President Obama's director of the National Economic Council, Larry Summers, told a Washington audience Friday that an excess of fear is hindering a recovery from today's deep economic recession.
Former Harvard University president Larry Summers said the new administration inherited an economic crisis that originated in a property market bubble that burst. Average home prices have fallen for two consecutive years and are 20 percent below their peak levels. In his talk at Washington's Brookings Institution, Summers spoke of the psychology of fear.
"Eventually, however, this process [of greed] stops - and reverses. Prices fall. People sell. Instead of an expectation of new buyers, there is an expectation of new sellers. Greed gives way to fear. And this fear begets fear," he said.
Summers called this process the paradox that lies at the heart of the financial crisis. He emphasized that in this kind of recession, where business and consumers are not spending, it is vital that government take the lead.
"If my speech was intended to persuade you of one thing, if you didn't agree with anything else, it was that this is not a set of economic processes that would simply automatically fix themselves if you didn't act," he said.
Summers, who in the 1990s was President Clinton's treasury secretary, said government will do all that is needed to get the economy to grow. Without a recovery, he said, all other national goals will not be achieved, whether they be the projection of U.S. strength abroad or the alleviation of poverty in developing countries.
Defending President Obama's economic recovery program, the largest peace-time stimulus in U.S. history, Summers said jobs will be created and confidence restored. More than anything, he said, it is optimism and confidence that are needed.