Pod Insights Freakonomics Radio 303. Why Larry Summers Is the Economist Everyone Hates to Love About this episode He's been U. S. Treasury Secretary, a chief economist for the Obama White House and the World Bank, and president of Harvard. He's one of the most brilliant economists of his generation (and perhaps the most irascible). And he thinks the Trump Administration is wrong on just about everything.
Transcript 7,995 words · 10 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:01 Stephen J. Dubner? Freakonomics Radio is sponsored by hotels.com. Hotels.com helps you find and book the right stay for work faster. With business preferences, save your travel must haves like gym access or breakfast just once, then get tailored results whenever you search for work travel. Plus, with a free membership, you can save up to 20% on hotels and earn rewards on every stay for future travel. Book now at hotels.com. Visit hotels.com for details.
0:33 Stephen J. Dubner? Freakonomics Radio is sponsored by Amica. You know what they say, if you want to go fast, go alone. If you want to go far, go together. So go with Amica and get coverage from a mutual insurer that's built for their customers, one that looks after what's important to you together. Auto, home, life, and more, coverage that fits your unique needs. Amica helps you protect what matters most. Visit amica.com and get a quote today.
1:04 Stephen J. Dubner? Freakonomics Radio is sponsored by Mint Mobile. With Mint Mobile's summer sale, all of Mint's plans are $15 per month, even unlimited. Free yourself from big wireless and switch to Mint for high speed data and coverage on the T-Mobile 5G network. To get your new wireless plan for just 15 bucks a month, go to mintmobile.com/freak. That's mintmobile.com/freak. Upfront payment, $45 for three months, $90 for six months, or $180 for 12 months. Plan required, $15 per month equivalent. Taxes and fees extra, initial plan term only. Greater than 50 gigabytes may slow when network is busy. Includes up to 20 gigabytes hotspot. Capable device required. Availability, speed, and coverage varies.
1:48 Stephen J. Dubner? See mintmobile.com.
1:54 Stephen J. Dubner? Freakonomics Radio is sponsored by ChatGPT. ChatGPT work is a new way to work in ChatGPT. ChatGPT work can pull info from across your apps and connect to your tools to help you create finished work. You can even automate work in ChatGPT with the scheduled tasks feature. In the whole time, you stay in control. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting work mode, available on Plus and Pro plans.
2:32 Stephen J. Dubner? We'll start today with a quiz. First, name a former president of Harvard. Okay? Now, name a secretary of the treasury under President Clinton. Now, name a chief economist in the Obama White House. Now, name a one-time chief economist for the World Bank. Now, name a White House economic adviser under President Reagan. And now, name one of the most outspoken policy critics of President Trump. How'd you do? What's that? Too easy? All right, let's make it a little harder. Name a former Harvard president, Clinton Treasury Secretary, Obama chief economist,
3:13 Stephen J. Dubner? World Bank chief economist, Reagan adviser, and Trump critic who are all the same person.
3:18 Speaker 01 Hello?
3:19 Stephen J. Dubner? Hey, it's Stephen Dubner. Is that Larry Summers?
3:23 Speaker 01 Hi, Stephen. How are you?
3:25 Stephen J. Dubner? Larry Summers, or Lawrence H. Summers, that's how he signed your money when he ran Treasury, is considered one of the most brilliant, opinionated, and influential economists of his generation. Summers' reputation is that he's so smart that if you have a huge position open, you would be an idiot to not consider him, but that he's so irascible, so radically candid, such a non-sufferer of fools, you may live to regret it. As Harvard learned when Summers, after five years as its president, quit before he could be fired. But he's back at Harvard now as a professor. How does he spend his days?
4:05 Speaker 01 You know, I teach classes. I advise students on research, on their future. I write a blog on various aspects of public policy. I write economics research papers on topics ranging from global health to the future of the banking system and the prospects of financial stability. I speak with government officials around the world. I advise a number of companies.
4:44 Stephen J. Dubner? And he's been publishing in The Washington Post and The Financial Times, some of the most incendiary anti-Trump rhetoric around. But here's the thing, he's also been carrying on a multi-year campaign about the dangers of what economists call secular stagnation, a long-term period of slow growth. Summers calls it the defining macroeconomic challenge of our times. You can see a similar latitude in the institutions where he's a board member, or fellow, or advisor. The Center for American Progress, for instance, which is essentially an offshoot of the Clinton wing of the Democratic Party, but also the much less doctrinaire Peterson Institute for International Economics, where he dispenses macroeconomic insights that are considered without peer.
5:29 Stephen J. Dubner? Today on Freakonomics Radio, Summers tells us what the White House felt like during the first days of the Great Recession.
5:36 Speaker 01 It was a very tense time, and there were many who thought we might be seeing a precursor to the Depression.
5:45 Stephen J. Dubner? He talks about his policy successes and failures.
5:48 Speaker 01 Perhaps, given what happened, you can say it was a mistake.
5:52 Stephen J. Dubner? He lists his current economic priorities.
5:54 Speaker 01 I think we've completely mismanaged infrastructure investment in the United States.
