WASHINGTON —Larry Summers, president emeritus at Harvard University and a former economic adviser to President Obama, said the next president should not make entitlement reform a top priority and refused to comment on the premium hikes happening under Obamacare.
Summers, who reportedly had been advising the Hillary Clinton campaign, delivered the Mundell-Fleming Lecture at the International Monetary Fund (IMF) Jaques Polak Annual Research Conference earlier this month.
Medicare, Medicaid and Social Security costs currently make up the majority of the federal budget each year, followed by defense spending.
“I do not believe that entitlement reform should be a central item on the early agenda of the next president of the United States. I believe the most important determinate of the long-term fiscal health of the United States is the growth rate of nominal GDP of the United States, and if we are successful in accelerating the growth rate of nominal GDP of the United States then I think we are very likely to have a sustainable debt to GDP ratio. And if we are not successful, we are unlikely to have a sustainable debt to GDP ratio and long-term budget compromises are second order relative to that difference,” Summers, former Treasury secretary under the Clinton administration, said at the IMF event.
“Second thing, I believe, is a world where you can issue long-term debt at a real cost of zero gives me every reason to believe that the expansion of public investment reduces the long-term debt-to-GDP ratio. Remember, if you make public investments, suppose the public investments have a fairly modest return, 5 percent, than a dollar of public investment — interest today — requires and earns 5 cents every day forever,” he added.
Summers continued, “We are a long way from being glutted with infrastructure — that might be an issue 15 years from now, but for now if we are able to make investments that produce 5 cents of extra GDP, those 5 cents will generate about an extra one and a quarter or one a half cents of extra tax revenue. The real borrowing cost is zero so the fiscal position of the government is increased and improved — it is not made worse.”
Summers, former director of the White House United States National Economic Council in the Obama administration, noted that deferring maintenance of the nation’s infrastructure “raises subsequent costs.”
“You maintain things promptly and it costs less. Delay compounds any far greater rate than a real cost of zero, and so even if there were no productive benefits of infrastructure investment, simply pulling forward and doing the maintenance promptly would represent the transfer of the deferred maintenance liability into a paper debt liability where the paper debt liability has a lower cost,” he said.
Summers described a part of the entitlement reform debate he views as “disingenuous.”
“People say we need to cut entitlements in order to preserve them. Well, what is it that will happen if we don’t do that? What will happen is in 15 years we will cut benefits, and what is the proposed solution to preserve benefits? To decide today to cut benefits. So I think we need to be very careful about lurching into premature entitlement cuts, and I would cite as evidence the remarkable change in healthcare cost projections taking place in the United States,” he said.
Health insurance premiums are set to rise next year by an average of 25 percent nationally under the Affordable Care Act, or Obamacare. In states such as Arizona, the increases are as high as 110 percent. In Texas, some residents are preparing for 95 percent increases in their health insurance premiums. Summers was asked for his reaction to the announced premium hikes under Obamacare.
“No, no, no, no comment. I’m done. I’m done,” he responded following his presentation.
When PJM clarified that the question was specifically about how the insurance premium increases would impact the economy, Summers shot back, “What did I just say? I said I was done.”
After walking away, Summers greeted attendees of the conference, posed for photos and signed books.