Summers defends Obama’s $787-billion stimulus plan
President Obama’s chief economic advisor, former Treasury Secretary Lawrence H. Summers, defended the administration’s massive program for fighting the recession, saying it was on track and beginning to show results despite continuing bad news on unemployment.
“If we were at the brink of catastrophe at the beginning of the year, we have walked some substantial distance back from the abyss,” Summers said Friday in remarks at the Peterson Institute for International Economics, a Washington think tank.
His argument got some support from an uptick in new-home construction last month that suggests the crucial housing market may be on the path of recovery. And much of the gain was attributed to a provision in the stimulus plan.
Housing starts in June jumped 3.6% from May, the Census Bureau reported, partly the result of contractors hurrying to get homes underway before a government tax credit for first-time buyers that was included in the $787-billion stimulus bill expires Dec. 1.
But a separate report Friday showed that rising levels of unemployment remain a major obstacle for consumers and the broader economy.
The June jobless rate rose in 38 states, with Michigan posting the highest figure, 15.2%, and another 15 states in double digits, according to the Labor Department. The Midwest and the West have seen the sharpest drop in payroll jobs, reflecting the steep decline in manufacturing and housing-related industries.
The national jobless rate last month was 9.5%, and many economists, including Summers, expect it to continue to rise in coming months.
“This is obviously a major area of concern,” said Summers, director of the National Economic Council. He alluded to both the economic and political challenges for the Obama administration, which has been criticized by Republicans and has seen a slip in the public’s approval rating of the president.
But he contended that the current employment trends do not “provide a basis for concluding that the Recovery Act is falling short of its goals.” He told a standing-room crowd at the Peterson Institute that “both administration and independent forecasts predicted that only a very small part of the total job creation expected from the Recovery Act would take place within six months.”
In fact, he said, “given lags in spending and hiring, the peak impact of the stimulus on jobs was expected not to be achieved until the end of 2010.”
The theme of Summers’ talk echoed the Obama administration’s efforts in recent days to counter a series of Republican attacks that have sought to portray Obama’s stimulus program as ineffective and incurring unacceptably high government debt.
The federal deficit surpassed $1 trillion for the first time this week, adding to the concern of some economists about inflation and possible erosion of the U.S. dollar. But the onetime Treasury secretary under the Clinton administration said that it was important to fix the economy first.
“I think the greatest risk to future U.S. deficits would be uncontrolled economic contraction in the United States,” Summers said, responding to a question from the audience about how America would reassure Chinese and other global investors about the safety of investments in the U.S. “Rescuing the economy has to be the first priority.”