6:00 Stephen J. Dubner? He talks about policy decisions he would have made differently.
6:03 Speaker 01 Only an idiot would put a sign on the library door saying, "No amnesty now, thinking about one next month."
6:11 Stephen J. Dubner? And why he's not a big fan of the current White House.
6:15 Speaker 01 It's the disregard for ascertainable fact and disregard for analysis of the consequences of policy actions.
6:40 Speaker 02 From WNYC Studios, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner.
6:54 Stephen J. Dubner? Let's say the year is 1954 and you are running some kind of experimental breeding lab for supernaturally talented economists. The most prized product of your lab surely would have been young Lawrence Summers.
7:12 Stephen J. Dubner? You come from a most distinguished economics lineage. Your father and mother were both economists, as were two uncles who each won a Nobel Prize, Paul Samuelson and Kenneth Arrow. When you grow up with economics in your blood and in the air, how does that inform your worldview?
7:29 Speaker 01 I suppose I learned about supply and demand a little earlier than the average child did. And certainly, one of the first lessons I learned as a child was that the most important things in life had nothing to do with money. And so I was always someone who took the statement that an economist is someone who knows the price of everything and the value of nothing, not as a definition or a description, but as a cautionary warning.
7:59 Stephen J. Dubner? So you've served many roles in government and institutions, but you've also spent a lot of your career in academia. Talk briefly, first of all, just about the central difference between academia and government, especially when it comes to the relationship between empirical evidence and policy decisions.
8:19 Speaker 01 Well, you know, I always joked that when I moved from Harvard to work in the US Treasury, that the worst thing you could do as a Harvard professor was to sign your name to something you had not written yourself. On the other hand, as a undersecretary of the Treasury, it was a mark of effectiveness to do so as frequently as possible.
8:43 Stephen J. Dubner? It's an interesting joke for Summers to tell. In 1991, as chief economist at the World Bank, he did sign off on an internal memo that he reportedly didn't write. It was about pollution in poor countries. "Just between you and me," the memo read, "Shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs or less developed countries? I think the economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable. Underpopulated countries in Africa are vastly under polluted." The memo was leaked, after which Brazil's Secretary of the Environment wrote this to Summers. "Your reasoning is perfectly logical, but totally insane."
9:27 Stephen J. Dubner? And he called it "a concrete example of the unbelievable alienation, reductionist thinking, social ruthlessness, and the arrogant ignorance of many conventional economists concerning the nature of the world we live in." Here's how Summers ultimately responded to the so-called toxic memo. He said, "I think the best that can be said is to quote LaGuardia and say, 'When I make a mistake, it's a whopper.'" So, that's one difference between academia and politics.
9:57 Speaker 01 And of course, there was another difference, which is that as a scholar, if you work on a problem, and you work on a problem, and it's just too hard, and you can't find a good solution, what you do is you move on to a different problem. And as a policymaker, you don't have that luxury. You know, one huge difference between the needs of scholarship and the needs of policymaking is that in scholarship, if you point up an important aspect of a problem that nobody's really thought much about before, and you show that it's important, and you explore
10:40 Speaker 01 it in its various aspects, you've made a very valuable contribution. And so, it's the essence of scholarship to abstract from many things in order to highlight a particular point. It's the essence of policymaking to be able to see all the aspects of a given situation. And if you've neglected any important aspect, you're probably not doing your job very well, because that can lead you to make a wrong decision.
11:15 Stephen J. Dubner? In 1993, Summers won the John Bates Clark Medal, given to the best American economist under 40. He was still young, but he was also an old hand. Harvard had awarded him a professorship back in 1983, when he was just 28. He'd taken a leave to work at the World Bank, then back to Harvard, but then it was back to DC as undersecretary of the Treasury for International Affairs. He was at Treasury for six years before Bill Clinton named him secretary toward the end of Clinton's final term. By the way, Summers's chief of staff at the time? Sheryl Sandberg, now of Facebook and Lean In fame. Summers's time as head of Treasury was marked by a push for modernizing the financial and regulatory systems.
11:58 Speaker 01 Let me welcome you all here today for the signing of this historic legislation. With this bill, the American financial system takes a major step forward towards the 21st century.
12:11 Stephen J. Dubner? Along with the new Republican administration under George W. Bush came a new Treasury Secretary, Paul O'Neill. But within seven months, Larry Summers went from being the 71st Secretary of the Treasury to the 27th President of Harvard.
12:26 Speaker 03 Tell me about this world's richest university that you're taking the helm of.
12:32 Speaker 01 Harvard's a very special institution. And the challenge for the next decade is to maintain Harvard's excellence.
