University President Richard Levin addressed the graduating class and its guests on three separate occasions this weekend as part of the Baccalaureate Service. Here is the full text of his remarks:
The Economy and the Human Spirit
When I welcomed you four years ago, you were exhilarated but apprehensive, excited to be taking on a new challenge, but more than a little intimidated – awed by the imposing architecture of this place, by the grandeur of this hall, by the rumble of its great organ, and by the dazzling accomplishment of your classmates, who all seemed to you to belong here, even if you were not quite sure about yourself. Now, appropriately, you feel as if you own the place; every corner of your college, every face in the dining hall, is familiar to you. You have made close friends, and you have memories you will never forget. While all this happened to you the world around you was flourishing. And Yale was flourishing, too – building and renovating at an astonishing pace, adding new international programs, and enhancing financial aid to make the whole experience a lighter burden on your families.
Who would have imagined, four years ago, that the world economy would collapse? As you leave here, it is hard not to think about this unhappy reality. So, as an economist and as your president, I would like to offer you my perspective on what has happened and what it means for you.
The world economy is a mess.[i] In the United States, we have experienced the sharpest reduction in gross domestic product in five decades, and the ride is not yet over. As many of you know all too well, jobs are scarce. Within the past year, the unemployment rate has increased from 5.0% to 8.9%, and, unfortunately, it is more likely than not to exceed 10% before declining again.
How did we get here? Not, I believe, because of any inherent flaws in the nature of the market system. This is a very important point. Indeed, the ascendancy of markets, the relative demise of centrally-planned economies over the past thirty years, the opening of nations to freer international trade and investment, and the rapid advance of science and technology have led to unprecedented levels of global economic growth. Even in the midst of this downturn it is crucial to remember that more people, both in absolute terms and as a percentage of the world’s population have crossed the poverty line in the past thirty years than in any previous period of history.[ii]
The cause of the current crisis is less fundamental: we accumulated too much debt – mortgages, credit card debt, corporate debt, debt to support financial speculation, and government debt.[iii] From January 1981, when Ronald Reagan took office, to September 2008 the ratio of total national debt – public and private – grew steadily from 160% to nearly 360% of gross domestic product.[iv]
As we have seen all too painfully, when individuals have lots of debt, declining asset prices trigger delinquencies, defaults, housing foreclosures, personal bankruptcies, corporate bankruptcies, and bank insolvency. Financial institutions lack the capital and the confidence to make new loans. Consumers and businesses reduce their spending. Company profits and stock values fall. Output and income decline, and wealth evaporates because the promise of future earnings that supports the valuation of assets is no longer credible. This is where we are now, with our national wealth – personal and institutional – down by more than 25%. Virtually every family in this hall has felt the impact of this disastrous sequence of consequences.[v]
History teaches that all credit expansions are followed by recessions or depressions. It also teaches that recovery follows recession. The right mix of government policies can make recovery happen faster.[vi] But, in the end, fast or slow, we will recover, as long as the market is allowed to direct the immensely creative and productive forces embodied in emerging technologies and in our educated citizens including you, in particular. It will get better. It is just a question of when.
Meanwhile, you may be wondering why you had the bad luck to graduate now. I know that the process of finding a first job has been more difficult and stressful for you than for your immediate predecessors, and I know that many of you do not yet have definite plans for the year ahead. But do not be discouraged. There are exciting opportunities waiting for you, and little reason for despair. I want to reassure you and your parents that the investment of time, energy, and money that you have made in your Yale education will be abundantly repaid. It will be repaid in a material sense; it will reward you with personal fulfillment, and, most important, it has prepared you for lives of service to family, community, the nation, and the world.
