CQ Transcriptswire

SPEAKERS: DAVID GREGORY, HOST

LAWRENCE H. SUMMERS, DIRECTOR, NATIONAL ECONOMIC COUNCIL

[*] GREGORY: First, the president’s point man on the economy, Larry Summers. We spoke to him last night from the site of the Summit of the Americas in Trinidad. Dr. Summers, welcome back to “Meet the Press.”

SUMMERS: Glad to be with you, David.

GREGORY: Cuba, and a potential thaw between U.S. and Cuba relations has really dominated the summit business there, even though it hasn’t officially been on the agenda.

This week the administration eased up some of the restrictions on travel between Cuban-Americans going back to see relatives and also the flow of money, sending money back to relatives back in Cuba.

Cuba has also signaled that it’s willing to have a more open dialogue with the Obama administration, and increased calls for the U.S. to lift the embargo against Cuba. This is where the politics meets the economic.

Under what circumstances would President Obama lift the 47-year- old embargo?

SUMMERS: That’s way down the road, and it’s going to depend on what Cuba did -- Cuba does, going forward.

You know, what the president announced this week is what he’s been talking about for two years. It’s a set of measures that are grounded in American interests, that are grounded in morality, letting families get back together -- together again.

Cuba’s known what it needs to do for a very long time, and it’s up to them, in terms of their policies, their democratization, all of the steps that they can take. And we’ll have to see what happens down the road.

GREGORY: What is the economic case for lifting the embargo?

SUMMERS: Obviously, it’s -- it’s desirable to be able to trade in as many directions as possible. But fundamentally, David, this is an issue that’s going to get decided on the basis of Cuba’s behavior, on the basis of the steps that they -- that they choose to take or that they choose not to take in terms of their policies in this hemisphere.

And it’s about really whether they want to rejoin the community of nations in Latin America or not. And we’ll have to see -- we’ll have to see what they’re prepared to do. The president’s decisions are really going to be grounded in what’s best for the United States.

GREGORY: Also down at the summit a rather striking scene, Venezuela’s Hugo Chavez warmly greeting President Obama, even giving him a book about the exploitation of South America. This is a man, as you well know, who called President Bush “the devil,” who has referred to the United States as “a collapsed empire,” as the world’s “principal terrorist state.”

I wonder what the president made -- or what impressions he took away from that short encounter? SUMMERS: Well, I’m not able to speak for the president on -- on that, David, but I will say this. You know, if you look at the data on many of these countries in many parts of the world, and certainly in Latin America as well, the president is the most popular political leader in the world. He’s more popular in many countries than their own head of government.

And so it’s perhaps understandable that political figures want to bond with him, want to connect with him. And he has a message, and there’s something universal about his message of economic renewal, his message of getting the economy growing again, his message of wanting to have a -- a different kind of economic expansion, one whose benefits are more widely shared, one that’s less based on bubbles in financial markets.

There’s something almost universal about that message, and that’s why it seems to have such a resonance around the world. That’s what we saw at the G-20 meeting the president attended in London a couple weeks ago. And I think that’s what many people are seeing here in Latin America, where the kinds of things the president’s talking about are seen as very important for the Americas.

GREGORY: Let me turn to the U.S. economy. The big economic news this week had to do with leading U.S. banks. These are banks who have accepted or been given hundreds of billions of dollars in bailout money, and now they’re making billions of dollars after reporting their first quarter earnings.

At the same time, as you well know, home foreclosures are up 24 percent. The economy is losing 650,000 jobs a month.

Are you worried that all of these recovery efforts on the part of the administration are helping Wall Street and not Main Street?

SUMMERS: No, not really, David. You know, if you look, what’s most important to the president is what’s most important, I think, for all your viewers, is that we should get this economy going again.

It’s going to be a long road. We’ve seen some more mixed statistics, after a period when there were no positive statistics to be found. But it’s a long -- it’s a long road, and it’s going to take time. It’s going to take creating jobs again.