12:40 Stephen J. Dubner? His agenda for Harvard was ambitious. A physical expansion of the campus, a greater emphasis on science, more financial aid, and making sure students, especially undergraduates, had good access to faculty. He made some progress, but along the way, he also made enemies. Maybe it was his background in academic economics, where intellectual firepower counts for a lot more than manners. In any case, Summers infuriated some people, alienated even more. What turned out to be the final straw was a talk Summers gave at a small economics conference in Cambridge. The theme was diversifying the workforce in science and engineering. Summers made it clear that he was speaking, quote, "unofficially and not using this as
13:25 Stephen J. Dubner? an occasion to lay out the many things we're doing at Harvard to promote the crucial objective of diversity." In other words, he'd be speaking as an economist, not a bureaucrat. The question he sought to address, "Why are women so underrepresented in tenured positions in science and engineering at top universities and research institutions?" He made clear this was hardly a unique case. "To take a set of diverse examples," his lecture read, "the data will, I am confident, reveal that Catholics are substantially underrepresented in investment banking, which is an enormously high-paying profession in our society, that white men are very substantially underrepresented
14:08 Stephen J. Dubner? in the National Basketball Association, and that Jews are very substantially underrepresented in farming and in agriculture." When it came to the underrepresentation of women in science, Summers identified several possible factors. Discrimination, gender differences in preferences and in socialization from an early age, but also, as he put it, quote, "there are issues of intrinsic aptitude." He went on to say, quote, "I would like nothing better than to be proved wrong, because I would like nothing better than for these problems to be addressable simply by everybody understanding what they are and working very hard to address them."
14:49 Stephen J. Dubner? But once Summers' remarks became public, no amount of nuance or wishful thinking could save him. His goodwill account had run dangerously low, and with the writing on the wall, he resigned. As you can imagine, Summers is not fond of talking about the end of his Harvard reign. I did want to ask him, however, about some interesting new research concerning women in science.
15:16 Stephen J. Dubner? No idea if you've seen it or know anything about it. It's by David Card and Abigail Payne. And it argues that for STEM students in college, it's not so much a case that women are underrepresented as that men are overrepresented. The reason being that many more women enroll in college now generally than men, and that men are typically much worse than women in non-STEM fields. So basically, the men who are good enough to go to college tend to be more appropriately suited to STEM. I don't know if you know anything about this paper, but I'm really curious to know your thoughts on it, since it obviously picks up on a topic that led to your demise as president at Harvard.
15:57 Speaker 01 Well, I'm going to stay away from that aspect of my time at Harvard, Stephen and I. I'm afraid I haven't seen the Card and Payne paper. It is, I believe, a fact that if you look at men who have extremely high test scores in mathematics, and women who have extremely high test scores in mathematics, that if you look at the test scores outside of mathematics, the women will, on average, have higher scores. And that may have something to do with the respective choices, precisely because the
16:36 Speaker 01 women have the greater intellectual strength in the verbal areas. But I'm not going to say any more about this, because, as I say, I have not had a chance to read the Card and Payne paper.
16:49 Stephen J. Dubner? Summers's comments at that conference would continue to dog him. When Barack Obama was elected in 2008 and installed Summers as head of the National Economic Council, there was a lot of pushback. "This is a man who only listens to what he wants to hear," said a female MIT scientist. Does Obama care that someone says 50% of the population is genetically inferior to the other 50%? During his first White House Correspondents' Association dinner, Obama tried to joke about Summers's reputation, not very successfully.
17:24 Speaker 04 We've also begun to change the culture in Washington. We've even made the White House a place where people can learn and can grow. Just recently, Larry Summers asked if he could chair the White House Council on Women and Girls.
17:47 Stephen J. Dubner? Coming up on Freakonomics Radio, summers on the Great Recession, summers on Trump, and summers on summers. You think you'll serve in government again?
17:57 Stephen J. Dubner? Freakonomics Radio is sponsored by Granola. You know that moment when a meeting ends and someone says, "Let's circle back on this next week," and everyone nods, but no one writes it down? Then next week rolls around and it's radio silence? That's why Granola exists. Granola is an AI-powered notepad built for the way real people actually meet. You take rough notes like you normally would, and in the background, Granola securely transcribes the meeting. Then it turns everything into clean, structured, actually useful notes when the meeting ends. And the best part? Granola works through your device's audio, which means it integrates seamlessly into the video conferencing tools you already use. No setup, no awkward bots. It's just your normal meeting with superpowers. If meetings are eating up your day, Granola is
18:39 Stephen J. Dubner? a no-brainer. You can try it totally free. Just head to granola.ai/freakonomics. That's granola.ai/freakonomics to get your time back. Try it for free at granola.ai/freakonomics.
18:59 Stephen J. Dubner? Freakonomics Radio is sponsored by Quince. You know those pieces in your closet that you find yourself wearing on repeat? The sweater that goes with everything, the perfect pair of pants, or the tee you somehow always reach for first? Those are the pieces that make getting dressed easy, and that's what Quince does best. Quince focuses on high-quality wardrobe staples made with premium materials like 100% Mongolian cashmere, organic cotton, and merino wool. The styles are timeless, versatile, and designed to become the dependable pieces you reach for day after day. And it's not just clothing. Quince brings that same approach to everything they make, from hotel-quality bedding and bath to kitchen essentials and thoughtfully-designed furniture. Find your next fall favorites at Quince. Download
19:43 Stephen J. Dubner? the Quince app for app-exclusive offers, or go to quince.com/freak. Get free shipping on your order and 365-day returns. Now available in Canada and the UK, too. That's Q-U-I-N-C-E.com/freak.
