White House’s Summers defends economic policies

By Jon Hurdle

PHILADELPHIA (BestGrowthStock) – White House adviser Lawrence Summers defended the economic policies of the Obama administration on Thursday, saying they had prevented a depression amid the worst financial crisis since the 1930s.

Delivering the annual Templeton Lecture at the National Constitution Center, Summers said there is a legitimate role for government to play when markets fail to function normally, as they did in late 2008.

The director of the National Economic Council cited federal economic stimulus measures such as the Wall Street and automaker bailouts, as well as health care reform, and proposed changes in financial regulation as having provided a lifeline to the U.S. economy during a severe economic crisis.

Rejecting criticism by Republicans that the administration has given government too prominent a role in the U.S. economy, Summers argued that a history of government intervention allowed the U.S. to avoid some of the worst political effects of the 1930s depression which led to autocratic governments in Europe and Japan.

While markets are usually self-correcting, they occasionally — “perhaps three times a century” — require government to step in, as the U.S. government did with its $787 billion fiscal stimulus package, Summers said.

He cited the example of General Electric being unable to borrow money for five days as a sign of a system under severe stress.

“There was no alternative to strong public action to stop this vicious cycle,” he said.

The U.S. economy has “a long way to go” but is no longer dominated by talk of depression because of the government’s action, he said.

The financial system needs reform because of the risk of systemic contagion, and because of the punitive fees imposed on consumers by some financial institutions, Summers said.

“How can it be right if a financial institution can, without telling anybody, charge a $35 overdraft fee for taking $15 out of an ATM?” he asked.

Large financial institutions need appropriate regulation so that they can function without risking the health of others, he argued.

“The right approach is to recognize that the modern financial system has benefits but requires sophisticated regulation,” he said.

Government involvement in markets not only helps them function better but is “an idea that supports and undergirds freedom,” Summers said.

“We have met these challenges in previous lives before they led to convulsive and catastrophic political change” such as seen in Europe during the 1930s, he said.

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(Editing by Bernard Orr)

White House’s Summers defends economic policies