That’s why the recovery bill was so important. It’s going to take supporting the financial system, because without a flow of credit you really can’t even begin to get the economy going again. That’s where our main focus is.

As for the financial markets, I can tell you that the president is pushing very hard for a very strong program of regulation that is going to correct many of the mistakes that were made last time around.

He’s going to be very focused in the very near term on a whole set of issues having to do with credit card abuses, having to do with the way people have been deceived into paying extraordinarily high rates that they wouldn’t have paid if they knew they were getting themselves into.

He’s going to be pushing on issues relating to what’s known as systemic risk, the concern that an institution gets itself into a situation where it becomes itself a source of risk to the whole -- to the whole financial system. We’ll have to see where things, where things go. And obviously, nobody’s rooting for unhealthy banks.

But I can assure you that the focus of everything this administration is doing is on the needs of the overall economy, is on the needs of getting a recovery well established.

GREGORY: Let me ask -- the president has talked about glimmers of hope in the economy. And obviously, what the government has done, through a stimulus package; what the Fed has done through buying up debt is try to create demand in the economy.

My question is, if you’re seeing any easing in the economy or an easing of the recession, is that because the government is propping the economy up?

Or do you see elements of recovery that are self-sustaining?

SUMMERS: Well, I think you’ve got to give the government credit, some credit for what’s happened, but these have the potential to build into something that’s self-sustaining. That’s certainly not something that’s been established to this point, and that’s why we’re going to need to maintain strong policies for quite some time to come.

But I think we can take some satisfaction that, after a period when there was literally no positive indicator to be found, when it seemed like our economy was in a -- a vertical, it’s a more mixed picture today. And you’ve got to give public policies a significant part of the credit for that.

But as the engine turns over, you know, at some point, it will become something that’s much more -- much more self-sustaining. But right now, we’ve got a long way to go in terms of supporting this economy.

GREGORY: Let me have you respond to some criticism. New York Times columnist and economist, and opponent on these matters of the administration, Paul Krugman wrote this week that the administration should be careful not to -- to count a recovery a before it’s hatched.

He wrote this, specifically, about whether a full-blown depression is still possible. This is what he said: “Can a depression happen again? Well, commercial real estate is coming apart at the seams. Credit card losses are surging. And nobody knows just how bad things will get in Japan or Eastern Europe. We probably won’t repeat the disaster of 1931, but it’s far from certain that the worst is over.”

What do you say?

SUMMERS: You know, I disagree with Paul about a lot of things, but he is right to be raising cautions. That’s why, when I just spoke about the economy, I said that, after a period when it -- when everything was negative, there were now some mixture in the indicators. We don’t know what -- we don’t know; we can’t know with certainty what’s going to happen next, and there certainly are real risks ahead.

That’s why the president’s approach to the banking system involves looking at a stress test that contemplates an adverse outcome and thinks about how the financial system will function in an adverse scenario. That’s why we’re very focused on maintaining the pressure.

No one is in any position to declare any kind of victory here. But the fact that no one can declare victory doesn’t mean that we shouldn’t take note of developments as they unfold. And the developments, as I say, are more -- are more mixed now.

But cautions that we’ve got a long way to go; that there are still substantial risks; that there are downside contingencies that we’ve got to prepare for; that there are issues in the global economy; that there are issues in commercial real estate, that’s right.

It’s why the president has such an ambitious program. With respect to commercial real estate, he’s expanded the so-called TALF facility to enable the government to contribute liquidity to that commercial real estate market. With respect to Eastern Europe, a major focus of his agenda at the G-20 was on fortifying the IMF so that it can respond to those kinds of problems.

What we are doing -- and it’s really the central tone that the president has set -- is trying to be proactive, anticipating problems, acting on them before they become a crises.

And so, whether it’s commercial real estate; whether it’s small- business lending; whether it’s the global finance; whether it’s the question of trade finance, we’re working very hard to be ahead of the curve.

