Transcript: Larry Summers on 'FOX News Sunday'

WASHINGTON – The following is a partial transcript of the Feb. 8, 2009, edition of "FOX News Sunday With Chris Wallace:"

"FOX NEWS SUNDAY" HOST CHRIS WALLACE: And hello again from FOX News in Washington. In the next few days, the Senate is expected to approve its version of an economic stimulus package. Then, tough bargaining with the House over its very different plan before a final bill reaches President Obama.

For more, we're joined by the president's top economic adviser, Lawrence Summers.

Mr. Summers, welcome back to "FOX News Sunday."

NATIONAL ECONOMIC COUNCIL CHAIRMAN LARRY SUMMERS: Glad to be with you.

WALLACE: The Senate has reached a tentative agreement on a stimulus package of $827 billion, which has more in tax cuts, but less government spending. How big a rewrite do you expect when the two versions, the House and Senate versions, get to that conference committee?

SUMMERS: Chris, we've got to begin with what's most important. The economy lost 600,000 jobs just in January, lost 3 million jobs last year. We've got to give this economy some help.

The Senate bill, the House bill — the overlap is 90-plus percent. We've got to work through the differences, find the best bill we possibly can, and get it in place as quickly as possible to contain what is a very damaging and potentially deflationary spiral.

That's got to be the priority now. So yes, let's argue vigorously. Let's work through the differences. Let's make sure we scrub out any wasteful programs. Let's make sure we preserve key investments. Let's make sure we give incentives where those incentives can make a big difference.

But you know, what's agreed between the House and Senate is, at the end of the day, much more important for preserving this economy than what's disagreed.

And so if there was ever a moment to transcend politics, this is that moment and that's what I very much hope will take place as this legislation moves forward.

WALLACE: Before we get into the specifics, and there are some not minor differences between the two bills, is the president standing firm on his February 16th deadline? And is it realistic to expect that you can work out some sizable differences in less than a week?

SUMMERS: The president believes we need this legislation absolutely as soon as we can. He believes, as Speaker Pelosi has stated, as Majority Leader Reid has stated, that the Congress has to stay here, avoid their traditional recess until this legislation has passed.

There are too many jobs at stake — the basic economic security, the ability to meet their needs for too many families are on the line...

WALLACE: So is he...

SUMMERS: ... for this to become a — for this to become a traditional political football. It's got to happen. It's got to happen, and it's got to happen very fast. And there's no reason why it can't happen very fast with good will on all sides.

WALLACE: By the February 16th deadline?

SUMMERS: Well, it could happen very fast before the congressional — before the congressional recess. It's not about this hour or that hour. It's about getting this done as rapidly as possible for the American people.

WALLACE: All right. I want to explore some of the major differences in the House and Senate versions. And let's put them up on the screen.

The Senate bill cuts aid to the states, especially for education, by $40 billion. It cuts $5 billion for health coverage for unemployed workers. And it saves 2 billion by phasing out payroll fax credits at lower income levels.

The biggest difference is that in addition to the immediate economic stimulus, you were pushing and the House passed a lot of what you're calling long-term investment, what critics are calling — is more government spending.

Do you want to see some of that restored in the final version?

SUMMERS: We believe that there are strong elements in the Senate bill. There are some very strong elements in the House bill. And what we've got to do is take the best of both.

We believe, for example, that it is critically important, at a time when too many of our kids — you know, we say education is our most important priority. But I have visited school after school where the paint is falling off the walls. How can our kids believe us when we say that?

So we believe school modernization is an absolutely essential investment in the competitiveness and the future of our country.

WALLACE: You want to see that restored to the bill.

SUMMERS: It's an investment that — it's an investment that can take place quickly. It's an investment that's labor-intensive in restoring schools and installing laboratory space that our kids need to compete. That's a place where we think there's very important investment to be made.

Is it a capacity to scrub this bill? Are there expenditures in — in the bill that probably aren't the highest priority? I'm not going to tell you that every item is the highest priority.

And the president really wants this not to be done the traditional Washington way. That's why he said no earmarks. That's why he's vowed transparency and accountability on every project. And I'm sure there are improvements that can be made by taking resources out of certain investments where they've been inserted.

That's why we have a complex legislative process in this country, so that bills do get honed and perfected along — along the way. But let's not focus — and we do that much too often in Washington. We focus on the bit of difference, and we focus on where the political fight is.

Ninety percent of these bills are essentially overlapping. There isn't a lot of disagreement to create 3 million-and-some jobs. Let's work it out, get moving, start preserving those jobs.

WALLACE: Last month you set what you called three principles for what we needed in an economic stimulus package. You said it had to be timely, it had to be targeted, and it had to be temporary. But there are critics from both sides who say that these plans fail on all three points.

The Congressional Budget Office says only 64 percent of the House plan actually gets out into the economy in the next two years. So how is that timely?

SUMMERS: Well, if you look at the effects of it, even if some of the money is spent with a delay, the hiring begins even before the government's in a position to reimburse somebody for the completion of a road project or a bridge project.

And I'll tell you, Chris, looking at where the economic forecasts are right now, I think this economy is still going to need some support two years from now. And so I think the idea that not 100 percent of it spends out in the next two years is actually a prudent one.

But you know, we can quibble and hassle about the numbers. There's a variety of efforts underway to accelerate the process of disbursements for infrastructure investment, for example. So I can assure you at the end of the day, the figure will be more than 64 percent.

