Larry Summers On The Economy

We’re spending the morning at the NATIONAL JOURNAL LIVE Workforce of the Future conference, where National Journal editorial director Ron Brownstein just got done interviewing Larry Summers, Obama’s former director of the National Economic Council.

Brownstein asked Summers whether the continuing recession was a product of low demand (companies have money but don’t feel like investing/hiring) or a skills mismatch (companies want to hire people, just not you). Here’s his answer:

I don’t see how anybody can look at the facts in the American economy right now and not recognize that the overwhelming problem is a shortage of demand. You have extremely high unemployment in almost every group, You have fewer employers reporting labor shortage is a problem than ever before, You have very substantial unused physical capacity.
So if you ask what is the most important determinant of what’s going to happen over the next year or next 18 months or 2 years, it has got to be what happens to the overall structure of demand. Equally, I don’t see how anyone can look at the data over the last couple of decades and look at what has happened to the relative incomes, the relative unemployment rates, the relative nonemployment [i.e. people not in the workforce] rates, I don’t see how one can look at those numbers and fail to recognize that something profoundly important and structurual is going on all over the world, and that no matter how succsessful we were in creating demand there would be serious issues with those whose skills are less adapted to the demands of the economy than they once were.

To take one fact indicative of the problem, in the mid 1960s about 19 in 20 men between the ages of 25 and 64 were working. Before the current recession, instead of 1 in 20 not working, it was closer to 3 in 20 not working, and it’s gone significantly up since the downturn began.

Particularly for groups less educated in the population, there are very serious structural issues…

I don’t think you can answer the question of is it a structural problem or a demand problem. I don’t think responsible policy making can ignore either problem. Those who dismiss the demand issue by pointing to structural problems seem to me to miss what is obviously before them. And those who think all we need to do is manage the dials of fiscal policy better and all will be well, seem to me to miss the fundamental forces of lagging education.