And I think this president, in less than 100 days, has done more to respond to an incipient economic crisis than, frankly, most countries, or the United States, at most times in its history, has done in a year or a couple of years.

GREGORY: Let me turn to the issue of the banks. You have referenced these stress tests that the administration is administering to banks, and the idea here is to try to find out how much more financial shock the banks would be able to absorb.

The president has made it very clear that he would provide additional money to the banks if it were necessary for them to shore up their financial position. According to the Treasury secretary, you have roughly $100 billion left in the bailout fund. What if the banks need a lot more than that, in terms of capital reserves?

Where would the money come from?

SUMMERS: Well, David, what the president and the Treasury secretary have actually been clear on is that the first choice, the first resort for more capital is going to the private markets, going to the private markets directly to raise equity, going and working with the private markets in a variety of, kind of, so-called asset liability swaps that would have the effect of perhaps diluting some shareholders but also fortifying the level of capital that those banks had.

And so there’s the capacity to turn to the private market. There’s also the -- there’s also the possibility that, over time, some of the banks that are in the strongest position will find themselves in a position where they can repay a portion of those -- a portion of the resources, which would then enable the government to make further -- further contributions, if necessary.

GREGORY: That’s become a controversial point. You have some banks who are saying, “Look, we’re in pretty healthy shape here. We want to give back this bailout money. We don’t want the taxpayers’ money.”

And the administration has appeared to say, “Hey, not so fast.” Wouldn’t that be a good thing?

SUMMERS: Well, the administration’s been, I think, consistent and clear in taking what I would guess almost everybody would agree is the right position. We want -- we want to be out of the financial system. We want people to be paying back the government. But we don’t want people to be paying back the government in ways that will put themselves right back in trouble and leaving themselves with inadequate capital.

And we certainly don’t want people starving automobile loans or starving the mortgage market or starving the small business market in order to pay back the government.

So what Secretary Geithner has made clear is that he’s very open, and regulatory authorities are very open to being paid back, but it has to be done in a way that’s consistent with the stability of the financial institution and has to be consistent with maintaining the -- maintaining the flow of credit.

GREGORY: I want to spend a couple of minutes talking about the issue of spending and taxes. The administration is proposing -- or projecting, rather, a budget deficit this year that approaches $2 trillion, four times the level as last year. This week when the president spoke about the economy, he talked about tackling that deficit. This is what he said.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Already, we’ve identified $2 trillion in deficit reductions over the next decade. We need to do more, but we’ve already done that.

(END VIDEO CLIP)

GREGORY: But there are critics who say, in fact, that number has been debunked, that that’s -- that’s fuzzy math. This is how Peter Baker reported it in The New York Times, that $2 trillion figure: “Three-quarters of those `reductions’ reflect assumptions that the nation would have had as many troops in Iraq in 10 years as it does now, even though President Bush signed an agreement with Baghdad before leaving office that will result in the withdrawal of all American forces within three years.”

Why is the president still talking about that $2 trillion figure when it doesn’t appear to be right?

SUMMERS: What the president’s made clear -- and, you know, you could always argue, and it’s a great Washington sport, but frankly not a sport that excites much of anybody else -- what the right baseline is.

But you can take away the whole question of the baseline and you can look at what the president’s projecting, and the president’s projecting that the budget will be cut in -- budget deficit will be cut less than in half in -- over the next four years.

The president’s projecting that domestic discretionary spending, the basic government bureaucracy, if you like, as a share of the economy’s going to be smaller than anytime since the 1960s.

The president’s going to be closing more than a hundred -- closing down completely more than, more than a hundred programs or offices in his budget. The president’s bringing an unparalleled level of transparency where you can watch every project that’s under way under this stimulus bill.

So that commitment to managing the country’s finances responsibly is absolutely, is absolutely there. Yes, the deficit’s big this year. That’s a reflection of the economic crisis that we inherited, it’s a reflection of the financial mess that needed to be bailed out and the outlays necessary for that. But the president is absolutely focused.

