Evening Must-Read: Lawrence Summers: Focus on Middle Class Growth

…is threatened by the specter of secular stagnation and deflation. In… 2014… 10-year Treasury rates have fallen by more than 1 percentage point in the United States and are only half as high in Germany and Japan as they were a year ago. In… Germany, France and Japan, short-term interest rates are now negative… suggest[ing] a chronic excess of saving over investment and the likely persistence of conditions that make monetary policy ineffective…. The world has largely exhausted the scope for central bank improvisation as a growth strategy….

It is time for concerted and substantial measures to raise both public and private investment…. The United States has enjoyed growth of about 11 percent over the past five years. Of this, standard economic calculations suggest that about 8 percent can be regarded as cyclical…. That leaves just 3 percent over five years as attributable to growth in the economy’s capacity. Even after our recovery, the share of American men age 25 to 54 who are out of work exceeds that in Japan, France, Germany and Britain….

Third, if it is to benefit the middle class, prosperity must be inclusive, and in the current environment this is far from assured…. These three concerns… are real but… not grounds for fatalism…. Canada and Australia in this century… show that sustained growth in middle-class living standards is attainable. But it requires elites to recognize its importance and commit themselves to its achievement. That must be the focus of this year’s Davos.