Despite being an important part of the Obama administration at the time of the economic collapse and serving as a Treasury Secretary under President Bill Clinton, Larry Summers has provided some interesting commentary regarding the current so-called economic recovery, or lack thereof.
Speaking at the annual American Economics Association conference, Summers explained how dissatisfied he is about the United States economy. He believes the country is performing at least 10 percent below its economic potential, which could serve as a significant hindrance to any future growth, even with oil prices tumbling.
“The United States is now about 10 percent below potential, as it was estimated in 2007,” Summers said. “In so far as the output gap has closed, it is not because we have gotten closer to what we thought potential was. It is because we have revised downwards our assessment of the economy’s potential. That 10 percent potential represents about $20,000 per American family.”
One suggestion put forward by Summers is to have the federal government spend about one percent of gross domestic product on public infrastructure improvements. At the present time, the U.S. spends about less than one percent of GDP on this area.
Moving forward, the U.S. has to take advantage of its current oil production levels, says Summers. With oil prices falling to nearly $50 per barrel, the U.S. could become the energy star for the next decade.
“The United States has the chance to be to the energy economy of the next decade what Saudi Arabia has been for the last two to three decades,” Summers said. “The effect of allowing oil exports … would reduce rather than increase American gasoline prices.”
As noted, these oil prices won’t last long because it could become too expensive for domestic oil producers to extract oil if the price continues the downward trend.
Suggestion One:
“One suggestion put forward by Summers is to have the federal government spend about one percent of gross domestic product on public infrastructure improvements.”
Suggestion Two:
A better suggestion (made by Bill Gates at AEI) is to replace the 15.3% job killing payroll taxes [with a 4% VAT and elimination of unnecessary tax expenditures].
Imagine all workers getting an immediate 7.65% raise and all businesses finding their payrolls 7.65% less expensive. As consumer spending increased and full employment grew, take home pay and salaries would increase even further due to market forces.
The first suggestion would add enormous federal debt and the second would be essentially revenue neutral and sustainable. Over time tax revenue would increase and revenue for Social Security and Medicare would increase with sales (rather than the slower growing worker payrolls).