US Recovery ‘Ahead of Schedule’: Larry Summers

U.S. National Economic Council Chairman Larry Summers
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U.S. National Economic Council Chairman Larry Summers

The U.S. economic recovery was “ahead of schedule,” even as insufficient consumer demand continues to pose a risk, former Treasury Secretary Larry Summers said Thursday.

“If you compare what’s happened in this recession with other recessions that have a similar antecedent, we’re actually ahead of schedule on this recession,” he said on CNBC’s “The Kudlow Report.”

“That’s not any reason to be satisfied, and there’s a lot more that needs to be done," he said. "But it’s really completely misleading to compare a recession like this, caused by collapsing asset values, with the recession like the one we had in 1982 that was policy-caused in an effort to contain inflation.”

“The right comparisons for this recession are the kind of experience Japan had in the 1990s or the kind of experience that the United States had in the 1930s,” he added. “It’s a lot better than those experiences, and that’s been because there’s a strong policy response.”

Summers, who was director of the White House National Economic Council under President Obama and a former president of Harvard University, credited the current administration for policies that halted the “Depression-like conditions” six months after taking office.

“If you use — as many of your political persuasion like to — markets as evidence, we’ve had as strong a stock market through the Obama years as in almost any presidency since the Second World War,” he said.

Summers noted that the CBOE Volatility Index, widely considered one of the best gauges of fear in the market, was below normal from a historical standpoint — “and that it has fallen by more than two-thirds since the president came into office — hardly consistent with the kinds of arguments that a number of the critics are making.”

Thursday afternoon, the VIX was below 19, down sharply from its October 2008 high of 79.13.

“This was a very different kind of recession,” Summers said. “It was caused by overleveraging, excessive asset values, and when those burst — those bubbles burst when the deleveraging takes place, when you have a massive contraction in the private sector’s propensity to spend, then it takes a long time.”

The former Treasury Secretary under President Clinton blamed lawmakers for economic sluggishness.

“I think that it’s unfortunate that the Congress was unwilling to pass the stimulus in the form that the president originally proposed it, which would have put more money into the economy, and I think would’ve driven a more rapid recovery,” he said.

The lack of infrastructure investment, the failure to sign on to Obama’s long-term approach to deficit reduction and a Republican-led delay in extending the federal debt limit in August were singled out.

“I think that the failure to do all of those things has compromised this recovery,” he said.

Asked by host Larry Kudlow about the feud between Federal Reserve Chairman Ben Bernanke and Paul Krugman, a New York Times columnist and Nobel Prize-winning economist who proposed letting inflation rise to 4 percent to spur job creation, Summers declined to debate monetary policy.

“In all areas, we should be biasing our policy decision toward creating expansion, because I think the risk of insufficient demand is probably the greatest short-term and cyclical risk we face,” he said.

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