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October 24, 2009
Cynthia Haven, Stanford News Service: (650) 724-6184, firstname.lastname@example.org
We have seen the worst. And the way out of the current economic crisis lies in America's gift for ingenuity and innovation – and more transparency in the financial sector.
That was the consensus of a group of government officials, corporate leaders and scholars who discussed the recovery from last year's devastating economic free-fall. They gathered at Stanford's fourth annual Roundtable on Oct. 24, titled The Road Back: From Economic Meltdown to Renewal. The event was moderated by Emmy award-winning broadcast journalist Charlie Rose.
The conversation was punctuated by applause, and peppered with an energetic attack on U.S. immigration policy, which limits the opportunity for bright and innovative foreign students to stay in the United States after graduation. The group also emphasized that education is key to the nation's future, on many specific levels.
Guillermo Ortiz, governor of the Bank of Mexico and the only foreign member of the group, praised the amount of international cooperation the crisis prompted: "For the first time in history, both emerging and developed countries were sitting together," fostering an unprecedented degree of cooperation, said Ortiz, a Stanford alumnus. "I think it worked."
Nevertheless, he urged more transparency, given that "the amounts of money involved are so huge." When the financial sector becomes disconnected from the real world, Ortiz said, the economy "turns into a betting game."
"If we have to use taxpayers' money to make these bets, there's something very wrong."
Call for transparency
Stanford economics Professor Caroline Hoxby agreed that "things were much scarier" a year ago, and that government moves, such as TARP, "did keep us from going over the precipice." But, she added, "a lot more transparency in the financial sector would be a good thing."
Comparing the bailouts to poor parenting techniques that reward bad behavior, she said we must "change the relationship among taxpayers and financial institutions – otherwise they'll find new ways to take risks."
Eric Schmidt, chairman and chief executive officer of Google, said the nation is going through a "classic hard recession." However, "everyone seems to see some improvement in business. We know that things are improving," he said. "We're seeing everyone come up at the same time, which is a good sign."
"There's a reason to be optimistic," said the Google chief. "What do these (search) queries have in common? Weight loss, fitness, cooking, recipes, self-help and mental health. They peaked in the spring and they're going down now."
"What do these queries have in common? Restaurants, clubs and nightlife, ticket sales, movies, dancing, et cetera? They're all on their way up.
"Trust me, we're in a recovery," he said. "America is back in business."
The lagging indicator to date is, of course, jobs. Penny Pritzker, a Stanford alumna who serves on President Obama's Economic Recovery Advisory Board, said she was confident that the recovery would bring employment up with it. "The question is how fast and how soon," she said. "The indications are that it is going to take time."
Hoxby added that we need to recognize "there's a good side of unemployment. It reallocates labor. It's a painful process." She noted that, historically, skilled workers always reorient more quickly to the new employment landscape after an economic crisis.
'Dependent on innovation'
"U.S. growth is increasingly dependent on innovation," she said. "You could say that it's the only thing we're good at." She emphasized that the nation needs "highly educated people to create innovation."
Schmidt called for rebuilding the manufacturing industry in the United States, to audience applause, saying that the service industry would not be strong enough to meet the future's challenges. To create high-paying jobs, he called for an investment in sophisticated, low-volume, high-tech manufacturing akin to Germany's.
Both Schmidt and Stanford University President John Hennessy attacked an immigration policy that limits America's access to the best minds. The "real tragedy" said Schmidt, is that "we educate them and kick them out of the country."
"Stanford graduate education is a reasonable standard for becoming a U.S. citizen," Schmidt said.
Hennessy agreed that it "makes no sense" to educate students "and then say, 'You got a Harvard education, now go back to where you came from!' "
The bleakest moments of the roundtable occurred while discussing the ballooning U.S. debt. Hoxby said the deficit levels are the greatest since the end of World War II, and that, she said, "was a totally different kind of deficit." The postwar deficit quickly "disappeared and we went into surplus."
"We don't have any kind of proposed solution on the table for debt," she said.
Hoxby warned that the Chinese "are going to lose their appetite for funding our debt." She asked: "How do we manage to get out of this recession without high inflation?"
Concern about U.S. debt
"We have to grow ourselves out of our problems. We have mortgaged the future of our children." Historically, economic growth has been the future, getting the next generation off the hook for the previous generation's tab. Hence, she said, education is a fundamental fuel for growth.
Pritzker said that "we need to manage our relationship with China; we have a co-dependence." The situation can be a win-win, she said: "They want us to become a manufacturing and export nation – because that's good for them as well."
Schmidt agreed "the rise of China is the story for the next 10 or 20 years." Some of our dependence is "in ways that are disturbing."
"It is a race," he said, but the competition has some positive effects because it "keeps our ego in check, which is always good," and "causes us to recognize that there are smart people in every country."
According to Garth Saloner, dean of the Stanford Graduate School of Business, the key to restoring confidence is leadership: "You have to lay out a vision and be willing to show your ability to make tough choices." He also emphasized the need for transparency.
The panel expressed varying degrees of optimism about the future. "People are cautiously optimistic that the markets are working," Ortiz said, comparing it to the "extraordinary loss of confidence that led to the precipice of a meltdown."
Hoxby said, "When I think about the good things that are happening in our economy, there are many reasons to be optimistic." People are "very entrepreneurial, very optimistic, very interested in getting on the horse they have fallen off."
But perhaps Hennessy expressed the greatest degree of optimism, and the source of his optimism is the students he sees. Recalling interactions with incoming freshmen last month, he said, "I heard a sense of optimism. They are energetic, they are excited to be here," he said. "They were determined to make the difference. That’s why I’m optimistic.”
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