Arnold Kling  

Larry Summers on the New Commanding Heights

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He says,


Look, the most rapidly growing sector of jobs over the last decade, and in the forecasts for the next decade, is health care, and education is in the top five. So we need to embrace that. We need to figure out how to make those jobs be better targeted; we need to figure out how to make them be better jobs; we need to do that.

I thought that the Facebook movie ("The Social Network") portrayal of Summers was wrong, because that is not the way that I see him. But he says it was a legitimate portrayal, and he explains why.

I rate the interview a must-read (or see, if you are inclined to watch the video). For example,


If you look at the price earnings ratio for technology companies relative to the price earnings ratios for all industrial companies, you take that ratio, PE technology divided by PE industrial, you can plot that ratio over the last 40 years, and it is at the lowest point that it's ever been.

Thanks to Felix Salmon via Tyler Cowen for the pointer.



COMMENTS (6 to date)
Yancey Ward writes:
you take that ratio, PE technology divided by PE industrial, you can plot that ratio over the last 40 years, and it is at the lowest point that it's ever been.

Yes, but what qualifies as a "technology" company, and what qualifies as an "industrial" company? Surely, today, Ford would be an industrial, but what about 90 years ago? Is it possible that some companies classified as technology today really should now be called industrial? I am thinking of Intel, for example, or even Cisco. I would argue that what Summers wants to compare are mature enterprises with young ones, but might not actually be doing so.

Jack writes:

Summers is obviously very smart, but his "jobs deficit" arguments sound very old-fashioned Keynesian. The way he puts it, it seems all we need is for the Government to connect capable and unemployed workers with needy sectors who seek workers. If only. The real problem (which I think is closer to your model, Dr. Kling, but I could be wrong) is that most workers have difficulty switching careers, and also that wages don't adjust downward. Many workers cling to the illusion that they'll get their dream job back... soon...

mark writes:

I don't know, this makes no sense to me. We have a populace that by and large does not think it should have to pay anything remotely close to the full cost of receiving either health care or education. And in many cases does very little on its own to enhance either health or learning. And we have too much debt. How exactly one grows those sectors under these conditions is beyond me. To say nothing of the general disconnect between jobs added and money spent in either sector and measurably improved outcomes in them. Perhaps I just need to have more faith in wise men.

mark writes:

I don't know, this makes no sense to me. We have a populace that by and large does not think it should have to pay anything remotely close to the full cost of receiving either health care or education. And in many cases does very little on its own to enhance either health or learning. And we have too much debt. How exactly one grows those sectors under these conditions is beyond me. To say nothing of the general disconnect between jobs added and money spent in either sector and measurably improved outcomes in them. Perhaps I just need to have more faith in wise men.

R Richard Schweitzer writes:

There is something called:

The Quality of Earnings

Such mundane concepts are probably beneath those who designate The Commanding Heights such as the chap who originated that phrase (as well as NEP).

Becky Hargrove writes:

I found it interesting how Summers sidestepped the question when asked if healthcare was productive. Of course when we are healthier we are more productive. But in terms of economic comparison to manufacturing, there seemed behind the question a recognition that healthcare is not a direct wealth generator in the present as it remains dependent on both taxation and insurance.

Once, people worried as manufacturing left our shores that we might all be eventually serving hamburgers to one another. Now, Summers tries to imagine service to service that is still profit producing. However, in meetings of healthcare practitioners that look at longterm circumstance, those in attendance are warned to be careful about losing their job, because it may be a long time before they can find another. What does this mean for those who see healthcare as a meal ticket in the future?

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