Larry Summers

Larry Summers gave a presentation to the DNC Trailblazers Club in NY this morning. He sees three main issues facing America: Financing, Fairness and America's place in the world. The financing is an issue not just because of the size of the deficit itself, which historically is not at the high end of the range. The issue is that the most powerful country in the world owes money to the country that arguably aims to increase its strategic position in the world. Strategically it is important that the US get its fiscal house in order.

Fairness is politically important. The free trade argument is correct and has every economist on its side. However, that does not make it any easier to explain to the vast middle which feels that it is losing out to free trade of labor and capital. The fairness issue can be addressed by increasing investment in education. Teaching must be made a respected and well paid profession. The average SAT score of new teachers is 950. The average pay is 40K. Therefore the teachers union arose to support teachers who are not respected and underpaid. The Republicans are correct to say that more accountability is needed. But the elite class that decides things is too insulated from the public school system.

America's place in the world is slipping. The most recent non-aligned movement brought 119 heads of state to Cuba. China brought 46 heads of State of African nations to Beijing for a summit. Where is the leadership of the United States? The U.S. is playing no role in the Arab Israeli conflict. This is because the Bush administration suffers from the problem of the impatient mediator. Mediators must be willing to bring parties together on a regular basis and make moderate progress towards an ultimate goal.

On corruption, Summers remains optimistic. Culture changes slowly. Many of us in business will acknowledge that some of the things that we might have done ten years ago are now illegal or at least more gray. Greater transparency should not be mistaken for lack of progress on reform.