20:04 Stephen J. Dubner? Freakonomics Radio is sponsored by hotels.com. Hotels.com helps you find and book the right stay for work faster. With business preferences, save your travel must haves, like gym access or breakfast just once, then get tailored results whenever you search for work travel. Plus, with a free membership, you can save up to 20% on hotels and earn rewards on every stay for future travel. Book now at hotels.com. Visit hotels.com for details.
20:35 Speaker 01 Larry? You never know what's going to happen.
20:38 Stephen J. Dubner? That's coming up, right after this.
20:58 Stephen J. Dubner? Here are a few headlines of the articles and blog posts Larry Summers has written lately. Trump CEOs resigned, his staff should do the same. What history can tell us about Trump's budget fantasy? Western civilization and presidential hypocrisy. In his denunciations of Trump, he has begun to out Krugman, Paul Krugman, as the economist most likely to start a bonfire. But there's a difference. No matter how indignant Summers gets, his analysis isn't received as mere ranting. His bona fides in government seem to have earned him the right. Now, why had Barack Obama been willing to install someone with Summers's baggage as
21:41 Stephen J. Dubner? head of the National Economic Council? Because if you are a new, young president who's just inherited the scariest recession in generations, you want experience and you want brilliance. And that is what Larry Summers had come to represent.
21:58 Speaker 04 And as one of the great economic minds of our time, Larry has earned a global reputation for being able to cut to the heart of the most complex and novel policy challenges. With respect to both our current financial crisis and other pressing economic issues of our time, his thinking, writing, and speaking have set the terms of the debate. I'm glad he will be by my side, playing the critical role of coordinating my administration's economic policy in the White House, and I will rely heavily on his advice as we navigate the uncharted waters of this economic crisis.
22:33 Stephen J. Dubner? What was it like to be on the inside of the Obama administration during the financial meltdown, especially those early weeks where really the future of the economy was in question?
22:47 Speaker 01 It was a very tense time. We would meet with the president each morning and talk about what was happening and what had happened in the markets the previous day, what we were hearing about the health of different financial institutions. But the president was very clear. He said, you know, "This is why I was elected, to do the right thing, whatever the right thing is. And so don't tell me about the political problems. Tell me what the right thing to do is." And that's what Tim Geithner and I tried to do. And while battlefield medicine's never perfect and the things you could look back on and ask questions about, I think you'd have to say that the fact that we had such a dramatic turn in the economy, really
23:30 Speaker 01 in May-June of the president's first year, means that, at least on some of the big, broad-picture aspects, that the approach we chose was effective. And certainly, it wasn't a priori clear that it would be as effective as it was. And there were many who thought we might be seeing a precursor to the depression.
23:51 Stephen J. Dubner? So you were co-chair of the president's auto task force. One of the biggest and most difficult decisions was whether to bail out GM and Chrysler. You argued in favor of a bailout, and you won the argument, though not without a fight, the other side represented by Austin Goolsbee and others. Give us briefly your perspective on this chapter. And even though you won the argument, and even though, from what I can tell, your argument turned out to be correct, in retrospect, I'm wondering if there's anything you might have done differently?
24:22 Speaker 01 No, I think that the question was, as it always is in providing emergency lending, that on the one hand...
24:36 Speaker 01 The cost of keeping Chrysler alive was about the same as the cost of providing for unemployment benefits for all the workers and pension benefits for all those who the pension insurance company would be on the hook for if Chrysler went belly up. So at one level, you could say there really wasn't a net cost to keeping Chrysler going. The problem, of course, was that if you didn't succeed in keeping Chrysler going, you'd pay twice. Once for your failed attempt to keep Chrysler going, and then again, when it failed, you'd end up not having avoided the costs of failure. So one had to make
25:19 Speaker 01 a judgment, given the dynamics at that time, about the prospects that with support Chrysler would be able to turn things around. And you had to be able to make a judgment about how widespread the consequences would be for the rest of the economy if Chrysler were to go down. And the judgment that I believed was that there were no certainties, but I thought there was a substantial chance that, given this support, Chrysler would be able
25:56 Speaker 01 to make it forward, and GM would be able to make it forward, and that you would avoid dealing with something traumatic at a moment when the economy was least in a position to deal with something traumatic. And I think that judgment has been borne out by subsequent events. Could there have been slightly different conditions? Could there have been a slightly different allocation between bondholders and workers of the costs? Could the shares that the government took have been put back on the market with different timing? These
26:36 Speaker 01 are all questions where reasonable people can argue with the benefit of hindsight, where there would be people who would have made different judgments than the ones we did at the time we made our judgments. But I think the broad strategic judgment has been overwhelmingly borne out by what's happened.
26:59 Stephen J. Dubner? Now, there are some people who would argue that the financial crisis itself was a product in some part based on decisions that you and others had made in a previous Democratic administration, the Clinton administration, specifically as part of the Financial Services Modernization Act, the repeal of Glass-Steagall, which freed up banks to be more aggressive, and also that you argued quite heavily against the regulation of derivatives, the financial instruments, which of course turned out to be quite dangerous. So, looking back at those as potential consequences for the meltdown, again, same question, what do you think you might have done differently, knowing now, if you knew then, what you knew now?
