WASHINGTON (CN) – Director of the National Economic Counsel Lawrence Summers predicted a quick end to the economy’s freefall at a Thursday conference. “That will end within the next few months,” he said, but he declined to predict how soon the economy will start to regain lost ground.
Summers remained pessimistic about the high unemployment rate, noting that, “Gross domestic product needs to grow by 2.5 percent to keep unemployment constant.”
Recent economic fgures suggest the nation is long way from even modest growth. GDP fell at an annual rate of 6.2 percent in the fourth quarter of 2008, according to a Bureau of Economic Analysis last month.
Summers grasped the opportunity to support the Obama administration’s plans for dealing with the crisis, arguing the administration’s plan for comprehensive healthcare and placing a price on carbon emissions are fundamental to getting the economy turned around.
“Every year we don’t have comprehensive healthcare reform is one year we miss the chance to increase the income of our families and the competitiveness of our businesses,” he said.
The uninsured get cared for late, poorly, and more expensively. We pay more for that in our premiums, he explained.
In regards to cap and trade, Summers said investments are more affected by uncertainty than whether a price is put on carbon emissions.
If an investor wants to buy a boiler, he said, and the investor knows energy prices will be high next year, he’ll buy an efficient boiler. If he knows the price of energy will be low, he’ll buy an inefficient boiler. If the investor doesn’t know what the price of energy will be, he’ll hold off on buying a boiler. “Uncertainty inhibits investment,” he said.
By coming to a conclusion on cap and trade, the administration is helping investment. Summers added that it’s pretty clear we need to restrain our emissions.
A bit of controversy surrounds Summers’ past, when he continued the trend of deregulating the financial markets as the Secretary of the Treasury under President Bill Clinton.
Summers, who now calls for more regulation, was asked to explain his shift. “When new information arrives, I change my mind. And you?” he said.
The interview was interrupted when two well-dressed protestors climbed on stage to unfold a sign which read “We want our $$$$ back!” They loudly accused Summers of making $5.2 million by working one day a week, and called on him to resign. “I speak for the people!” cried one of them, before security shoved them both out the door.
Despite his income, Summers said a large problem has been the financialization of the market, where financial corporate profits accounted for 40 percent of total corporate profits. The problem, he argued, was that the growth was built on financial bubbles and the benefits were not widely shared.
Both of those realities, said Summers, made the growth unsustainable.
The Obama administration seeks sustainable growth to keep the recession from affecting future generations, he said. Kids should not read about this in their history books like they do the Great Depression.
Obama’s plan is to spend short-term to jump start the economy, explained Summers. Then it will reign in spending to eventually control the deficit.
American debt is now roughly $12 trillion.
The Economic Club, a group of local CEO’s, hosted the event. President of the club, David Rubenstein, interviewed Summers.