Summers also failed as Obama chief economic advisor. He let Obama "negotiate" with himself into a policy position that only a $700 billion stimulus in 2009 was politically feasible and would fully adequate to kick-start the economy (and proceed to repeat the lie that the stimulus was adequate for the next two years as it became increasingly evident that it has been far too small).
But here is a call by Summers in an article in the Washington Post that needs to be heeded:
Even with the massive 2008-09 policy effort that prevented financial collapse and depression, the United States is now halfway to a lost economic decade. From the first quarter of 2006 to the first quarter of 2011, the U.S. economy’s growth rate averaged less than 1 percent a year, similar to Japan in the period its bubble burst. During that time, the share of the population working has fallen from 63.1 to 58.4 percent, reducing the number of those with jobs by more than 10 million. The fraction of the population working remains almost exactly at its recession trough, and recent reports suggest that growth is slowing.In other words, he is calling for a big stimulus, i.e. government to borrow and spend to replace the missing private spending to ensure that the corrosive effects of a depression doesn't ruin lives and unnecessarily force a loss of economic production.
Beyond the lack of jobs and incomes, an economy producing below its potential for a prolonged interval sacrifices its future. Huge numbers of new college graduates are moving back in with their parents this month because they have no job or means of support. Strapped school districts across the country are cutting out advanced courses in math and science and in some cases opening school only four days a week. Reduced incomes and tax collections are the most important cause of unacceptable budget deficits at present and in the future.
Traditionally, the American economy has recovered robustly from recession as demand has been quickly renewed. Within a couple of years after the only two deep recessions of the post-World War II period — those of 1974-75 and 1980-82 — the economy was growing in the range of 6 percent or more, rates that seem inconceivable today. Why?
After bubbles burst there is no pent-up desire to invest. Instead there is a glut of capital caused by overinvestment during the period of confidence — vacant houses, malls without tenants and factories without customers. Meanwhile, consumers discover that they have less wealth than they expected, less collateral to borrow against and are under more pressure than they expected from their creditors. Pressure on private spending is enhanced by structural changes. The publishing industry provides a vivid example. As local bookstores have given way to megastores, megastores have given way to Internet retailers and Internet retailers have given way to ebooks, two things have happened. The economy’s productive potential has increased and its ability to generate demand has been compromised as resources have been transferred from middle-class retail and wholesale workers with a high propensity to spend up the scale to those with a much lower propensity to spend.
What then is to be done? There is no time for fatalism or for traditional political agendas. The central irony of financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it is resolved only by increases in confidence, borrowing and lending, and spending.
It is false economy to defer infrastructure maintenance and replacement when 10-year interest rates are below 3 percent and construction unemployment approaches 20 percent.
We averted Depression by acting decisively in 2008 and 2009. Now we can avert a lost decade by recognizing current economic reality.
Go read the whole article. It needs to be studied carefully.
It is a cruel joke that an architect of this mess is finally calling for actions to help remediate some of the damage he caused. It is doubly painful since he failed to sell this message to Obama while he was serving as Director of the White House National Economic Council. Summers is a smart guy but he will be remembered in history as an utter failure: too little, too late.