Obama Economic Adviser Larry Summers - Worse of Recession Still to Come

It's pretty rare for me to pay much attention to Mr. Corporatist Larry Summers. But in a Financial Times interview, at least one hears some realistic acknowledgment on what is going on with the economy:

“I don’t think the worst is over ... It’s very likely that more jobs will be lost. It would not be surprising if GDP has not yet reached its low. What does appear to be true is that the sense of panic in the markets and freefall in the economy has subsided and one does not have the sense of a situation as out of control as a few months ago.

But then....we get what their vision is:

This new American economy, Summers hopes, will be “more export-oriented” and “less consumption-oriented”; “more environmentally oriented” and “less energy-production-oriented”; “more bio- and software- and civil-engineering-oriented and less financial-engineering-oriented”; and, finally, “more middle-class-oriented” and “less oriented to income growth that is disproportionate towards a very small share of the population”. Unlike many other economists, Summers does not believe that lower growth is the inevitable price of this economic paradigm shift.

Summers admits that this rosy scenario depends on a lot more than the White House. Foreign policy watchers have tended to focus on the security issues this administration faces – the wars in Iraq and Afghanistan, the challenges of Iran and North Korea’s nuclear ambitions. But Obama’s most important international assignment may turn out to be coaxing the rest of the world into accommodating this reshaping of the US economy.

As Summers puts it, “The global imbalances have to add up to zero and so, if the US is going to be less the consumer importer of last resort, then other countries are going to need to be in different positions as well.” On this possibility, Summers is bullish. “The very great enthusiasm for accumulating reserves that one saw globally is likely to be a smaller factor over the next decade than it has been in recent years,” he predicts.

Ya know, we've been hearing similar agendas for some time now, so Obama administration, where are the policies to reshape the U.S. economy to improve the lot of the middle class?

Don't tell us that somehow bad policies, like offshore outsourcing our jobs, or more bad trade deals, ignoring the importing of foreign workers, less opportunities in education...the list goes on and on and on are good. We know they are not good, by the results themselves. Plus spins, public relations only goes so far and I believe the Bush administration ran out the clock on the American people snow job.

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I can't wait for the day

I can't wait for the day that someone with actually knowledge of the subject can come out and say the worst is behind us.

as for where the policies are that's a good question. I think there are some good goals in the stimulus package to help this new economy (or if you really look at it really a greener version of how things where before the past 30 or so years)

healthcare reform can be of some help.

But your right the big issues such as outsourcing and bad trade dealers aren't really being addressed. Hell even when people try to something like say only American companies can take part in bids for projects that use the stimulus money, people have a hissy fit and they back down

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I hope Summers is strategizing

a plan to meet his stated objectives.
It's one thing to have goals - it's another to execute a method of implementation.

Increasing unemployment will be a convergence of political, economic and sociological paradigms. Since Clinton gutted much of the welfare program and we have little safety net for the most vulnerable, someone better be devising a plan for either massive job creation or re-implementation of social programs.

I understand that historically unemployment and GDP contraction are only loosely correlated, but we are in a period of credit destruction. The dynamics seem much different.

Robert, you deserve a standing ovation for your commentary!

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There will be pain.

There will be pain to achieve this vision. To make the transition to less consumer driven economy will be painful. If someone says otherwise they are a snake oil salesman - figures it is coming from Larry Summers.

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I don't see that

If one diversifies, increases exports, manufacturing I don't get why you think it might be painful to rebalance the economy. To me that would be a good suave on an open wound and some retail would disappear and some manufacturing would reappear. But even there, it could me a reduction in imports since that is a major driver of the "consumer economy" i.e. buying cheap plastic items for China and so on.

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Time

I think what he's getting at, and if I'm wrong please correct me, is that there would be a time gap between the two. Many former industrial areas in this country have even had the underpinnings of such a base removed. In between the time to close out the old business deals and construct the plants and find the customers and whatever logistics and red tape, would be in months at the very least. In between, you could see out of work folks. Perhaps this was the "pain" that was being referred to.

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Taxes and Tariffs

I agree with RebelCapitalist, it will be a painful adjustment.
The only way the government can influence import/export and reduction in energy consumption is through additional taxes and tariffs.
The cost of manufacturing at home would have to be less than manufacturing overseas. That can only be accomplished one of 2 ways: High tariffs on imported goods or abolishment of minimum wage.
Another case in point - energy. If the government taxed energy (namely gasoline) to European levels, businesses would be incentivised to create more energy efficient transportation. But citizens wouldn't like it and it would change the face of suburbia.
Retail consumption is going to be the easiest to adjust - and is already happening. Rolling back credit limits on both consumers and businesses, making retail items less affordable and unprofitable, will reduce retail consumption.
Agendas that better the economy in the long run will not necessarily be popular in the short run.

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Intersection of politics and economics is ugly.

I concur with Johnny and Yellow Dog that those are instances where there would be pain. The transition period, however long, would be painful. This short term pain would probably deter this vision from happening because of the likelihood that politicians would lose their jobs.

In order to achieve a more sustainable economy, I agree with what you are saying (and in a way I agree with Summers) but this all remains wishful thinking unless we come to accept that there will be pain in the transition. Until, politicians and American populace can accept that we will languish, middle class will continue to vanish or worse we will become a province of China.

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