Summers: Obama’s Plan May Have Stabilized Consumer Spending

Lawrence H. Summers, director of the National Economic Council, said a $787 billion economic stimulus package that Obama signed into law last month is starting to have an impact, saving thousands of jobs, providing continued unemployment insurance and health benefits to several hundred thousand workers and initiating tens of billions of dollars worth of infrastructure projects.

In a speech at the Brookings Institution, a Washington think tank, Summers also said the administration aims not only to start an economic recovery but to build a more sustainable foundation for future economic expansion. He suggested that people who are focusing solely on the recovery are setting their sights too low. And he urged Americans to take advantage of the bargains available now because of reduced prices brought on by recession in many sectors of the economy.

"Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike its recent predecessors, is fundamentally sound and not driven by financial excess," he said. He said there was "one ineluctable lesson of the history of financial crises: They all end."

Obama made a similar point after a meeting at the White House today with Paul A. Volcker, chairman of his Economic Recovery Advisory Board, and other advisers.

"It is very important, even as we’re focused on the financial system and the credit markets, that we are laying a foundation for what I’m calling a post-bubble economic growth model," Obama told reporters. "The days when we are going to be able to grow this economy just on an overheated housing market or people spending — maxing out on their credit cards — those days are over. What we need to do is go back to fundamentals."

Obama said that means driving down health-care costs, improving the U.S. education system and making a transition to a "clean energy economy." He said business executives he met with yesterday "are confident about our ability to grow long term" after getting through "this difficult period." The administration is "providing help along the way" and will soon announce "additional steps to help small businesses," he said.

"If we are keeping focused on all the fundamentally sound aspects of our economy, all the outstanding companies, workers, all the innovation and dynamism in this economy, then we’re going to get through this," Obama said. "And I’m very confident about that."

Summers and Obama made their remarks after the Commerce Department reported that the U.S. monthly trade deficit dropped 9.7 percent to $36 billion in January, the lowest level since October 2002 and less than the $38 billion gap expected by Wall Street. At the same time that imports were plunging 6.7 percent because of lower U.S. demand amid the recession, U.S. exports also fell, but at a lower rate — 5.7 percent — than the drop in imports.

Meanwhile, a preliminary index of consumer confidence showed a slight uptick, beating expectations and suggesting that the mood of consumers is a bit less grim this month. Reuters/University of Michigan Surveys of Consumers said its confidence reading edged up to 56.6 for March from 56.3 in February, bettering economists’ predictions of a fall to 55, Reuters news agency reported.

Summers said the administration is confident that "we will restore economic growth, regain financial stability and find opportunity in this moment of crisis to assure that our future prosperity rests on a sound and sustainable foundation."

Invoking President Franklin D. Roosevelt’s dictum during the Great Depression that "the only thing we have to fear is fear itself," Summers described the growth of a bubble economy in recent years and the subsequent bursting of the bubble as vicious cycles of greed and fear.

"An abundance of greed and an absence of fear led some to make investments not based on the real value of assets but on the faith that there would be another who would pay more for those assets," he said. "Bubbles were born. And in these moments, greed begets greed, and the bubble grows." After the process eventually stops and reverses, however, "greed gives way to fear, and this fear begets fear," he added.

"This is the paradox at the heart of financial crisis," he said. "If, in the last few years, we’ve seen too much greed and too little fear, too much spending and not enough saving, too much borrowing and not enough worrying, today our problem is very different. It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind. . . . It is this transition that has happened in the United States today."

Now, he said, the challenge is to "create confidence without its leading to unstable complacency."

"It is surely too early to accurately gauge the broader economic impact of the president’s program," Summers said. "But it is modestly encouraging that since it began to take shape, consumer spending in the United States, which was collapsing during the holiday season, appears, according to a number of indicators, to have stabilized."

Asked in a question-and-answer session what business leaders should do to help stimulate broad recovery, Summers said those with long-term strategies and investment plans should go ahead and invest "because in a real sense, there are a very large number of things that are on sale today." He cited construction costs, which he said are lower than two years ago.

"So my advice to business leaders would be not to foreshorten the horizon at a moment like this," he said. They should also "remember this central paradox of financial crisis: that while the problem was caused by excessive complacency and excessive optimism, what we need today is more optimism and more confidence."