After the false starts of 2010 and 2011, the U.S. economy may finally be on the path toward a strong recovery, Lawrence Summers, former Treasury secretary and currently Charles W. Eliot University Professor at Harvard, wrote in an opinion piece in the Financial Times on Monday.
In the springs of 2010 and 2011, many observers who thought they detected evidence that the economy had decisively turned around were disappointed a few months later, Summers wrote.
"Several considerations suggest that this time may be different," he said.
Among them, he listed employment growth that has been running "well ahead" of population growth for some time, a higher U.S. stock market, and the fact that expected market volatility is "lower than at any time since 2007."
He also cited pent-up demand from consumers who have long put off purchases of new cars and other durable goods, and signs that the housing market is beginning to stabilize.
"For years now, the rate of new families setting up households has been well below normal as more and more young people have moved in with their parents," Summers wrote. "At some point they will set out on their own, creating a virtuous circle of a stronger housing markets, more 'family formation' that boosts demand, further improvement in housing conditions and so on."
Innovation in mobile information technology and social networking, as well as newly discovered oil and natural gas reserves, seem likely to drive investment and job creation as well, as long as there is no "punitive" regulation that stifles them, he added.
Summers said the risks posed by high oil prices, the problems in Europe and the financial fallout from fears over future deficits "remain salient," but that unlike in 2010 and 2011, they are "probably already priced into markets and factored into outlooks for consumer and business spending."
He said that recovery is coming about due to "extraordinary steps" taken by fiscal and monetary policymakers to offset deleveraging in the private sector, which is "far from complete."
Therefore, according to Summers, the biggest risk to the recovery in the next few years is that policy will move away too quickly from its emphasis on boosting demand.
"A lurch back this year towards the kind of policies that are appropriate in normal times would be quite premature," he added.