And the steps, whether it’s on the programs, whether it’s by taking care of -- by addressing health care spending with the most ambitious program of health care cost-cutting in a very long time, whether it’s collecting taxes that are owed but not paid, that focus on taking the debt burden off of our children is very much there.

GREGORY: All right, well, you talk about transparency, and you just brought up the issue of a health care program.

What the president is proposing is a universal health care program that won’t increase the deficit, and yet the projections are that this is a program that would cost at least a trillion dollars. Where will the money come from to fund such an ambitious program without impacting the deficit?

SUMMERS: The president’s laid out a number of measures on the tax side and in -- and much more importantly, a number of measures that involve taking costs out of the Medicare -- the Medicare budget.

But the really important issue for the long run, David, is changing the way in which we deliver health care in this country.

You know, there have been a whole set of studies done. They look at health care, the frequency of different procedures, whether it’s tonsillectomies or hysterectomies in different parts of the country, and what you see is that, in some parts of the country, procedures are done three times as frequently and there’s no benefit in terms of the health of the population.

And by doing the right kind of cost-effectiveness, by making the right kinds of investments and protection, some experts that we -- estimate that we could take as much as $700 billion a year out of our health care system.

Now, we wouldn’t have to do anything like that, we wouldn’t have to do a third of that in order to pay for a very aggressive program of increased coverage.

And so, really, the president and OMB director Orszag have identified a number of items that they call the game changers: prevention, cost-effectiveness, research, doing a better job on -- on reimbursements. And as we put those into effect, we can get this growth of health care costs under control. And it will be a good thing for the federal budget and, frankly, a good thing for the national economy.

GREGORY: Dr. Summers, Republican critics say -- as they had these so-called TEA parties around the country this week, to protest tax policy in this administration, Republican critics say the only way you’re going to fund these priorities is by raising taxes.

One of the organizers of these protests was former Texas congressman Dick Armey. He’s going to be on our roundtable discussion coming up here.

His views were described in The Washington Post this week, and I’ll read it to you: “Armey said the real target of the protesters’ ire is not the current tax rate but the much higher one that will be needed to pay for trillions of dollars in financial-sector bailouts; the stimulus package and Obama’s ambitious health-care and education initiatives, which are projected to raise the debt by trillions of dollars more. `There’s no way he can do the spending he does and cut taxes for most people.’”

Does he have that wrong?

SUMMERS: I think he does. I think he does, David, and, you know, I think the record speaks for itself. What the president’s proposed is a tax cut for 95 percent of all Americans.

You know, I don’t know that much about politics, but I’ve been surprised by these TEA parties a bit. The president is the one who’s proposing cutting taxes on virtually all Americans, so I’m not sure who these TEA parties see as being King George.

GREGORY: But he is raising taxes as well. He’s allowing the Bush tax cuts to expire and he wants to increase the marginal rates on -- on upper-income Americans.

SUMMERS: Well, let -- I think, I think one -- I think one wants to distinguish -- respectfully, David -- very sharply between a new piece of legislation that raises taxes and simply allowing the laws that were signed into place when the Bush administration was in power and when there was a Republican majority in both houses, simply allowing those laws to play out.

Yes, the president does believe that it’s right to let those laws play out, and when the tax cuts expire to allow them to expire, given the magnitude of the debt burdens that we face. That seems to him, and I think to most Americans, to be the right judgment, rather than enabling a benefit that only goes to about 1 percent of the population to leave the children of 100 percent of Americans facing a much larger debt burden.

GREGORY: But -- but just to be clear, if there’s a tax cut that expires, taxes go up. Might -- you know, a lot of Americans’ taxes will go up.

SUMMERS: Well, not a lot of Americans -- no Americans whose incomes are under $250,000, actually, David. And way under 5 percent of Americans will actually see their tax, will see their taxes go up. And when they go up, they’ll still be taxed at lower rates than they were taxed during the 1990s when our economy did -- did extraordinarily well.

