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Lawrence H. Summers: ‘There are many ways of burdening our future’ Add to ...

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You have a contrarian and pessimistic take on what could be in store for the U.S. economy, and Canada by default. Can you unpack your key argument?

A central problem that we face is maintaining and achieving an adequate growth rate. We used to have a labour force that was growing at 1.5 per cent a year or more. Now we have an adult population that’s growing 0.2 to 0.3 per cent a year, and there are some downward trends in participation. At the same time, productivity growth has been relatively slow. And so, if you look at the last half-dozen years, the United States has only grown at about 2-1/2 per cent since the trough of the recession. It’s achieved huge cyclical gains. So, if a large part of the growth is cyclical, you’re left with very low underlying growth rates. So, slow underlying growth rates, I think, is a central challenge for us going forward.

What could the North American economy look like 10 to 15 years out?

I think we could continue to see relatively slow growth, which will mean a middle class that benefits less and less from opportunity. In a society where that’s true, and where you’re seeing rising inequality, you will see more and more embittered minority citizens. And all of that will contribute to less-healthy and more– gridlocked politics, a society not growing as rapidly as it once did, and one that tends to retreat from international obligation. And I think the retreat of the United States could be quite dangerous to the geopolitical system.

What is driving this dynamic? A lot of people seem spooked by technology and mass automation. Is this a big part of what’s to blame for sluggish growth?

I think technology and automation are significant causes of inequality. I think they are causes of joblessness particularly among less-skilled men. There are likely to be larger challenges to unskilled labour and moderately skilled labour going forward over the next generation. But I think it’s more the absence of innovation and demand that accounts for the slow growth in recent years.

Do you think that the political class in America, which you know intimately, is up for the type of strong medicine that you’d like to prescribe the U.S. economy?

I think that most of the steps that I would favour [infrastructure investment, tax reform, immigration reform and free trade] are in the interest of the vast majority of Americans. It cannot be right that, in a country with record construction and non-employment, one that can borrow money for the very long term at rates close to 2 per cent in a currency that it prints itself, Kennedy Airport looks as it does. That’s a symbol for a great deal of infrastructure investment. It is shocking and not acceptable that federal investment in infrastructure is now zero as a share of GDP on a net basis – that is adjusting for depreciation. That it’s the lowest it’s been in more than 50 years. That can’t possibly make any sense.

Your critics say infrastructure investment is great in concept but it burdens already debt-laden future generations with even more spending.

I yield to nobody in my concern for my children’s generation and my children’s children’s generation. There are many ways of burdening the future. One is to borrow money – though, given how low interest rates are, those burdens aren’t that great. Another is to defer maintenance. Those costs accumulate at a much greater rate, and that’s why I think infrastructure investment is so very important. Another way to burden future generations is to scrimp on education. Another way is to fail to invest in basic scientific research. Another way is to saddle them with huge pension liabilities for those who are working, serving the public today. We are doing all those things. And so, a more rational set of policies that raise the growth rate and leave them 20-per-cent richer than they would otherwise be is by far the most important thing we can do for future generations.

If a young person asked you, ‘How do I thrive in a low-growth economy?’ what would your advice be?

It’s never been more important to be comfortable with technology, to be well-educated, to not just know things, but know how to learn, and develop a set of distinctive skills that employers can value. For people who are able to do those things, the combination of technology and global markets will make this a moment of immense opportunity.

What’s the fate of those who can’t?

I think there are going to be important challenges. I think, just as the period when we moved into an industrial economy led to a great deal of new thinking and actions around social insurance, our transition to a knowledge economy is going to require us to think very hard about the role of the public sector.

Rudyard Griffiths is chair of the Munk Debates. This interview has been edited and condensed. To hear the entire conversation, subscribe to The Next Debate podcast on iTunes or visit www.munkdebates.com.

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