Summers Urges U.S. Policy Makers to Focus on Boosting GrowthBen Schenkel
Former Treasury Secretary Lawrence Summers urged U.S. policy makers to focus more on growth-oriented measures to avoid a prolonged period of economic weakness.
A “secular stagnation” is “a much greater risk to American interests than any emergence of hyperinflation coming from monetary policy,” Summers, a Harvard University professor, said at the Wall Street Journal’s CEO Council conference today in Washington. It’s been “a decade since we have grown at a rapid rate in a remotely healthy sustainable way, and that has to be the lead concern as we look to the next decade,” he said.
Lawmakers who are concentrating on cutting the budget deficit and national debt could solve the country’s long-term fiscal problems by stimulating growth, Summers said. The U.S. is “starved” for public investment while politicians debate long-term debt levels that are traditionally difficult to predict accurately, he said.
The U.S. economy has grown at an average annual rate of 2.3 percent since the recession ended in June 2009, compared with a 2.8 percent pace during the 2001-2007 expansion and 3.6 percent pace during an expansion that spanned most of the 1990s, according to Commerce Department data compiled by Bloomberg.
Asked about Japan’s economy, Summers said that while the outlook is brighter, it’s too soon to declare its extended period of economic malaise is over.
Japanese Prime Minister Shinzo Abe is attempting to revitalize the world’s third-largest economy through a program of monetary easing, fiscal stimulus and structural reforms -- the so-called three arrows of a strategy known as Abenomics.
“The basic thrust of a substantial commitment to expansion was the right one” and “there have been some encouraging signs so far in growth, in the increase in growth expectations, in the reduction of deflation expectations,” Summers said.
Japan’s prospects “look considerably better than they did a year ago, and that is a tribute to the policies, but I don’t think we’ll know until nine months from now,” he said.
By then, a value-added tax will have been established and “either the economy will have weathered that and will continue to be growing in a reasonable way, or, as has happened in the past, there will be a run-up of growth until they do that and then there will be an air pocket in spending afterwards and they’ll be back in the soup,” Summers said.
Summers said he wouldn’t want to predict the outcome for Japan because “both I think are real possibilities.”