27:35 Speaker 01 Look, Stephen, with the benefit of hindsight, and with, if you wave away all the political problems that would have existed at that time, it surely would have been much better to have put in place all the kinds of safeguards that were contained in the Dodd-Frank legislation that was passed in 2010, and to have anticipated all of those needs, and to have put them in place during the 1990s. I think that in assessing the actions that were taken in the 1990s, there are a number of things that are useful to keep in mind.
28:19 Speaker 01 With respect to Glass-Steagall, there's nothing in the crisis that had to do with the combination of commercial banking and investment banking, which is what Glass-Steagall was all about. If you think about the main institutions that were involved, Lehman Brothers had nothing to do with commercial banking, Bear Stearns had nothing to do with commercial banking, Fannie and Freddie had nothing to do with either, AIG was an insurance company, and I could go on with the list. And in fact, some of the key measures that resolved the crisis, such as JP Morgan's taking over of Bear Stearns, or Bank of America's taking
29:01 Speaker 01 over of Merrill Lynch, involved the combination of commercial banking and investment banking. So- I don't find it plausible that Glass-Steagall reform had anything to do with causing the crisis. And I think it's a mistake that economists should be able to move beyond to simply phrase these questions as all regulation is good and all deregulation is bad. I think the question of derivatives is a much more complicated story. Our desire was not to keep derivatives deregulated.
29:45 Speaker 01 We ran into a problem, which was that statements that had been made by the CFTC called into question whether the enforcement of all the huge trillions of dollars of derivatives contracts out there would be possible. And because of the way they'd made those statements, they seemed to be questioning the enforceability of those contracts. And under those circumstances, there was huge pressure from Congress to provide legal certainty.
30:25 Speaker 01 And it was a Republican, very much a free-market Congress, and they insisted as part of providing legal certainty that there be some removal of certain regulatory issues with respect to derivatives. Should we have gone along with that? Perhaps, given what happened, you can say it was a mistake, and certainly I worry that it may have been a mistake. On the other hand, there were issues that seemed pressing to the experienced attorneys at the SEC, the Treasury, and the Fed about legal certainty, to which we were responding.
31:10 Speaker 01 And it's certainly true that if we had preserved authority, I don't think very much would have happened. Because while we did sign legislation that reduced regulatory authority, the Bush administration, which was the administration in power from 2000 until the crisis hit, it used only a small fraction of the regulatory authorities that it had.
31:38 Speaker 01 And it, in fact, ran major photo ops where they showed all the regulatory officials taking the kind of saws you use to cut wood to books of regulations. And so it's hard to believe that whatever authority had been preserved would have been used by the officials who were staging book burnings of regulatory books. So I'm not completely objective on it. And again, I would wish more than anything that we had had the foresight and the political
32:19 Speaker 01 strength to put in place irrevocably the kind of protections that were in, put in place in 2010 with Dodd-Frank. But I think that the narrative is at least much, much more complicated than that of many who simply say, "Well, they were for deregulation and then we had a crisis, so it must have been a mistake."
32:46 Stephen J. Dubner? No matter how complicated it was, whether Summers made mistakes or not, the fact is that he accumulated plenty of critics, even on the Democratic side. In 2013, when the White House floated the idea of Summers as a possible replacement for Ben Bernanke, the outgoing Federal Reserve chairman, a chorus rose against him.
33:05 Speaker 05 Three Democrats on the Senate Banking Committee recently said they would not support Summers. The prospect of his appointment had unified Washington against both sides, both parties. People want a new page.
33:19 Speaker 06 Seems like the president was the only person in Larry Summers' corner. I just didn't hear anybody in Washington or across the country come out in support of him.
33:28 Stephen J. Dubner? The left flank of the Democratic Party had grown particularly frustrated with Summers. He had become the face of a discredited brand of economic centrism that was considered too friendly to the big banks. He did have his defenders, like former President Bill Clinton.
33:43 Speaker 07 Well, he's a friend of mine, and I think that a lot of the criticism to which he's been subject about what he did in my administration is not accurate. I think there's this kind of cartoon image that's been developed that somehow...
34:04 Speaker 07 Larry Summers was a one-note Johnny just trying to let big financial titans ravage the land, and it's just ludicrous.
34:14 Stephen J. Dubner? But it was clear which way the wind was blowing. Summers wrote a letter to President Obama withdrawing his name from consideration for the Fed chair post. Larry Summers may no longer be the political player he used to be, at least for now, but in the age of Trump, he's more vocal than ever. Give me a thumbnail assessment, if you can, of the two men who are serving in two roles that you've served under different administrations. Gary Cohn, Director of the NEC, National Economic Council, Steve Mnuchin, Treasury Secretary.
