Summers says government-driven growth is right medicine, not austerity

Lawrence H. Summers on Thursday told a sometimes-skeptical audience at an investment summit that austerity was the wrong medicine for the U.S. economy and that public projects are needed to stem unemployment. Rattling off a series of dour statistics, the renowned economist and former contender to run the Federal Reserve reiterated his continued support for growth-oriented government policies to jumpstart the U.S., as well as Japan and Europe. "The fraction of the adult population that is working has not increased since the low point and is now lower than at any time in a generation," Mr. Summers said. "This should be a greater cause of concern than it already is because if you think about it, at some level, we might have expected things to be different." Mr. Summers' views included the prediction that an environment of record-low interest rates will persist as one of the few ways to stimulate the public and private-sector demand necessary to reduce unemployment in the long term. Because borrowing costs are cheap, he said now is the time for public-sector investment. "If that is not the time to make Kennedy airport look respectable, I don't know when that time will come," he said, referring to New York's John F. Kennedy International Airport. The Harvard professor's views clashed with some of those expressed by investment officers who appeared earlier at the UBS Wealth Management Americas conference, where chief investment officers gathered to discuss their outlooks. A number of Wall Street investors have criticized a decision by the Federal Reserve to maintain its massive policy of asset purchases, known as quantitative easing, out of the belief that the program has distorted the market. Mr. Summers, who withdrew his name from consideration to head up the Federal Reserve last month after encountering opposition from powerful Democrats, faced skeptical questions from the audience Thursday. One audience member questioned Mr. Summers' credibility, while another called his view that demand for labor is too low "simplistic." Mr. Summers called it "no kind of important achievement" that "the U.S. received a reprieve from the grotesque" by resolving the debt ceiling crisis that flummoxed Washington last month. But he said that it made similar crises highly unlikely in the near future, as politicians see little advantage to gain. "The good news is that even the most foolish of people who have shot themselves in the foot rarely reload," he said.