Here we go again. The strong jobs report released on Friday showed the US unemployment rate fell to a 10-year low in April. And just like that, Massachusetts breathes a sigh of relief; the disappointing state tax revenue numbers out last week probably don’t signal economic trouble is brewing locally.
But that’s exactly our problem, if you talk to Larry Summers, the former US Treasury secretary and Harvard president. He has been thinking about our state economy and spoke recently to a private gathering of business leaders to deliver this wake-up call: Even if times look good, Massachusetts should be investing more heavily in the life sciences, infrastructure, and education.
In other words, our biggest threat is complacency.
Summers knows something about this. When he ran Harvard more than a decade ago, his greatest concern was that the university was too comfortable in its perch as Stanford became a magnet for the best and the brightest in the new Internet economy.
Summers now has the same concerns about Massachusetts.
“We were confident that Route 128 was the hub of technology. We turned out to be all wrong. That could happen to us in the life sciences,” he told me the other day as we talked in his office at Harvard’s Kennedy School, where he is a professor.
It might feel like the worst time to talk about spending more money, with the state facing a looming budget deficit of close to a half-billion dollars in the fiscal year that ends in June.
But there’s also risk in standing still.
“I think the dangers are much more on the side of doing too little,” Summers said. “Ironically, sometimes not spending money is taking a much bigger risk than spending money, because it’s gambling with your preeminence.”
For example, the Baker administration has been working to rein in Medicaid spending — 40 percent of the state budget — with an ambitious overhaul and proposals for fees on employers and caps on health care costs in general.
But Summers wonders if Beacon Hill should be treading more cautiously, given the important role hospitals play in our economy and their symbiotic relationship with biotech companies.
“The state has been squeezing the Medicaid budget very hard,” Summers said. “You can think of it as an expense, but at the margin it’s coming out of being the place where the smartest scientists want to come and work their miracles.”
Those concerns are compounded by the Trump administration’s efforts to repeal and replace Obamacare, which could further destabilize the region’s health care economy.
The upshot is that Massachusetts should double down on its strengths. The state’s $1 billion biotech initiative, launched a decade ago under then-governor Deval Patrick, is winding down. Is there a next big act?
New York wants to steal the show, with Governor Andrew Cuomo and New York City Mayor Bill de Blasio unveiling separate life science initiatives in December that together total over $1 billion. If Massachusetts were to counter, where would the money come from — whether for biotech or another economic pillar like the MBTA?
Summers said Beacon Hill will probably need to raise taxes. If the Trump administration succeeds in cutting federal taxes for the wealthy, there could be an appetite to raise taxes on the rich locally, as proposed in the so-called millionaire’s tax ballot initiative.
Summers hasn’t studied the initiative enough to determine whether he would support it, but he said he is “sympathetic to its intent.”
The initiative, aimed for the 2018 ballot, proposes to impose a higher state tax on those making $1 million or more, and the proceeds would be used to fund public education and transportation.
Summers said he thought those who are more fortunate — he counts himself among them — could stomach higher taxes.
“It’s a political decision how we collect those taxes,” he said. “We’ve got to be very mindful of the incentive effects. It’s important for us to stay business-friendly. I am not sure if it can all be soak the rich.”
Summers acknowledges it is easy for him to preach from his ivory tower. The 63-year-old economist is long removed from running Harvard or shaping the economy, as he did as Treasury secretary for Bill Clinton during the frothy 1990s and later as a chief economic adviser for Barack Obama, steering a new president through the worst economic crisis since the Great Depression.
Still, Summers is confident, even comfortable, delivering prescriptions from a plush armchair in his office with one leg dangled over the side.
So has he mentioned any of this to Governor Charlie Baker?
“Charlie and I have talked on occasion,” Summers said. “It’s much easier on the outside to feel urgency and vision than it is with the quotidian constraints of governing. I’ve seen that both as a university president and in a president’s cabinet. But I do think it is hugely important to always lift one’s sights. I am not sure in this state that we are doing it quite enough.”
Of course, Baker isn’t sitting still. He is fixing the T. He is leading the charge nationally to fight the opioid crisis. He is reforming troubled Bridgewater State Hospital. And don’t forget about bringing General Electric’s headquarters to Boston, with state and city incentives worth as much as $150 million.
Summers does count GE as a huge win for the region, but he’s not sure if it can be transformative without even more investment and planning.
“Will GE’s arrival be a favorable development, or a turning point in the economic geography of New England and the United States?” asks Summers. “It should be the second, but I fear it will only be the first.”