34:49 Speaker 01 I think one of the crucial functions of the Treasury Department is to be a bulwark of financial integrity for the federal government. And I've been disturbed by the number of things that Secretary Mnuchin has said that were not actually true. His claim that the Trump tax cuts would not provide any relief to those with the highest incomes. His claim, his rather strong defense of the president's behavior with respect to the
35:32 Speaker 01 tragedies in Charlottesville. A variety of his statements about the plausibility that the president's policies would stimulate economic growth seem to me to have put his credibility in considerable doubt. And that's not a personal thing. We don't know when there's going to be some kind of crisis or serious economic problem, and it will be necessary for the Treasury Secretary to provide reassurance. And at the moment, when it is necessary for him to provide reassurance, his credibility is going to be a crucial asset.
36:14 Speaker 01 And if he has said that Donald Trump didn't provide any aid and comfort to racism, if he has said that the tax cuts are not for rich people, then his credibility will be less there when the moment comes when it is asked. In the same way, I have been surprised by the number of statements that Gary Cohn has made that just are matters of fact and aren't right. He asserted that Dodd-Frank had cost banks a few hundred billion dollars a year in compliance costs.
36:58 Speaker 01 Well Dodd-Frank, I happen to support Dodd-Frank regulations, but reasonable people can agree or disagree as to whether they're a good idea. But given that the total payroll of all the banks in the country is $400 billion, it seems unlikely that complying with Dodd-Frank is costing a few hundred billion dollars in compliance costs. Gary Cohn asserted that he was working on doing the first tax cuts in 31 years. Well, we had tax cuts in 1997, tax cuts in 1999, tax cuts in 2001, 2003, and a variety of other years.
37:39 Speaker 01 There are a variety of misstatements that are made. Now, you can say that everybody exaggerates in service of an argument, and you can say that it's all politics and that it's not a seminar room. On the other hand, I think in the economic and financial arena, it's very important for public officials to maintain their credibility.
38:06 Speaker 01 And I would add that on the evidence so far, and of course, things may change. The president talked about a variety of things in the economic area. He talked about what he regarded as the economic benefits of repealing Obamacare. That didn't happen. He talked about the benefits of infrastructure investment. Nine months in, there's not even a plan from the administration for infrastructure investment. He talked about how he would bring about dramatic changes in our trade relations. But he didn't do what he'd said he was going to do with respect to China or with respect to NAFTA.
38:49 Speaker 01 So if you judge either by has the administration been successful in bringing into place the policies it campaigned on, or if you ask the question, has the administration been successful in bringing into place significant policies that have the prospect of spurring economic growth? One would have to say the answer to both those questions so far is no.
39:20 Stephen J. Dubner? Now, just pretend for a minute that you are on their team, that you're on the Republican team. Presumably, you could make an argument that it's early days. Indeed, there is a tax reform plan under discussion at least, and that these things take time, right?
39:37 Speaker 01 Well, if you look at some past presidencies, I didn't support them, but President Reagan's signature policy, his tax cuts, were passed in July or August of 1981. President Clinton's signature economic initiative, the Budget Deficit Reduction Act of 1993, was passed in July of 1993.
40:08 Speaker 01 President Obama's signature economic policy, the Economic Recovery Act from the recession, was passed in February of 2009. And the economy had had its biggest turn from a negative quarter into a positive quarter in the post-Second World War period, between the second and third quarter of 2009. And I could go on with examples like the legislation that LBJ achieved in the summer of the year after his reelection in 1965, or in the summer after he took office
40:52 Speaker 01 in 1964 with the Civil Rights Act. I think the experience is actually very compelling that large deeds by presidents in the economic area tend to have been legislated by this phase in the presidency, or at least tend to be very much in prospect. So I don't think it's unfair to apply the standards that history has applied in judging other presidents. And, you know, I left out what's obviously the most important example, which is FDR's 100 days, where we're now past 200 days.
41:33 Stephen J. Dubner? Let's say a Democrat like Hillary Clinton had won, and let's say Hillary Clinton brought Larry Summers back to DC in some, you know, to-be-determined policy position. If you're making your to-do list right now, 2017, for the American economy and America is part of the global economy, what are your top three items? What do you most want to accomplish?
41:55 Speaker 01 I think we've completely mismanaged infrastructure investment in the United States. We have a way inadequate level of spending. It's nuts that when interest rates are lower than they've been any time in 50 years, that we're also investing less net of depreciation than at almost any time in the last 50 years. It's nuts that we have a regulatory apparatus that means that it took far longer to repair a single exit of the Oakland Bay Bridge than it did to build the entire Oakland Bay Bridge two generations ago.
42:35 Speaker 01 There's a small bridge across the Charles River that I'm looking at outside my office. It's about 300 feet long. It was under repair with a lane of traffic closed for five years. Julius Caesar built a bridge over a span of the Rhine that was nine times as long in nine days. So both on the quantity of expenditure and on the efficiency of the expenditure and the streamlining of the effort, there's plenty of room for improvement. And that's not a partisan thing. Democrats tend to be bigger on more spending. Republicans tend to be bigger on the streamlining.
