Larry Summers: prediction

Transcript context

…What if someone said, “Well, for the special 20-year period we lived through Bernanke’s East Asian savings glut, so there was always enough capital, real rates were very low. Arguably, for demographic reasons, that’s starting to end, and we’ll end up back in an era where, actually, the supply of capital with respect to the rate of return will be high again.” Is that possible, unlikely, too far away to matter? First, one word one should never use in economics is never. I don’t want to preclude any possibility completely. Second, you uncharacteristically made an analytic conflation there. You conflated the idea that the savings rate would fall for a variety of reasons with the idea that the savings rate would become more elastic, which is a separate issue. I don’t see any reason to think the savings rate will become more elastic. With respect to the savings rate falling, my reading of the evidence would be different. I think that the structural factors driving low interest rates, including longer life expectancy — which makes people save more — increased insecurity, more inequality, are more likely to be semipermanent than they are to prove transient. I think a variety of the factors holding down investment — the demographic factor, the fact that you can buy an enormous amount of capital for a very low cost, think about my iPhone — all of that I think operates in the direction of meaning that we’re likely to have this phenomenon of low real interest rates and secular stagnation for quite a long time to come. Let’s say you’re advising a philanthropist in St. Louis, and that person has $100 million to help the city. For general background, there are poor public schools, a fair amount of crime, a lot of racial segregation, but some good universities, hospitals. It’s a biotech hub. What kind of advice would you give? How should they start thinking about this problem?…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.