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Summers: Economy Needs More Government

By    |   Friday, 07 Nov 2008 12:36 PM

Larry Summers, a strong candidate to be Barack Obama’s Treasury Secretary, says the government must become more involved in the economy.

Summers, who ran Treasury under President Clinton, wrote in the Financial Times that “the pendulum will swing — and should swing — toward an enhanced role for government in saving the market system from its excesses and inadequacies.”

Policymakers should of course consider the ultimate implications of their measures, he says.

“For example, they need to recognize that even as events compel larger deficits in the short run, they reinforce the need for longer-term measures to keep government finances on a sound footing.”

It’s important that deficit spending go to productive uses, Summers points out.

“We need to identify those investments that stimulate demand in the short run and have a positive impact on productivity,” he says.

“These include renewable energy technologies and the infrastructure to support them, the broader application of biotechnologies and expanding broadband connectivity, an area where the U.S. has fallen behind.”

Basic policy infrastructure needs to be changed,” Summers writes. “We need to reform tax incentives that encourage financial risk taking, regulate leverage, and prevent government policies that give rise to a toxic combination of privatized gains and socialized losses,” he maintains.

Expectations of a major fiscal stimulus from Congress soon are widespread.

"We suspect Obama will support even more fiscal stimulus than the $200 billion we have penciled into our forecast,” Goldman Sachs economist Jan Hatzius tells Reuters.

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Larry Summers, a strong candidate to be Barack Obama’s Treasury Secretary, says the government must become more involved in the economy.Summers, who ran Treasury under President Clinton, wrote in the Financial Times that “the pendulum will swing — and should swing — toward...
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Friday, 07 Nov 2008 12:36 PM
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