Summers, citing Japan's experience, cautions against complacency

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WASHINGTON, July 17 Kyodo -
The United States should keep a close watch on the course of its economy as
experience during the Great Depression and Japan's ''lost decade'' shows the
danger of growing complacent, top White House economic adviser Lawrence Summers
said Friday.
Summers, director of the National Economic Council, issued the warning, though
he acknowledged great strides have been made in combating the worst downturn in
decades.
''Substantial progress has been made in rescuing the economy from the risk of
economic collapse that looked all too real six months ago,'' he said in a
speech at the Peterson Institute for International Economics, a Washington
think tank.
But Summers said, ''Experience during the U.S. Depression and in Japan during
the 1990s teaches the danger of premature declarations of victory and
withdrawals of stimulative policy.''
The NEC head said the government's $787 billion stimulus package is working. He
also defended President Barack Obama's policy agenda, saying addressing major
issues such as health care and energy reform will lay the groundwork for future
prosperity.
Summers said soaring unemployment is a ''major area of concern'' and that it is
likely to rise further in the months to come from the 9.5 percent recorded in
June, a 26-year high.
But he said it does not follow that the stimulus effort has failed.
''Both administration and independent forecasts predicted that only a very
small part of the total job creation expected from the stimulus would take
place by the end of the second quarter,'' Summers said.
''Given lags in spending and hiring, the peak impact of the stimulus on jobs
was expected to be achieved at the end of 2010,'' he said.
Some critics contend that surging joblessness is proof of the stimulus plan's
ineffectiveness, while others argue that the stimulus package was too small in
the first place and an additional dose will be needed.
Summers said fixing the economy must take precedence over coping with the
swelling fiscal deficit, which in June passed the $1 trillion threshold for the
first nine months of fiscal 2009 to Sept. 30.
''The greatest risk to future U.S. deficits would be uncontrolled economic
contraction in the United States,'' he said.
''Containing this downturn and preventing the kind of debt dynamics you saw in
Japan or you saw during the Depression in the United States has to be the first
priority of anyone concerned with national creditworthiness or any
intellectually honest deficit hawk.''
Summers also brushed aside concerns about inflationary pressures, saying the
economy faces almost no risk of overheating as there is so much slack in the
labor market and manufacturing sector.
''But we are very much aware of the lesson of the 1970s -- and it's a lesson
that's been taught many times before -- that if you wait until inflation
threats are conclusively established, you have waited too long,'' he said.
''And that's why we in the administration are constantly monitoring the economy
with an awareness of these risks and a recognition of the importance of
long-term fiscal sustainability,'' he added.
On trade, Summers warned against the dangers of protectionism.
''I think it's very important to recognize what has to be top priority right
now, which is resisting -- and there are reasons for concern in many parts of
the world -- steps back towards economic nationalism,'' he said.
==Kyodo
2009-07-18 22:32:58