The present-day problems in the US and European economies are not linked to the nature of society as it is, they are due to the faults in the financial system.
This idea was voiced out by Laurence (Larry) Summers, an ex-Chief Economic Advisor to the US President Barack Obama, at “The Global Economy – What Went Wrong and How to Right It” session of the 8th Yalta forum of YES.
According to him, the main cause of current economic problems is the lack of demand. This launches “a vicious circle” of economic recession, when decreased consumption and growing savings of the population stop to supply economy with the necessary funds, prevent expansion of its potential. “This is a technical problem,” Summers believe. “As Barack Obama said citing John Kennedy, this is the manmade problem. So, people can solve it.”
Larry Summers disagrees that the major problem is the growing global debt and inflation. “Many people say that endless increase of demand may result in a too high debt, which one would not be able to repay. However, inflation is not the worst problem as well as too high expenditures. This is not the problem. The problem is that there is no demand. There is no demand because people are nervous, people worry, people are anxious. The focus on demand growth will further become the determining factor of economic development on both sides of the Atlantic,” he said. “No demand, no growth. No growth, no growing confidence among people.”
According to Summers, the package of bills submitted by Obama to the Congress and oriented to creation of new jobs may significantly contribute to resolving the problem. “These are the measures, which the US Congress supported previously. I don’t know whether congressmen would support them now. However, I know for sure that once these measures are implemented, a million of US family masters would get the opportunity to earn money for their households. These decisions would help another million of people to take responsibility for themselves and their families.”
As concerns the European economic problems, according to Summers, Europe needs to set strategic priorities at least for the next years. And, first of all, it needs to define the problem of balance between the need to centralize the European Union’s fiscal policy and the EU national states strive to autonomy and protection of national interests, national economic models.
“To act – and it is necessary to act! – Europe needs to make a strategic choice,” he emphasized.
At the same time, Larry Summers takes reserved attitude to international economic development in his forecasts. “I can imagine how the USA may avoid the recession in a tactic sense of the word, but an economic growth in this country would rather resemble a decline. The growth would be so low that it would be of no positive impact on the situation within the next two years. Europe may reach 2 – 2.5% growth. But I would repeat once again: the economy will grow only when the demand grows.”
International Renaissance Foundation