So I find this argument that somehow some huge burden is going to be placed on the economy from carrying through on the Republican Congress’ law that leaves taxes where they were in our most prosperous period in history, seems to me to be an argument that isn’t the strongest argument in light of the magnitude of the problems we face.

GREGORY: Is the president pledging that he will not raise taxes on anybody paying less than $250,000?

I’m sorry -- less than -- earning less than $250,000?

SUMMERS: The president’s made -- president’s made clear what his policy is, and the budget is an articulation of the president’s policy, and what it actually does is reduce tax burdens for those making $250,000. And it has contained -- the stimulus bill contains a tax cut for 95, 95 percent of all Americans.

GREGORY: And he won’t reverse that at any point to fund these priorities?

SUMMERS: I think I’ve made very clear where the president is and where the president is going. I mean, he’s made it completely evident during the presidential campaign and since he took office that the focus is going to be right there on raising the incomes of middle income families.

GREGORY: The CBO, the Congressional Budget Office, says the nation’s debt is expected to surge over the next 10 years from nearly $6 trillion to $15 trillion. Last September when you testified before Congress, you spoke about the perils of the long-term debt situation, and I’m going to play now what you said then.

(BEGIN VIDEO CLIP)

SUMMERS: Excessive accumulation of federal debt over the next decade threatens to reduce investments and slow growth, compromise financial stability, and increase America’s vulnerability and reduce its influence in the world.

(END VIDEO CLIP)

GREGORY: Given the current debt picture, is that outcome that you described inevitable?

SUMMERS: I don’t think so. And I’m confident that, if we had not moved to support this economy right now, we’d allowed a full-scale collapse with the loss of tax base that you would’ve seen -- the vulnerability of the American people would have been much, much greater.

But I said it in September and I will say it now: We need to make sure this economy recovers. But as soon as this economy recovers we need to be very focused on reducing that deficit, bringing down the debt burden, bringing down the ratio of the debt to the GDP, living more sustainably if we’re going to have a healthier expansion than the ones that we did.

But, unfortunately, in a way that goes beyond what one would have expected when I gave that testimony in September, before Lehman was allowed to collapse, you’ve seen a huge deterioration in the economy that makes the kind of stimulus, the kind of recovery and reinvestment measure that the president has supported and pushed through, makes that absolutely essential. Without it the future would be much, much bleaker.

GREGORY: Before you go, Dr. Summers, I would like to ask you a broader question about the U.S. economy.

There’s a lot of focus, right now, on getting credit flowing again in this financial crisis; and yet that was one of the problems, the easy availability of credit, that got us into this mess in -- in the first place. You’ve now got a situation where individuals are maxed out with their debt, the government is indeed maxed out with debt.

I wonder if you would describe your goals for the capitalist system that emerges out of this financial crisis, out of this recession. How do things change?

Do individuals spend less and save more?

Do governments -- does this government act differently?

SUMMERS: We’re going to need a less leveraged economy. That means three things. It means a much better regulated financial system, and that’s what the president is already hard at work on with Chairman Frank in the House, with Chairman Dodd in the Senate. It means that individuals are going to have to save more. That’s why savings incentives are so important. That’s why we need to do things to stop the marketing of credit in ways that addicts people to it and so that our households are again savings, and families are again preparing to send their kids to college, for their retirement and so forth.

And third, we’re going to need a government that ultimately gets back to the kind of place we had in the 1990s, where it’s a contributor of savings to the economy rather than a drain.

And those are all objectives we’re working toward in -- in the long run. But, David, if we don’t firmly establish recovery, we’re not going to be able to get to any of those things, and that’s why the first focus has to be on making sure that we get an expansion going.

And that’s why all of us in the administration are working so hard to implement that Recovery and Reinvestment Act, to put in place a financial stability program, to contain the damage in the housing, in the housing markets.

GREGORY: Dr. Summers, safe travels home and continued good luck with your very important work.

SUMMERS: Thank you very much, David.