To put matters in perspective, remember that you came here to reflect on the world around you, to expose yourselves to new ways of thinking, to encounter brilliant teachers, to make use of extraordinary library and museum resources, to develop the capacity to think critically, to express yourselves clearly, and to find, both in the classroom and in extracurricular pursuits, the passions that motivate you. You have done all this and more. By encountering classmates from all 50 states and 41 nations, you have learned to appreciate the diversity of human talents and perspectives. Thanks to Yale’s extensive array of international programs, the great majority of you have had a chance to experience life in a different culture. You are not just four years older; by virtue of what you have learned about the world around you and about yourselves, you are immensely more capable of taking on life’s challenges. You may doubt my conclusion at this bittersweet moment of separation. But believe me, you are ready to leave.
And think of all the exciting possibilities that are open to you.
Let us start by noticing that there has been a dramatic change in our national agenda, the most significant change of course in nearly thirty years. Whatever your political persuasion, if you care about health care, education, or the sustainability of the planet, now is the time to get involved. Think about opportunities to engage with these issues – either in government or in the private sector, whether for-profit or non-profit. The years immediately ahead are going to have consequences for a long time to come.
Some of you are already responding to this call. The number of you enlisted to serve in Teach for America, the largest single employer of Yale College graduates, has more than doubled in the last two years. In America’s schools, there are promising signs of reform all around, led by the spectacular success of new approaches that instill confidence and a drive for achievement in the most disadvantaged of our youth. Whether it is the charter school models introduced by organizations such as KIPP in New York City and Achievement First here in New Haven, or public school reforms associated with a wide array of family services as in the Harlem Children’s Zone, we are seeing powerful evidence of improved performance. As the new administration and some of our largest foundations continue to embrace these new ideas, more opportunities will arise to engage you. You might think about following in the footsteps of Yale graduates David Levin, the co-founder of KIPP, or Dacia Toll, the co-founder of Achievement First, and contributing to the renaissance of primary and secondary education in the United States.
Or think about helping to address the challenge of global warming. In America and elsewhere around the globe, there is going to be massive public and private investment in new energy technologies. This will create tremendous opportunities not only for those of you interested in science, engineering, or public policy but also for those of you interested in business, where you might help launch entrepreneurial “cleantech” startups, or make established businesses greener and more socially responsible. In this arena you might take as your model Yale graduates like Frances Beinecke, executive director of the Natural Resources Defense Council, or Kevin Czinger, whose company, Miles Electric Vehicles, is one of several hoping to be first to the market with an all-electric car suitable for highway driving and daily commuting.
Or perhaps, as America adopts a new and more collaborative approach to foreign policy, you might think about building a career that contributes to greater international cooperation and understanding. Legions of Yale graduates before you have pursued this noble calling: from Sargent Shriver, the founder of the Peace Corps, to Joseph Reed, longtime Undersecretary General of the United Nations, to career diplomats like John Negroponte, to our current Secretary of State, Hillary Rodham Clinton. Perhaps the Peace Corps, the military, or the foreign service would be a good first step toward such a career.
I was vividly reminded of the abundance of opportunities before you just two months ago, when I convened a group of Yale alumni in Silicon Valley to advise me on how the University might take better advantage of new media in carrying out its educational mission. Around the table were Yale graduates who have been instrumental in the founding and development of companies such as Microsoft, Palm, RealNetworks, Electronic Arts, and Facebook. Having come to California fresh from a series of gloomy meetings with Yale graduates in the New York financial community, I was astounded by the unbridled optimism of those in the new media and technology business. The prospects for investment, they told me, have never been better. The cost of launching a media business, thanks to the development of widely available software platforms and tools, is lower than ever, and the possibilities for creative engagement with the user community are unprecedented. So in addition to contemplating a contribution in education, or energy and sustainability, or foreign relations, you might also think about new media, where Yale graduates have helped to create entirely new forms of enterprise that did not exist a generation ago. You can do the same.
I cite these specific paths not to limit your imagination, but to encourage you to recognize that opportunities are everywhere. The education you have acquired here has given you the breadth and flexibility to take on the widest array of possible challenges, and it has given you the depth and rigor to make a meaningful difference wherever you choose to apply your talent.
