Summers: Economic Growth More Important Than Deficit

Steve Inskeep talks to former Treasury Secretary Larry Summers about the nation's debt. Summers says the most important issue the country faces is not budget deficits but maintaining substantial economic growth.

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STEVE INSKEEP, HOST:

It's MORNING EDITION, from NPR News. Good morning, I'm Steve Inskeep.

RENEE MONTAGNE, HOST:

And I'm Renee Montagne. Let's hear an argument for why to worry less about America's roughly $600 billion federal deficit. The deficit represents the amount the U.S. is borrowing each year to meet expenses. That annual borrowing adds to federal debt.

INSKEEP: But for one-time Treasury Secretary Larry Summers, deficit spending right now is a chance to invest.

LARRY SUMMERS: We borrow at remarkably low interest rates. Can't we put that money to work?

INSKEEP: Summers, of Harvard University, was an adviser to President Obama.

MONTAGNE: He spoke with us after a government shutdown had ended, and just before congressional budget negotiations begin. Higher taxes, lower spending and a better economy have cut the annual deficit.

INSKEEP: It's still very large. And one of the negotiators, Republican Paul Ryan, once told NPR, we have a moral obligation to address it for future generations. Summers contends, we also have an obligation to leave behind better roads, airports and schools.

SUMMERS: The most important issue facing the country is not looming budget deficits. It is maintaining substantial economic growth, going forward.

INSKEEP: But you can understand why people are concerned right now. Even though the deficit has fallen a lot, it's still over $600 billion. The national debt is $17 trillion. That does seem to be the kind of number, the size of number that gets a lot of people's attention.

SUMMERS: It does. In large part, the national debt is an asset that we owe ourselves. To the extent that it is not an asset that we owe ourselves, it represents borrowing that we, as a country, have an opportunity to invest in growing our economy and borrowing, actually, at a remarkably low interest rate. And so if we can invest that money well, we can actually generate large returns that can provide the wherewithal to pay the debt back.

Are we devoting too much to uncontrollable mandatory and entitlement programs relative to the discretionary programs - like the national parks, like the FBI, like basic cancer research - that have to be appropriated every year? Yes, we are. So I don't want to be heard as saying that we have no budget issues; far from it. The point I want to stress is that the most important question facing the American economy is, can we accelerate the growth rate?

INSKEEP: I want to make sure I understand what you're saying, Secretary Summers, because you seem to be saying that sure, it is a problem that the country is aging, that more and more money is being spent on things like Medicare and Social Security; it would be nice to fix that, but the bigger and better solution is just basically to make more money, to grow the economy.

SUMMERS: The most important reason to contain expenditures on entitlements is not so as to reduce projected deficits. It's so as to enable crucial public investments - whether it's in infrastructure, whether it's in making sure that the next generation goes to college to a greater extent than the past. It's to support investment that is the crucial rationale for containing entitlements, not to meet some arbitrary debt target projected 20 years out, when we can't really even make accurate projections even a small number of years out.

INSKEEP: Would you go far out as to suggest to Republicans and Democrats, Secretary Summers, that they not even worry too much about whether the deficit goes down a little bit next year; that they might be willing, even, to increase the deficit if it increased investment in things like infrastructure and education?

SUMMERS: Certainly at a minimum, I would say that the policies we've had for the last few years of rushing to bring down the budget deficit have had the ironic effect of slowing economic growth, and probably have not contributed very much at all to reducing debt burdens - because that slower economic growth has meant less tax revenue collections; it's meant more unemployment insurance collections. And of course, when you compare debt to GDP to measure the burden - like comparing a household's debt to its income - it's meant lower income levels.

INSKEEP: Let me ask another thing about this, if we go forward a few years. The United States may well face another recession, another economic shock - a war or some other kind of crisis. When the economic shock hit in 2008, the U.S. was able to say to world: We have tremendous resources to deal with this. We can put unimaginable - previously unimaginable amounts of money into bailing out banks, into stimulating the economy.

The United States had the capacity to borrow. If the United States does not now pay down a substantial part of that debt, will the U.S. be unable to borrow in the same way when the next crisis comes around?

SUMMERS: I agree with you that we do need to reload - as I put it, the fiscal cannon because there will be contingencies and emergencies which will require that. But the time to reload the fiscal cannon is not when the economy is producing far short of its potential.

When I was secretary of the Treasury in 1999 through 2001, the government paid down hundreds of billions of dollars of debt. We were able to do that because the economy had grown to the point where the unemployment rate wasn't 7.5 percent; it was below 5 percent.

INSKEEP: Well, Lawrence Summers, thanks very much.

SUMMERS: Thank you.

INSKEEP: He was Treasury secretary to President Clinton, and an adviser to President Obama.

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