43:20 Speaker 01 All right. Infrastructure, number one, yep. Second, I think the president's right on the principle, even if he's wrong on the specifics with respect to tax reform. Look, we have $2.5 trillion sitting abroad. Indulge me, if you will, Stephen, in an analogy. Suppose you ran a library, and suppose you had a lot of overdue books from your library. You might decide to give a library amnesty so people would bring the books home. You might decide to say that there would never be an amnesty, and people better bring the books back because otherwise the fines are just going to mount.
44:01 Speaker 01 But only an idiot would put a sign on the library door saying, "No amnesty now, thinking about one next month."
44:10 Speaker 01 And yet, what have we done as a country? We've said to all the businesses with that two and a half trillion dollars abroad that if you bring it home right now, you'll have to pay 35% tax. But we're talking about and thinking about and planning and maybe we'll have some kind of tax reform where that will go down. Getting to resolution, one way or another, on the corporate tax regime, I think, is a very important issue. I'd like to see us tax global income more heavily than we do now, even if it's not repatriated and brought back into the United States.
44:50 Speaker 01 And then I'd like to see some more favorable rate if it is brought back into the United States so that we greatly narrow the gap that provides an incentive to keep capital outside the country right now. And do you get rid of carried interest loophole, or do you keep it? I think that we have a variety of tax breaks for financial engineering, like carried interest, like various breaks that let you engage in complicated loan transact, let the wealthy engage in complicated loan transactions with their children that facilitate the avoidance of tax.
45:34 Speaker 01 I think all of these things, if they were repaired, would help us have a more dynamic and a more efficient economy. And I think the third thing is adapting to the knowledge economy. The truth is that value used to reside heavily in how heavy a thing was, and now it resides heavily in how knowledgeable it is. And that means a whole set of things, starting with strengthening an education system. You know, in many ways, one of the triumphs in this country is that we have, over the
46:16 Speaker 01 last generation, largely conquered price inflation, and inflation rates have been very low. But we certainly haven't conquered grade inflation. And when the most common grade at our leading universities is A... I don't think it can be very surprising when there's various kinds of misrepresentation and various kinds of exaggeration of profits by the graduates of those universities down the line when they're in positions of responsibility in business.
46:45 Stephen J. Dubner? You talk about us having conquered inflation, but I know lately you've been writing about the reasons why federal government can't shrink. And one of those reasons that I found really interesting, you talked about how changes in structural pricing that disproportionately affect government are huge. And you talk about the Consumer Price Index from 1983 versus today and the things that have gotten relatively cheaper and the things that have gotten relatively much more expensive. Can you talk about that for a moment? And I assume where that leads to is a conversation about what you economists call cost disease, yes?
47:20 Speaker 01 Yeah. Just as a point of fact, we use the so-called Consumer Price Index to measure what happens to the price of different goods. And it's an index, so it's set at a certain level in a certain year. And the Consumer Price Index for all products are set, just as a convention, to be 100 in 1983. Well, if you look at the Consumer Price Index for television sets, it's now about 6. If you look at the Consumer Price Index for a day in a hospital room or a year in a college, it's about 600. In other words, since 1983,
48:04 Speaker 01 the relative price of this measure of education and health care as opposed to this canonical product, the TV set, has changed by a factor of 100. Well, that's got a number of consequences. One is, since government is much more involved in buying education and health care than it is in buying TVs, there's going to be upwards pressure on the size of government relative to the rest of the economy. Another is that because there's been far greater productivity growth in the production of television sets than in the production of government goods, a larger fraction of the workforce is going to find itself working in the areas where there's
48:49 Speaker 01 less productivity growth, like education and healthcare. And this is the phenomenon that was first noticed by the late Princeton economist William Bommel, that sometimes referred to Bommel's disease or Cost's disease. And it refers to the fact that if workers become much more productive doing some things, and their wage has to be the same in all sectors, then there's going to be a tendency for the price of the areas in which labor is not becoming productive to rise. And that's why it costs more to go to the theater relative to other things than it did when I was a child. That's why tuition in colleges
49:34 Speaker 01 has risen. That's why the cost of mental health counseling has risen. All kinds of activities where it takes inherently a person, one hour, to provide a given kind of service, and where productivity growth is sort of defeating the point. I mean, productivity growth in education, after all, is a higher ratio of students to teachers, which is exactly the opposite of what we all want for our kids. That those kinds of structural changes are going to define our economy.
50:07 Stephen J. Dubner? You are known to admire and respect raw intelligence, or perhaps even better cultivated intelligence. How smart do you think Donald Trump is?
