Speaking out for the first time since dropping a high-profile bid to become Federal Reserve chairman, Harvard professor Larry Summers struck an unusually aggressive liberal tone Thursday morning, denouncing the "austerity" of the past few years as "a grievous error" and calling for increased government stimulus.
Summers, speaking at an event at the Center for American Progress in Washington, appeared uncharacteristically animated as he criticized the economy's progress over the past few years.
The country "won a reprieve from the grotesque" in raising the debt ceiling, Summers said. "But it was no more than that."
Summers painted a bleak picture of the current state of affairs, warning that the economy is not succeeding in raising middle-class incomes or reassuring parents about their children's future. "We have to face the fact that the economy has made essentially no gain" since the summer of 2009, Summers said.
Summers likely would have held back on comments if he were still seeking the Fed position, given the headaches they would have caused for an Obama administration trying to defend its record on economic matters. But, free from having to worry about the immediate political fallout from his remarks, Summers also gave a clearer indication of what his tenure as Fed chairman might have been like — namely, more aggressively dovish than his writings in recent years would suggest.
The economy "is constrained by lack of demand," not incapacity to produce, Summers explained, adding that "our priority must be on increasing demand."
Summers dismissed concerns about the debt, echoing the theme of a recent op-ed he wrote for the Financial Times. Long-term deficits should be a second-order concern, Summers explained, because they are hard to project and because strong economic growth would reduce the debt.
Federal policy "should not be driven by fears of the bond market 75 years from now rather than by the lack of employment today," Summers argued.
Instead of reducing the debt, "we need to focus on fairness," Summers said, although he clarified that the government "can't fix inequality, but it can make it not worse."