« The Microeconomic Foundations of Macroeconomics | Main | links for 2010-12-13 »

Monday, December 13, 2010

Summers: Our Best Days Still Lie Ahead

This is the conclusion of a speech given by Larry Summers at the Economic Policy Institute (his final address before stepping down as Obama's economic advisor):

...America's history, in a certain sense, has been one of self-denying prophecy – a history of alarm and concern, but alarm and concern averted by decisive actions to assure our prosperity.
As one former CIA director warned of our largest competitor, that industrial growth rates of eight or nine percent per year for a decade would dangerously narrow the gap between our two countries.
That was Allen Dulles in 1959 referring to the Soviet Union.
And when the Soviet Union collapsed instead, the Harvard Business Review of 1990 proclaimed in every issue – every issue – in one way or another that the Cold War was over, and that Germany and Japan had won.
Now we hear the same thing with respect to China.
Predictions of America's decline are as old as the republic. But they perform a crucial function in driving the kind of renewal that is required of each generation of Americans.
I submit to you that as long as we're worried about the future, the future will be better.
We have our challenges. But we also have the most flexible, dynamic, entrepreneurial society the world has ever seen. If we can make the right choices, our best days as competitors and prosperous citizens still lie ahead.

During the Q&A, he explains what he has in mind:

If our college graduates or our high school graduates find themselves embedded in an individualistic competition with workers from around the world, or if they develop skills for which the demand is going to fall due to possible replacement by technology, their wages are not going to rise. A necessary strategy for increasing wages is that we develop areas of unique strength that are less subject to international competition. That means the vast range of activities described in my speech where the market is inherently local. That also means maintaining the capacity for innovation so that our production is producing things that are not in what business strategists call commoditized businesses where that competition is going to be much more brutal.

No matter how hard we try, some people are still going to be in competition with workers around the world and their wages are going to stagnate relative to others. This will lead to an increasingly divided society in terms of the haves and the have nots, and how we choose to deal with this reality -- the steps we take to close the gap, or not -- is one of the more important questions we face.

    Posted by on Monday, December 13, 2010 at 03:06 PM in Economics | Permalink  Comments (44)


    Feed You can follow this conversation by subscribing to the comment feed for this post.