Former U.S. Treasury Secretary Lawrence Summers says economic uncertainty doesn't excuse political and economic inaction.
“The best chance for economic recovery involves governments working directly to increase demand and to augment business confidence,” Summers writes in the Financial Times. “At Davos and beyond, this should be the focus of economic debates.”
The news coming from financial markets is paradoxical, Summers notes, and the combination of low real interest rates and low ratios of asset values to cash flows suggests an abnormally high degree of fear about the future.
“Uncertainty about future growth prospects also correlates with other observations, such as the abnormally large amount of cash sitting on corporate balance sheets, the reluctance of companies to hire, and consumers’ hesitancy about big discretionary purchases of durable goods despite near-record lows in borrowing costs and low capital goods prices,” Summers says.
All of this suggests that for the industrial world as a whole, the priority for governments must be
to engender confidence that the recovery will accelerate in the U.S. and that the downturn in Europe will be limited, says Summers.
“Government has no higher responsibility than insuring economies have an adequate level of demand,” he says. “Without growing demand, there is no prospect of sustained growth, let alone a significant fall in joblessness.”
“And without either of these there is no chance of reducing debt-to-income ratios.”
Reuters reports that the Occupy movement, which went global after protests against Wall Street last year, is camping in igloos to bring its argument with the super-rich "1 percent" to Davos.
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