Larry Summers: commitment

Transcript context

…Today, Dennis Rodman offered to mediate between President Donald Trump and the leader of North Korea, Kim Jong Un. You wouldn’t sell yourself as an expert on North Korea, but as an economist, people who’ve negotiated with the North Koreans swear they’re rational. Is your instinct to apply a rational actor model to try and understand what’s going on there? Or do you think it’s more like a version of behavioral economics where other ends are being pursued? [pause] I don’t think I can answer that. What I’d say is, my instinct is the rational actor model is probably right, but that means I’m 80 percent sure that that’s right. The consequence of getting it wrong could really be huge. So I sure want to pursue the rational actor model in a way that’s doing a lot of hedging against a set of possibilities that there are behavioral aspects. That answer seemed a little evasive. It was. No, no, no. It’s perfect. The Fed seems to consistently come in under 2 percent for inflation. Do you think this is just a systematic mistake? Do you think it’s a plan motivated by political economy concerns, that there’s a high political cost to being above two but a much lower cost to being below two? Do you think the implications of the semi-liquidity trap have not been fully digested yet? Do you think it’s a lag from an earlier error still percolating through the system? How do you think about the failure to meet 2 percent in an environment where, of course, it seems that if we had inflation being a bit higher, it would not be a major cost?…

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