Treasury Official Warns Against Complacency, Cites Great Depression

U.S. Deputy Treasury Secretary Lawrence Summers said Tuesday that the period leading up to the Great Depression should serve as a lesson against complacency for policymakers today.

Summers, the Clinton administration’s point person on the Asian economic crisis, said that he was more encouraged by events in Asia now than he was a few months ago, but that the situation in Indonesia remained “extraordinarily difficult.”

Speaking to a large crowd of Silicon Valley executives at a technology conference here, Summers said the wedding of technology and finance had fostered a renaissance in U.S. industrial productivity.

Summers said the federal government had also helped bring about the current boom by trimming the U.S. budget deficit, maintaining a strong and stable currency and giving the Federal Reserve the autonomy necessary to do its job.

But in his speech, titled “The Challenge of Success,” Summers outlined the obstacles that lie ahead. Specifically, he noted some parallels between the current boom and that which preceded the Great Depression and said prosperity without public purpose may be “hollow and short-lived.”

“There has been another time in our nation’s history when an explosion of new wealth and new technology was transforming the way Americans lived; when our companies were enjoying unprecedented success; when our elected leaders focused properly on shrinking government and preaching self-reliance; when there was an increasing isolationist tendency in our government and our country,” Summers said.

“That time was the late 1920s. There followed a series of catastrophic economic and political events that were perhaps the darkest years in human history,” he said.

Summers said that despite a backdrop of remarkable freedom and opportunity, a child born today in New York is less likely to live to the age of 5 than a child born in Shanghai.

As he cited other ironies of the current economic boom, Summers urged policymakers not to simply throw money at social programs but to take fundamental steps toward extending prosperity to all Americans.

He said the Clinton administration had placed such a high emphasis on education because it ultimately enhances both productivity and inclusion at a time when the value of information and knowledge is soaring.

“Because in the new economy, success will still depend on old virtues: education, saving and hard work. We have to make sure that everyone has a chance to prosper in that way,” Summers said.

Summers warned that just as extending economic opportunity to more Americans was essential to prolonging economic prosperity, the United States must not lose sight of its international responsibilities in the post-Cold War era.

“When they write the history books 200 years from now, the end of the Cold War will be the second story,” Summers said. “The larger story will be that this is the period of human history in which several billion people joined modernity.”

Summers said it was critical for Congress to vote soon to support the United States making its periodic contribution to the International Monetary Fund.

The IMF has put together rescue packages for Indonesia, South Korea and Thailand, and the IMF board will debate Monday whether to release a new installment of the Indonesia loan.

Summers said Thailand and South Korea were “working with steadfastness” to implement the terms of reform packages agreed with the IMF, and this was paying dividends in terms of stable currencies and rising reserves.

The situation in Indonesia was still difficult, although less so than it had been before.

Summers, repeating the line taken by Treasury Secretary Robert E. Rubin, said it was also crucial for Japan to implement its new reform package effectively.