Summers Sees Bigger Boost to U.S. Economy From Spending Than QE

Former U.S. Treasury Secretary Lawrence Summers said increased government spending offered greater reward than Federal Reserve bond purchases as authorities seek to boost growth in the world’s No. 1 economy.

The U.S. economy is expanding below its potential, Summers told a conference in Abu Dhabi today. Underinvestment by the government should be more of a concern for U.S. policy makers than the size of the national debt, he said, while adding that diminishing benefits from the Fed’s quantitative easing were grounds for concern.

“We need to find ways to encourage the economy to grow more rapidly through increased demand that operates not so much through the provision of liquidity, but operates more directly on the spending side,” Summers said.

Fed Chair Janet Yellen said last week in testimony to the Senate Banking Committee that the central bank intends to reduce asset purchases at a “measured” pace and that the bond-buying program is likely to end in the fall. Fed policy makers will probably keep interest rates low to nurture the expansion even as they take measured steps to reduce stimulus.

Interest rates of around “2.5 percent in a currency we print ourselves, and construction unemployment rate in double digits,” should pave the way for increased investment in infrastructure such as New York’s John F. Kennedy International Airport (694), Summers said.

“I suspect that few in this room think that the United States should be proud of Kennedy airport as the gateway to a great city in a great nation,” he said. If current interest rates and levels of unemployment don’t make for “the right moment to repair Kennedy airport, when will that moment ever come?”

To contact the reporters on this story: Alaa Shahine in Dubai at asalha@bloomberg.net; Onur Ant in Ankara at oant@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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