Principles for strongEconomic Recoverystrong and Renewal.pdfVIP

Principles for Economic Recovery and Renewal “Principles for Economic Recovery and Renewal” Remarks at the National Association for Business Economics Lawrence H. Summers October 12, 2009 When I last spoke at the National Association for Business Economics in 2008, I sought to survey the economic landscape in which the United States found itself. Our country faced profound challenges: the recession, financial repair, health care, energy, globalization, and inequality. Little did we know at that time how serious our problems would become. And little did I know of the opportunity I would have to work by President Obama’s side as he sought to take on all those challenges d uring the momentous first year of his Presidency. My topic here is more focused than the range of issues I addressed a year ago. It is the topic of economic recovery and the prospects for job creation. That assessment begins from an evaluation of our current situation. From a financial perspective, the evidence that we have made very substantial progress is clear. Consider, for instance, the trajectories of 15 or 20 major credit spreads during the past two years. If we take as ‘‘normal’’ some level prior to the most extreme bubble valuations, and then look at the peak after the collapse of Lehman Brothers, and then ask where we stand today, it turns out that we have normalized between 50 and 100 percent with most credit spreads. The stock market shows strong signs of recovery, too. Whether we measure stock market volatility on a flow basis or on an ex ante basis as inferred from options, the extent of volatility—a proxy for uncertainty in the stock market—has fallen very substantially. The stock market has rallied in a way that would have seemed quite remarkable if forecast in the first months of 2009. The major indices have risen 50 percent from their lows. We are even witnessing early signs of stabilization in the housing market in many parts of the country. Moreover, while