Soros, Summers, and Merton Discuss the Economy at Booz & Company Sponsored Forum

11/04/08

Booz & Company recently sponsored an economic forum to discuss the future of the world economy in the wake of the current financial crisis. Featuring a distinguished group of economic experts, the discussion was moderated by Tom Stewart, Booz & Company’s Chief Marketing and Knowledge Officer and hosted by Big Think, a web-based thought leadership forum.

The forum, called "Beyond the Crisis: The Future of the Global Economy,” featured George Soros, Chairman of Soros Fund Management, Lawrence Summers, Professor of Economics at Harvard University and a former Treasury Secretary during the Clinton Administration, and Robert C. Merton, a professor at Harvard Business School.

The discussion ranged over what went wrong in the financial markets to broader questions of where the world economy needs to focus its resources over the coming years.

Merton argued that the seriousness of the recent financial crisis requires the sort of response that a government would ensure in the wake of a plane crash. “I don’t see why we don’t have the equivalent of the National Transportation Safety Board. You bring in professionals who have access to all the data that is needed. I think that’s a very natural thing to flow out of this and I see no reason not to have it.” (Video: Merton calls for a national economic safety board, Big Think)

Summers said it would be wrong to place too much blame on innovative financial engineering when older explanations still remained appropriate. “There are going to need to be some important paradigmatic changes. But at the same time let’s not forget that there has been greed and fear, in changing proportions of greed and fear, that has caused financial crises since the Ancient Greeks,” he said. (Video: Summers on centrist economics, Big Think)

Looking forward, Summers said the U.S. needs to focus on how it can improve its productivity and make sure that economic gains are distributed more equally. He explained that the U.S. saw productivity growth in excess of 2 percent between 1948 and 1973, and a similar level again in the 1990s, but that productivity has since fallen away. Over the last eight years, he said, what economic gains there have been have “gone heavily to those in the top few percent of income distribution.” (Video: Summers’s history of American productivity, Big Think)

Soros said that the world economy would need to find new “engines of growth” as it seeks to move forward. One possibility is innovation around climate change, including alternative energy and energy efficiency, he said. “That ought to be the motor that is going to take us out of the recession. That is where I see us heading out of the global recession that we are currently heading into.” (Video: Soros on America’s new engines of growth, Big Think)

Another potential source of growth was to lift the world’s poorest into the “active” economy, he said. “Bringing the underdogs into the global economy is another potential area for growth. Of course, you need to balance it against global warming, because as the Chinese and Indians start using automobiles it accelerates global warming. But reducing the differences in living standards, bringing the underdogs into the global economy, is a tremendous area for growth. (Video: Soros on the impact of the global population explosion, Big Think)

Summers agreed with Soros that the U.S. needed to invest in the next great wave of technology, but said alternative energy may not provide a sufficient lift; other areas such as biotech and material science would also need focus. “I suspect it’s going to need to be a more diverse portfolio than just energy. The energy investments have a tremendous rate of return but some of that is defensive.” (Video: Summers on the future of the economy, Big Think)

In summarizing, Tom Stewart said it was clear that policy-makers would need to find a better balance between the interests of Wall Street and Main Street, between spurring innovation in finance and sound business judgment, and between risk and regulation.

“America’s comparative advantage is as an innovator, so we don’t want to lose that advantage. But we’ve also seen a lot of problems coming from too little regulation around some of that risk-taking,” he said. (Video: Stewart’s summary of “Beyond the Crisis,” Big Think)