Larry Summers, former economic adviser to Barack Obama and Treasury secretary under Bill Clinton’s presidency, shared his thoughts on the economy through opinion pieces in the Financial Times and Washington Post. His concern is the possibility that the United States is heading for a “lost decade” similar to Japan’s lost decade in the 1990s. This country has already experienced five years of economic growth under 1 percent annually, and that’s half way to a decade. Summers argues that while changes in policies helped prevent total economic disaster in 2008 and 2009, the economy needs more stimulation right now to prevent the history of one side of the globe from repeating on this side.
He is calling for more infrastructure spending right now. The country’s infrastructure is quickly becoming obsolete, and a stimulus package that focuses on infrastructure maintenance and replacement at a time when financing is cheap would increase the level of employment and grow the economy. When the major stimulus package was developed, it was designed to focus on “shovel-ready projects,” the same type of infrastructure improvement that Summers is calling for now. Obama warned of a lost decade in 2009, when trying to sell Congress and the American public on the first stimulus package. What happened to that first stimulus? I know that stimulus funds supported local road and bridge improvement projects near me — some of which were started years ago and are still far from completion.
It must not have been big enough or agile enough. While the stimulus most likely helped to prevent a larger economic problem, we’re still heading towards a lost decade.
Larry Summers offers these suggestions for moving forward and sparking the economy.
This 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 only resolved by increases in confidence, borrowing and lending, and spending. Unless and until this is done other policies [austerity measures, inflation protection[, no matter how apparently appealing or effective in normal times, will be futile at best…
Without the payroll tax cuts and unemployment insurance negotiated last autumn we might now be looking at the possibility of a double dip. Substantial withdrawal of fiscal stimulus at the end of 2011 would be premature. Stimulus should be continued and indeed expanded by providing the payroll tax cut to employers as well as employees.
Politicians are going to have a tough job convincing the country that more taxpayer money should go to stimulating the economy, the government should continue spending, and more federal debt is acceptable even at these low interest rates. Yet, if the economy struggles for another five years, global investors will lose interest in investing in the United States, and the country could find it difficult to survive economically against other nations’ economies.
Japan also introduced economic stimulus policies to try to recover from that country’s Lost Decade starting in 1991, but that country’s economy still hasn’t found its way. The economy in that region of the world is being fueled by other nations, where labor and parts are cheaper. When we look at Japan, China, Taiwan, and Korea, we may be looking to our own future, regardless of any new stimulus programs. This just might be a new reality, where economic growth comes from emerging nations.
Published or updated June 16, 2011.