Larry Summers Says US Headed Into 'Different Kind' Of Financial Era; Calls ChatGPT 'Important Part' Of Story Of Our Times

Former Treasury Secretary Lawrence Summers on Friday offered his outlook for the market and geopolitical environment in an interview with “Bloomberg Markets And Finance.”

Different Financial Era: When probed on the economic and market outlook for 2023, Summers said it’s going to be a new era of much higher government debt ratios because of national security spending, and substantially larger budget deficits. It’s also going to be a period of much higher investment demand because of the economy’s resilience, he added.

During the Second World War, predictions of a return to secular stagnation and a sluggish low-interest rate economy after the war's end turned out to be wrong, Summers said. He sees a similar development this time.

“My guess is that this is going to be remembered as the year when we recognized that we were headed into a different kind of financial era with different kinds of interest rate patterns,” he said.

Democracy Over Autocracy: On the geopolitical outlook, the economists noted that the U.S. had a more politically productive year of legislation in 2022 than most people expected. He also said that the year had a much easier and more reasonable set of political outcomes in the 2022 midterms, with much fewer contested elections than many people anticipated.

“So I think as America so often has in the past, it's demonstrating its fundamental resilience as a society,” he said.

On the other hand, Summers noted that in countries such as Iran, Russia and China, societies are facing a much greater magnitude of challenges than they did a year ago.

“And my sense is that trend is going to continue. And so I think that democracy is going to look a good deal better relative to autocracy a year from now than it does today,” he said.

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It, however, remains to be seen whether China is modifying its policies toward warmer relations with the U.S., becoming more supportive of market institutions and advancing toward more global cooperativeness, or instead persisting with its “wolf-warrior approach,” Summers said.

“My sense is that the tide of history is moving in our direction,” he added.

On ChatGPT: With ChatGPT and artificial intelligence, Summers said, "you don't have to explain the problem to it, you just have to give it a few examples, and it goes from there." He added that AI is like "a child growing up."

Although not very clear on where this is all going to lead, the economist compared this period of AI expansion to the beginning of the atomic age or the beginning of the era of electricity.

“These years are going to be remembered for the very different kinds of capacities that mankind developed to supplement its own efforts,” he said. He expects "some of those to end up being benign and some to end up being malign."

“But I think it is going to be an important part of the story of our times,” he added.

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Photo: courtesy of Chatham House on flickr