Larry summers exit interview.

• Position: Interview

TIE: Let's start with China. The Chinese government is hinting that it plans to spend another $1.5 billion on new technologies. Housing and retail spending, the preoccupations in the United States, are not part of that spending. In the meantime, China's military has been engaged in a lot of bravado. How do you size up this brave new world?

Summers: President John Kennedy died believing that Russia would be richer than the United States by 1985. Every issue of the Harvard Business Review in the early 1990s contained some joke or allusion to the effect that the Cold War has ended and Japan and Germany have won. Ezra Vogel's 1979 book Japan As Number One was a bestseller. But none of these prophecies proved to be correct. In fact, looking at the history of growth rates in all countries, the correlation between growth rates in one decade and growth rates in the next decade is remarkably low. Extrapolative forecasting is perilous.

If concern about China leads the United States to strengthen our education system, invest more heavily in research and development, and contain our borrowing, then it could be very constructive. At the same time, it is easy to exaggerate what is happening in China. The average Chinese citizen is not nearly as rich as an average American was even two or three generations ago. The Chinese government is riding a tiger given all of the changes that are underway in that society.

There is always a seductive appeal to technology and public infrastructure. In the 1950s and 1960s people talked about the Moscow subway system in the same way that they talk about Chinese high-speed rail today. Whenever I hear about Chinese high-speed rail, I remember that the Shinkansen bullet train in Japan was built in the early 1960s. It may be fast, but it's not actually twenty-first century technology. It's very easy to overestimate our problems, and even easier to underestimate the political, environmental, financial, and societal transformational problems that China faces.

At the same time, history as far back as Athens versus Sparta cautions about rising economic powers. The United States is often cited as a benign example, but that's probably not how people feel in the Philippines, Cuba, Colombia, and in a number of other parts of the world. Relations with China are going to require a great deal of understanding and accommodation in both directions. We in the United States tend to be better at asserting the universality of our values than at accommodating the interests of those who see the world quite differently than we do. Usually, hoping for the best while preparing for the possibility of much less is a good idea. It will require a lot of discussion and mutual trust on both sides to prevent the worst outcomes from materializing. No question, when historians look back a couple of hundred years from now, the relationship between the United States and China is more likely to be the major story than either the end of the Cold War or anything that happens with the Islamic world.

TIE: In the United States and Europe, elites have done everything they can to prop up bank balance sheet values, usually at taxpayer expense. Even in China, the situation is building to where the government may have to bail out the banking system. Did Clinton political advisor James Carville get it wrong? He said that if he believed in reincarnation, he would want to come back as the bond market. Maybe he should come back as a Wall Street banker. Looking back several decades from now, do you think elites will be seen to have put the livelihoods of middle-class workers in jeopardy by attempting to prop up asset values that were unsustainable?

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Summers: Whatever's happening in other countries, it needs to be emphasized that in the United States, the government got back all the money it put into the banks and...