50:18 Speaker 01 Oh, I'm not gonna be in the position of evaluating that. I don't think that raw intelligence in the IQ sense is a terribly important attribute in being president or in leadership. I think concern with understanding the
50:41 Speaker 01 Issues with which ones grappling and honesty and integrity about facts are much more important values. And I've therefore been very troubled by the president's fairly constant statements of historical events that distort them substantially, statements of matters of objective fact like the size of crowds at his inaugural that are inaccurate, statements of intention like the extent to which his tax cuts will favor wealthy people that are inconsistent with
51:24 Speaker 01 the reality of those tax cuts. So I think it's not issues of intelligence that have troubled me about the president and some of his officials. It's disregard for ascertainable fact and disregard for analysis of the consequences of possible policy actions. And so when the president proposed a budget that included obvious double counting of
52:02 Speaker 01 what were probably to start with vastly exaggerated claims for the revenue benefits that would come from extra economic growth caused by tax cuts, but then to double count it because of an elementary logical error. You don't necessarily expect a president to catch that type of thing, but you do expect a president to surround himself with people who are sufficiently competent that that type of thing won't happen. And you do expect a president to be alarmed if things of that kind happen. Certainly President Clinton or President Obama would have been very disturbed if somehow
52:44 Speaker 01 the budgets they put forward had had the kind of blatant logical errors that were contained in President Trump's budget.
52:52 Stephen J. Dubner? Do you think he'll serve in government again, Larry?
52:55 Speaker 01 You never know what's going to happen, but right now and for the foreseeable future, my focus is very much on my teaching and research and writing.
53:03 Stephen J. Dubner? Are there any potential Democratic candidates in 2020 or 2024, whatever, that you'd get particularly excited about?
53:11 Speaker 01 Oh, you know, I just try to focus on the issues, not the personalities.
53:16 Stephen J. Dubner? You think President Trump will serve out at least one full term?
53:20 Speaker 01 We'll have to see what happens. That proposition is certainly more in doubt than it's been with any president that we've had in September of his first year.
53:31 Stephen J. Dubner? Do you bet? Are you a gambler at all, even like a football?
53:34 Speaker 01 I'm not really a gambler. Stephen, I'm getting near the end of my time here.
53:38 Stephen J. Dubner? All right, let's say goodbye. I thank you very much for your time.
53:41 Speaker 01 All right. Thanks very much.
53:49 Stephen J. Dubner? If you're a gambler, and if a Democrat gets back to the White House anytime soon, what do you think are the odds they'll invite Larry Summers back to DC? Yeah, that's what I think, too.
54:02 Stephen J. Dubner? Coming up next time on Freakonomics Radio, just about every public place you go these days, you'll hear music being played or some kind of a soundscape. So that's a lot of sound to deal with. After all, we aren't born with ear lids. But the one place where you really want some noise, it's quiet as a tomb.
54:20 Speaker 08 Oh, it's disgusting. But honestly, I'd really try to avoid restaurants where there are lots of men doing fireworks, you know?
54:29 Stephen J. Dubner? Time to take back the toilet. That's next time on Freakonomics Radio.
54:42 Stephen J. Dubner? Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Greg Rosalsky with help from Kent McDonald. Our staff also includes Alison Hockenberry, Merritt Jacob, Stephanie Tam, Eliza Lambert, Emma Morgenstern, Harry Huggins, and Brian Gutierrez. We had help this week from Sam Baer. The music you hear throughout our episodes was composed by Luis. You can subscribe to Freakonomics Radio on Apple Podcasts or Stitcher or wherever you get your podcasts. You should also check out our archive at Freakonomics.com, where you can stream or download every episode we've ever made or read the transcripts and find links to the underlying research. You can also find us on Twitter, Facebook, or via email at [email protected] .
55:36 Stephen J. Dubner? Freakonomics Radio is sponsored by Ozempic. Innovation happens through rethinking what's possible. And when it comes to GLP-1s, Ozempic pill does just that. Learn more about Ozempic semaglutide tablets, 4 and 9 mg, by calling 1-833-OZEMPIC or visit Ozempic.com to view the medication guide and ask your doctor what's possible with FDA-approved Ozempic pill.
56:07 Stephen J. Dubner? Freakonomics Radio is sponsored by US Bank Smartly Checking and Savings. You know, US Bank Smartly Checking and Savings are bank accounts that work harder for you. You get better savings rates, fee waivers, and rewards from day one. So you spend less time worrying about money and more on what matters. Sign up for US Bank Smartly Checking and Savings today at usbank.com/smartly. Member FDIC. Copyright 2026 US Bank.
56:39 Stephen J. Dubner? Freakonomics Radio is sponsored by Southern Company. The world and its energy needs are always changing. Southern Company's commitment to meeting this demand stays the same. That's because Southern Company believes energy is more than a utility. It's what powers possibilities. So they are looking ahead and investing $80 billion in infrastructure upgrades and are committed to fueling growth in ways that benefit all customers so that reliable and affordable energy is accessible for generations to come. Go to southerncompany.com to learn more. Southern Company, building the future of energy.
57:17 Speaker 09 This episode is brought to you by Charles Schwab. Is there a right time to sell a stock? Are you taking the right risks with your portfolio? Financial decisions can be tricky, and often your own cognitive and emotional biases can lead you astray. Financial Decoder, an original podcast from Charles Schwab, can help. Join host Mark Reapy as he offers practical solutions to help overcome the cognitive and emotional biases that may affect your investing decisions. Listen at schwab.com/financialdecoder.
Previous 302. Why Learn Esperanto? Next “Tell Me Something I Don't Know” on the topic of Behavior Change (Special Feature) Page updated September 30, 2026 · transcript and summary are machine-generated