In 1930, at the darkest moment of the Great Depression, the economist John Maynard Keynes wrote:
We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress … is over; that the rapid improvement of the standard of life is now going to slow down … ; that a decline in prosperity is more likely than an improvement …
I believe that this is a wildly mistaken interpretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes … The increase of technical efficiency has been taking place faster than we can deal with …; the improvement in the standard of life has been a little too quick …[vii]
Keynes went on to predict that the standard of living in advanced capitalist countries would increase by a factor of four to eight over the next century. He was right; in the nearly eighty years since 1930, the per capita gross domestic product in the United States, adjusted for inflation, has increased by a factor of six.
Keynes’ source of confidence about the future was a belief in the power of creativity and innovation, expressed through the efforts of free, well-educated individuals to apply scientific knowledge and human ingenuity to the development of new technologies, new products, and new services to improve material well-being.
The potential for material advance is no less abundant in the United States today than it was in Keynes’ Britain of eight decades ago. And, what is even more abundant today is the potential for moving beyond material advance to a better quality of life for all – toward a healthier population, a cleaner environment, a better educated and wiser citizenry, a more peaceful world.
Women and men of the class of 2009: You have within you the creative potential to make a better world for us all. Here at Yale you have learned to think critically and independently, and you have the flexibility and resourcefulness to make the most of any situation. The world is all before you. Choose your direction, and prove that this time of crisis is also a time of opportunity. You can do it. Yes, you can.
[i] Specifically, the collapse of the housing market in the United States has been followed domestically and globally in rough order of succession by the collapse of key financial institutions, the stock market, the commercial paper market, interbank lending, consumer spending, the financing of consumer credit, capital investment, and the commercial real estate market.[ii] Even if income and wealth continue to decline at the current rate for another year or two, the gains of the last three decades will not be erased, nor even those of the last decade.[iii] Surprisingly, government debt is only 16% of the total national indebtedness. The balance is the sum of private household, corporate, and financial sector debt.
[iv] For ninety of the 110 years between 1870 through 1980, the ratio of total debt to gross domestic product was roughly 150%. In the boom years of the 1920s that preceded the Great Depression, debt of all kinds, private and public, rose to the unprecedented level of 180% of GDP, only to settle back to 150% after the Second World War. (The ratio of debt to GDP actually increased from 180% to 300% between 1929 and 1933, not because debt was rising, but because gross domestic product declined by 44%.)
[v] How did it happen that we accumulated so much debt? In my view, the fault lies with those responsible for the regulation of credit in the United States. It makes little sense to blame bankers, mortgage originators and re-packagers, or hedge fund managers for taking excessive risk in a lax and permissive regulatory environment. Individual restraint cannot control the aggregate amount of credit in the economy. This is the role of the Federal Reserve, other financial regulatory agencies, and ultimately the Congress. But these regulators were captured by an ideology of overconfidence in the efficacy of the unfettered “free” market. Instead of tightening credit as the economy boomed, we relaxed conventional regulatory requirements and failed to regulate the new forms of credit created by the use of derivatives. The story is as simple as this.
[vi] See the May/June 2009 issue of the Yale Alumni Magazine for some of my views on this subject. The essential points are these: (1) government fiscal policy should focus on job creation, not tax cuts and benefit increases, at a time like now when most people’s marginal propensity to spend from additional income is low; (2) jobs can be created quickly by increasing employment on infrastructure projects (highways, schools, etc.) that are already under way all around the country rather than earmarking “shovel-ready” projects in the districts of influential members of Congress; and (3) instead of buying the toxic assets of troubled banks through a cumbersome mechanism that may not succeed in properly capitalizing the banks, the government should reorganize these banks and spin off their viable commercial banking functions into separate entities that could promptly resume the normal flow of credit.
[vii] John Maynard Keynes, “Economic Possibilities for Our Grandchildren,” The Nation and Athenaeum, October 11, 1930, reprinted in Keynes’ collection, Essays in Persuasion, 1931.