No Need to Panic over March Jobs Report – Summers

On this week’s “Political Capital with Al Hunt,” Bloomberg TV anchor and Bloomberg View columnist Al Hunt interviews economist and former U.S. Treasury Secretary Larry Summers.

Summers on the March jobs report and the U.S. economy losing momentum after a strong start:

“It wasn’t a great report. Probably better than it looked. The previous month’s numbers were revised upwards. The average workweek was pretty good. The unemployment rate went down. But it’s hard to feel better after the report than one felt before.”

“There was a sense that the first quarter might come in above 3 percent. I don’t think we’ve got growth above 3 percent locked in for the year by any means. But I don’t think we need to panic over this report by any stretch. I think the basic momentum of an economy that is growing and is growing at a rate that is closing the unemployment gap, that’s probably still there, but we certainly could use more confidence, we certainly could use more demand, we certainly could use fiscal policy being in a different place.”

On what percentage growth we will achieve:

“My guess is still that we’re going to be north of 2.5 percent this year and that it’s going to accelerate into next year. You’ve got a good chance for above 3 percent next year. You’ve got a number of things. You’ve got housing, which is really starting to turn. You have a stock market that’s been robust, it’s created wealth, that’s going to drive spending. You have consumer balance sheets that have improved. People are less in debt. You have an energy sector that’s got a lot of opportunity in it in the United States in a way that most people didn’t expect.”

On how real the worry is of serious inflation caused by the Federal Reserve’s quantitation easing:

“Old treasury secretary habits die hard. I’m not going to prescribe or describe regarding the Fed. It is still the case right now that the risks in the United States of the kind of mistake we made in 1937 or the kind of mistake that’s been made repeatedly in Japan, where you never get all the way back to normal, are greater than the risks of what was the case in the United States in the 1970s, where you misjudged the situation and let there be stagflation.”

“You’ve got to be watching all the indicators on inflation, all the indicators on tightness in labor markets, tightness in product markets, and at the Federal Reserve, you have to be thinking very carefully about exit strategy, as well as entrance strategy. It’s a very complicated that needs to be struck, but, yes, I do think at this point the risks of slowdown still significantly exceed the risks of an acceleration of inflation. But anyone who is completely serene about either I think is making a real mistake.”

On the Bank of Japan:

“I think the impulse to discontinuity was right in Japan. The path they were on wasn’t working for them. Debt was rising, and prices were falling. The economy was falling. It was like the old Al Gore thing about what’s up should be up and what’s down should be down, and it was exactly the reverse in — in Japan.”

“[Japanese] are really in uncharted territory, and I think the world’s going to learn a lot from their experiment. I do think they were right to be moving strongly, and I think on the evidence of the Japanese stock market, on the evidence of expectations in Japan over the last several months, you’d have to say that there’s a positive verdict on what they’ve been doing so far, but when you’ve had macro-economically irresponsible policies in the past, they often produce benefits that are very great for the first number of months and, like coiling a spring, provide for problems later. I think that it’s a bold experiment they’ve undertaken in Japan.”

On the consequences of European austerity:

“If you look at what markets are pricing, they’re certainly assigning much less risk to Italy and Spain than they were nine months ago or a year ago, and that has got to say that something there is working. But it seems to me the awkwardness with which they handled the Cyprus situation has got to have created a substantial sense of unease in Europe, and that is something that I think is worth worrying about.”

On corporate and individual income tax reform:

“I don’t think either is an odds-on bet at this point. Of all the propositions there are none that would command support across a wider range of economists than the idea that a broader base and a lower rate is fairer and makes the economy grow better… [But] I wouldn’t be betting on it.”

On President Obama’s budget and whether there are any prospects for a grand bargain:

“It certainly doesn’t have all the elements that I would prefer, all the mix that many people on his side would prefer. But I think it’s a budget that will remove a lot of excuses for those who do not want to negotiate.”

“President Obama’s budget is balanced. It recognizes that entitlements have to be part of an ultimate solution. It recognizes that civilian spending has to be part of a solution. It does embrace an idea that I think is really important and is not in our debate enough. We are right to be focused on our children and be focused on what we bequeath our children. That’s in part about the debts we bequeath them, and they do need to be controlled. It’s also about the maintenance this generation defers on a decaying national infrastructure. It’s also about the way those children are educated and prepared for an increasing complex world. It’s also about the scientific investments and the way in which we do or do not keep America the global center of the knowledge economy. I’m glad that President Obama’s budget contains some of those key public investments that are necessary to preserve things for our next generation in a sound way.”

Courtesy of Bloomberg Television

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