Larry Summers: Economic downturn will leave 'permanent scar'

Larry Summers, former Treasury Secretary of the United States.

The Department of Labor is reporting the U.S. added 88,000 jobs last month, falling below analyst expectations. The unemployment rate ticked down slightly to 7.6 percent. The monthly jobs numbers give a snapshot of the economy and its recovery, which has a been a slow and bumpy one so far.

Larry Summers, who was Treasury Secretary under President Clinton and chair of the White House Council of Economic Advisers under President Obama, joined Marketplace Morning Report host Jeremy Hobson to discuss the state of the recovery and what's ahead for the economy.

On why the stock market is booming:

Summers: "I think the stock market looks forward and I think there is a sense that the economy may be turning. That sense is supported by the fact that the housing market really has turned, by the fact that consumers' balance sheets are improved, by the fact that we've got a variety of kinds of energy investments underway. And of course the rise in the stock market creates more wealth, which drives spending."

On whether good economic times are ahead:

Summers: "I think the proponderant probabilities are more favorable than would have been the case a year ago. There's a conventional wisdom that you can have a downturn and the downturn will last, and then the downturn will be reversed, and then you'll be back where you started from. What we've come to understand better is that when the economy goes down there is less capital investment, some people who lose their jobs go on disability and never come back to working, some young people who come out of school never get on the track that they hope to and that stays with them. And so the temporary blemish of a downturn leaves a permanent scar. And in that sense, cyclical problems can harden into being structural problems. My fear is that there is an element of that in the current American situation -- that's why accelerating the recovery in any way that we can is so important."

On whether Washington is on the right track to fix the economy:

Summers: "I'd like to see us investing much more heavily in infrastructure. I would like to see us moving more strongly to make the fundamental kind of investments the country needs in education and in research and development. I would have preferred to see the payroll tax cut fazed out or continued for some interval until the economy had more fully recovered. I'd like to see steps to address our long run fiscal challenges that would have a greater prospect of increasing confidence."

Interview Extra: Click the audio player below to hear Summers' thoughts on how State governments are impacting the economic recovery.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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