Summers fights concerns over stimulus - Mounting job losses stoke criticism

Summers fights concerns over stimulus - Mounting job losses stoke criticism
By Sarah O’Connor in Washington
Copyright The Financial Times Limited 2009
Published: July 17 2009 19:02 | Last updated: July 17 2009 19:02
http://www.ft.com/cms/s/0/aa043b9c-72f9-11de-ad98-00144feabdc0.html


Rising unemployment in the US does not mean the government’s $787bn economic stimulus has failed, the White House argued on Friday as it tried to counter increasing disillusionment about the package.

Larry Summers, White House economic adviser, said a 26-year high in the jobless rate, was “obviously a major area of concern” for the administration but argued the stimulus was never expected to create many jobs at this stage.

Republicans have seized upon mounting job losses in the US as proof that President Barack Obama’s stimulus package – the largest in US history – was a costly mistake. They hope to direct public anger about the state of economy away from the Bush administration and onto its successor.

”This stimulus plan has been a flop,” Eric Cantor, Republican whip in the House of Representatives, said this week. “This is President Obama’s economy.”

That argument looks to be gaining some traction among the public as road-building and other projects aimed at creating jobs have been slow to roll out. “As far as the stimulus package, we can kiss that goodbye right now,” one job-hunter remarked to the FT, summing up the frustration many feel. “It’s just our own money coming back to us, but they’re taking their own sweet time.”

The White House is urging patience. “Contrary to a significant amount of commentary, this [unemployment level] does not provide a basis for concluding that the Recovery Act is falling short of its goals,” Mr Summers said in a speech on Friday on the US economy. He said only around 10 per cent of the stimulus’ job impact was ever expected to kick in this year, and it would become most effective at the end of 2010.

Other elements of the stimulus package have kicked in immediately, he said, such as more than $43m in tax cuts for households and businesses.

Mr Summers also stressed that the economic situation had stabilised significantly since Mr Obama entered office. “The economy was in free-fall at the start of the year with no apparent limit on how much worse things could get,” he said. “We were at the brink of catastrophe … but we have walked some substantial distance back from the abyss.”

He said financial markets had calmed and a majority of businesses now saw better times ahead. The economy was on track to begin growing again by the end of the year, he added.

“A critical question for the next year will be whether or not GDP growth accelerates to the point where employment growth kicks in, leading to a mutually reinforcing positive cycle of spending and income increases,” he said. “Towards this end, it will be essential to continue vigorous implementation of the Recovery program and measures to support the housing and financial markets.”

In reponse to concerns that the US was becoming dangerously indebted as a result of such government spending, he said that only provided added impetus to get the economy moving.

”The greatest risk to future U.S. deficits would be uncontrolled economic contraction in the United States,” he said in response to a question. ”Containing this downturn and preventing the kind of debt dynamics you saw in Japan or you saw during the Depression in the United States has to be the first priority of anyone concerned with national creditworthiness.”