Larry Summers has examined the role of money in society through many lenses. He’s been chief economist of the World Bank, secretary of the U.S. Treasury, and lead economic advisor to President Barack Obama during the financial crisis; his views shaped the recovery effort.
No matter whether he’s serving as a regulator or an academic—or just being portrayed as the blunt-spoken president of Harvard in the film The Social Network—Summers always expresses himself with candor, authority, and a level of conviction that’s rare for just about anyone, much less an economist.
Less well known is that Summers is also a technologist at heart. Last year he joined the San Francisco venture capital firm Andreessen Horowitz as a special advisor, and he is on the board of Square, an online currency startup.
Technology Review reporter Conor Myhrvold sat down with Summers in his office at Harvard’s Kennedy School of Government, where he teaches now, to discuss how technology will change our financial future.
TR: You once said that “anyone who cares about the performance of market economies has to be deeply interested in the innovations of information technology.” What innovations are most important?
Summers: The move toward e-commerce. When something goes 1, 2, 4, 8, 16, 32, the gap between 16 and 32 is a lot bigger than the gap between 2 and 4. The penetration of e-commerce and the movement toward IT platforms of commerce is going to have a larger and larger impact on the real economy, simply because high percentage rates from a substantial base make more difference than high percentage rates from a very low base.
Amazon, and the fraction of all purchasing that’s taking place online, is having a growing impact. We’re also seeing all kinds of industries that nobody conceptualized even a few years ago, built around social networking in one way or another, of which online games are only one example. And we’re seeing—this gets ahead of us slightly—the processes of commerce changing fundamentally when people are able to store value on their cell phones, when people are able to take payments digitally with minimal friction or red tape.
So whether it is how we carry on commerce, whether it is new industries associated with social networking, or whether it is more rapid penetration of e-commerce into the regular economy, I think in all these ways, information technology is having a growing impact.
One example of that is Square, the payment startup launched by Twitter founder Jack Dorsey. Why did you decide to join the board of Square?
I was excited. Look, I think that for too long, financial innovation has been about big, rich institutions. Square’s innovation is fundamentally about making it easy for a piano teacher or tutor to get paid, or reducing the friction involved in using a car service. I was excited about the idea of financial innovation for the benefit of regular people. I thought they had an exciting product and the prospect of getting to a very substantial scale quite quickly.