Where do you see strength as the economic shock from 2008 fades?
We’re beginning to see growth in almost all the advanced economies, including Europe, which is surprising. The second-quarter data came in quite well. Britain is showing some growth, which didn’t look like it was going to happen for a long time, and the famous BRICs, the leading emerging-market economies, are slowing down a little relative to what we had gotten used to before. So there’s a slight movement in favor of the advanced economies.
How would you grade the state of the U.S. economy?
The United States, although it’s hard for Americans to believe, managed the crisis better than the other advanced economies. The many things which were reviled, the TARP [Troubled Asset Relief Program], things like that, actually were successful. The U.S. got the banking system back into shape quicker than anyone else. The Europeans still haven’t done that. In that process, the U.S. ran huge budget deficits, and through a very inelegant process, namely, the sequester and so forth, the budget is now in pretty good shape.
So we now have a sustainable deficit?
Not yet, but the progress that was made in the last two years is very impressive, and if the U.S. continues and doesn’t exaggerate by trying to get back to a balanced budget or 2 percent deficit too quickly, this growth will increase. It’s about 2 percent, a little less now, can go up to 2½, get back to what is regarded as normal, which is around 3 percent.
What will be the impact of China’s slowdown?
They’ve grown faster for longer than anybody in history. You don’t find previous examples of countries, particularly of any size, growing at something like 9, 10 percent for 30 years. It just doesn’t happen, but it happened in their case. The Chinese economy of today is more than double the size it was 10 years ago. When its growth declines to 7 percent, 7½, it’s adding more to global demand than it did when it was growing at 10 percent 10 years ago, because 7½ percent of a big pie has been growing. So it’s still a very, very important contributor.
Was Keynes right about stimulus?
I think so, and I think that people who weren’t quite certain about that should be certain about that now. There was a lot of belief in what was called an expansionary fiscal contraction. It turned out that by all the data—and this is not just people putting things in the air, this is people actually looking at the data—that the fiscal policy really mattered.
John Kerry seems to have included an economic component in his peace plan.
He wants to accompany this with significant financial aid to the Palestinians. It’s absolutely clear that there’s a lot going on that we’re not seeing, because until the day they announced they were actually going to meet, everybody in Israel said Kerry’s getting absolutely nowhere. Today they are a little more respectful.
Who should be the next Fed chairman?
On the Summers-Yellen issue, they’re both very good economists. Janet has more experience in the Fed. Larry has more experience in the government. I would say that Larry was really one of the outstanding economists of the era when he was still an academic economist. He hasn’t done as much central banking. Janet is a very safe pair of hands, and you want the central bank to be in a very safe pair of hands.