker 2: had failed to act strongly with respect to the deficit

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Speaker 2: in nineteen ninety three, I don't think we would have

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Speaker 2: seen the kind of economic miracle that happened in the

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Speaker 2: nineteen nineties. At the same time, look, I think on

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Speaker 2: shows like this, people in markets do have a tendency

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Speaker 2: to put all the emphasis on the short run tools

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Speaker 2: of monetary and fiscal policies, and it's.

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Speaker 3: A mistake to.

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Speaker 2: Recognize structure and technology as driving forces of what happens

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Speaker 2: in the economy. And I think in that area, the

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Speaker 2: Clinton administration was fortunate in just what was happening in

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Speaker 2: the private sector, but also whether it was telecommunications, whether

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Speaker 2: it was the approach that was taken to the internet,

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Speaker 2: acted wisely in creating an environment that made it very

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Speaker 2: attractive for the private sector to invest.

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Speaker 3: And in all honesty, I think they are.

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Speaker 2: Important lessons from that moderate progressive approach for policy going forward.

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Speaker 1: Larry, thank you so very much, as Larry Summers are

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Speaker 1: a very special contributor here on Wall Street Week. He's

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Speaker 1: from Harvard