WASHINGTON (Reuters) - Japan’s struggle with economic stagnation shows the need for action to boost the U.S. economy, outgoing senior White House aide Larry Summers said on Monday as he urged passage of a $858 billion tax-cut deal.
Summers, who is stepping down at the end of this year, said lackluster spending by consumers and businesses was a major constraint on the U.S. economy and the government needed to help offset that shortfall through fiscal measures.
“There cannot be any question that the constraint on our economy now and for the next several years will be the lack of demand,” Summers told the Economic Policy Institute. “We must do everything we can to ensure that this recovery is as rapid as possible.”
Japan’s example shows it is a “serious mistake” to be too complacent early in an economic recovery, Summers said.
The speech at the think tank is Summers’ last before he leaves his post as director of National Economic Council to return to a teaching job at Harvard University.
Obama has not yet named Summers’ successor and White House spokesman Robert Gibbs cast doubt on the prospect that there would be an announcement by the end of the year.
The tax-cut compromise, worked out between President Barack Obama and opposition Republicans is viewed with alarm by many Democrats, who worry the president gave away too much at the bargaining table by agreeing to temporarily extend Bush-era tax cuts for the wealthiest Americans.
“To be sure, this legislation is a compromise,” Summers said, adding that Obama strongly opposed some aspects of the deal, including extending tax breaks for the wealthy.
But he said provisions such as the extension of unemployment insurance, the payroll-tax holiday and tax breaks for business purchases of capital equipment would help give the economy forward momentum.
Spurred by the Tea Party movement, Republicans who will take control of the House of Representatives next year, are calling for spending curbs to help rein in budget deficits.
Summers said it was important to tackle long-term deficits, calling the imbalance between spending and revenues a “tax on our future.” But he said the current focus should be on reviving growth, adding that it was “right and necessary for government to counteract private-sector deleveraging.”
He called for further infrastructure spending to address a backlog of deferred projects and put Americans back to work. The U.S. unemployment rate now stands at 9.8 percent.
Summers’ two-year White House tenure marked a return to government after serving Treasury secretary in the 1990s.
Summers said he would miss economic policy-making but looked forward to the chance to step back from the “daily grind” and take a broader perspective.
The Obama administration had initially hoped to name a replacement for Summers by the end of the year, but that timeline now seems like it may slip.
Investment banker Roger Altman and senior Treasury official Gene Sperling are among those under consideration for Summers’ job.
Reporting by Caren Bohan, Editing by Todd Eastham