Summers: 'Excess of fear' must be broken

By JIM KUHNHENN and TOM RAUM, Associated Press Writers


WASHINGTON – President Barack Obama's top economic adviser said Friday the nation's economic crisis has led to an "excess of fear" among Americans that must be broken to reverse the downturn.

"Fear begets fear," Lawrence Summers, the president's director of the National Economic Council, told a forum.

"It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind when he famously observed that the only thing we had to fear was fear itself," Summers said. "It is this transition that has happened in the United States today."

Summers spoke amid new signs of a deepening recession. The U.S. trade deficit plunged in January to the lowest level in six years as the economic downturn cut America's demand for imported goods, the Commerce Department reported Friday.

The economic adviser, who was treasury secretary under President Bill Clinton, said it's still too early to gauge the broad impact of the administration's recovery program.

"But it is modestly encouraging that since it began to take shape, consumer spending in the U.S., which was collapsing during the holiday season, appears, according to a number of indicators, to have stabilized," Summers told the Brookings Institution, a think tank.

Summers was asked by a member of the audience what the nation's business community could do to help speed the recovery.

"What we need today is more optimism and more confidence," Summers said.
"Those who have sound long-term strategy, who have investments that they want to make, who see productive opportunities, are going to find this a very good moment to make those investments," he said. "There are a very large number of things that are on sale today. Think about the cost of doing construction today, versus the cost of doing construction two years ago.
"My advice to business leaders is not to foreshorten the horizon at a moment like this."

On Wall Streets, stocks were down a bit at midday after three straight days of gains.

The government said the U.S. trade imbalance dropped to $36 billion in January, the lowest level since October 2002.

However, while America's deficit with many of its trading partners declined sharply, the politically sensitive shortfall with China bucked the trend, rising by 3.5 percent to $20.6 billion.
U.S. manufacturing companies, battered by what they view as unfair competition from China, said that the continued high deficit with that nation pointed to a need for the Obama administration to take a tougher line on trade rules with the Chinese.

Heads of state from both the United States and China will be among leaders of the Group of 20 advanced and developing nations meeting in London in early April to try to chart a coordinated international approach to taming the global recession.

Summers acknowledged that huge sums are being borrowed by the U.S. government to support recovery efforts. And while things should get better under Obama's programs, things could also get worse "if deflation sets in, if GDP (gross domestic product) collapses further," Summers said.
"If that happens, the magnitude of the federal borrowing, as large as it is, will be dwarfed. It will be far, far larger."

He also said there was a need to dial back the stimulus once the economy is clearly out of the ditch so that the nation "does not exchange a painful recession for another unsustainable expansion."

For crisis spending by the government to continue after the crisis "would be a very risky thing," he said.

He sidestepped a question on what the U.S. economy would look like in 10 years, saying he would follow the advice often given to economists who enter the government: "Name a number or name a date, but never name both."

Summers said he did not believe contentious legislation to make union organizing easier would make the recession worse, as some business groups have argued.

"At this moment, demand is the crucial priority in thinking about employment," Summers said.
He was asked about the so-called card check bill, which would dramatically overhaul labor laws by allowing workers to form unions by simply signing a card or petition, removing an employer's right to demand a secret ballot vote. It also would impose stronger penalties on employers who violate labor laws and allow for arbitration to settle contract disputes.

Business groups oppose the measure, and labor groups consider it their top priority.

Obama is embracing a mantle of "confidence builder in chief." Whether he is meeting with his own economic advisers or worried business leaders, he has sought to be calm and reassuring — even in the face of more bad economic news.

He was also meeting Friday with Paul Volcker, the former Federal Reserve chairman who now guides the president's economic recovery advisory board. Volcker was preparing to brief Obama and his economic team on how the $787 billion stimulus package is working.

Speaking to a gathering of the nation's CEOs on Thursday, Obama defended his plans for pulling the economy out of a downward spiral, saying that his long-term view gives him reason to maintain optimism despite an uptick in unemployment and falling economic indicators.