Lawrence Summers Sees 1-in-3 Chance Of Double-Dip Recession
Clinton Treasury Secretary and Obama economic adviser Lawrence Summers sees a dim future on our present course…
On the current policy path, it would be surprising if growth were rapid enough to reduce unemployment even to 8.5 percent by the end of 2012. A substantial withdrawal of fiscal stimulus will occur when the payroll tax cuts expire at the end of the year. With growth at less than 1 percent in the first half of this year, the economy is effectively at a stall and facing the prospects of shocks from a European financial crisis that is decidedly not under control, spikes in oil prices and declines in business and household confidence. The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth.
Of course, being a good reliable little lefty, he’s still flogging letting the Bush tax rates expire and hitting upper incomes–meaning the people and small businesses that file as individuals that actually create jobs–with a bigger tax bill, but he does have a point about oil prices (which Obama could do a lot to lower with a phone call to people in his administration that are holding up drilling permits) and slow growth.
In short, he’s correctly diagnosed the problem, although he’s prescribing the wrong cure. I’ll give him a cheer and a half for that.