WALLACE: Clinton Budget Director Alice Rivlin says that much of this program both — in both bills is social spending that has nothing to do with immediate economic stimulus — maybe legitimate social spending, but social spending. So how is that targeted?

SUMMERS: You know, it's — it's interesting. Alice Rivlin's one of the most respected voices in this town, and she had some concerns about the bill. But if you read this morning's Washington Post, she made clear that what she thinks is important now is that it pass as rapidly as possible.

What's social spending? Some people think that giving support to enable a low- or middle-income family to send their kid to college is a kind of social support. I don't. I think it's a very valuable function that lays the groundwork for...

WALLACE: But it's not economic stimulus.

SUMMERS: ... the future — lays the groundwork for the future of our...

WALLACE: It's not economic stimulus, Mr. Summers.

SUMMERS: It's not — if you prevent a family from selling its house to send their kid to college and keep that house off the market and from depressing the community, I think that's economic stimulus.

If you enable that family to avoid cutting back on expenditures, that's economic stimulus.

And I have kids myself in college, and I can tell you that if you put money in their pockets, it's very unlikely to be saved and it's very likely to be spent. And that's stimulus as well.

WALLACE: Anyone getting unemployment benefits would be eligible for Medicaid.

The House plan doubles the budget for the Department of Education over two years.

Aren't you creating a permanent expansion of government that will be anything but temporary?

SUMMERS: You have to look overall at the whole program, and the vast majority of it is investments that are setting the groundwork for our future prosperity, or they're responses to a countercyclical situation.

Look, there is a lot more money for health insurance for people who are laid off. And you know why that is? It's because there are a lot more people who are being laid off, and — so we need to spend a lot more money on health insurance....

WALLACE: But the question is...

SUMMERS: ... for people — health insurance for people...

WALLACE: If I may...

SUMMERS: ... who are laid off.

WALLACE: ... the question is are you create a new government baseline of spending and we're going to be at that level from now on? At the end of these two years, we're not going to go back down, we're going to have government programs at that level?

SUMMERS: But I think I was just responding to — responding, Chris, when I said that the reason there's a big increase in spending for health insurance is because we've got many, many more people who are being laid off.

And so no, it will not be permanently in the budget, because at some point we will work...

WALLACE: How about (inaudible) the education?

SUMMERS: ... we will work — we will work through this recession and then the...

(CROSSTALK)

SUMMERS: ... and then the spending will come down. The president's been very clear that the support for education is temporary support to prevent teachers from being laid off.

We are having unprecedented pressure on budgets, communities. Laying off cops, laying off teachers — giving them help so that those things don't have to happen.

We're not going to be in this situation permanently, and so these programs aren't going to be necessary permanently. So these are directly responsive to what is a crucial problem for our country in terms of the recession.

WALLACE: The administration has come up with a plan for what's called TARP II, the second half of the financial rescue plan.

Instead of starting a government bad bank for toxic assets, you're going to offer incentives for private investors to buy up these securities. Do you really believe, regardless of the incentives you give, that the private market will pick up these assets?

SUMMERS: You know, it's been very interesting. We've received a whole variety of proposals from private investment firms, from private investors, for how private capital can be part of the solution to this problem.

It can't all be private capital. We can't just say, "Private sector, please invest," not given the size of the financial mess that we inherited.

But with the right kinds of government guarantees, with the right kinds of financing — you know, the type of thing that you've already seen is the actions that the Federal Reserve started taking some months ago to purchase mortgage-backed securities that have brought mortgages — brought mortgage rates down considerably.

With the right strategic approaches, Secretary Geithner believes that we can bring in substantial private capital, and that's something we all ought to be able to agree on, that where we can catalyze private capital, that's a better root to solving this problem than government resources.

But I don't want to mislead people. We are inheriting the worst financial system since the Depression. We're inheriting a situation — when people go back and study major banking crises a quarter century from now, the one that America developed in 2007 and 2008 is going to be one of those crises.

So we're not going to solve it in a day or a week. We're not going to solve it without public resources. But we are going to solve it by being as effective and strategic as we possibly can in the use of public money so as to catalyze and spur private investment.

WALLACE: Finally, let's talk about Larry Summers. You are the president's top economic adviser at the White House. Timothy Geithner is at Treasury. Paul Volcker is head of the Economic Advisory board.

And there's been some criticism there are too many chefs. Who is the president's top man on the economy?

SUMMERS: The president's top man on the economy is the president. He listens to advice from all of us, and he sets his direction. He thinks about both the narrow economic issues and, frankly, the much broader interests of where the country needs to be four years from now, where it needs to be 40 years from now, and he gives us all the direction.

We, using whatever technical skills we possess, try to implement it.

WALLACE: As I read a number of stories preparing for this interview, several words — forgive me — kept coming up — overbearing, abrasive, not always politic in what you say. How do you plead?

SUMMERS: Oh, I just plead that I'm someone who's trying to help this president, who shares my opinions, but also works very hard to make sure that he gets access to the best opinions that there are out there.

And I think a high degree of intensity is needed on all of our parts if we're going to address what is a very serious financial crisis.

WALLACE: So when people say you're trying to be a kinder, gentler Larry Summers?

SUMMERS: Oh, look. This isn't about my personality. This isn't about anybody's personality. This is about 3.5 million people who have lost their jobs within a little over a year.

This is about a serious economic crisis. And we just all need to focus not on — not on each other. We all need to focus on a problem that is immense and demands immediate energy and demands all of our efforts, and that's what the president is insisting we do.

WALLACE: But let me just ask you about it in one aspect where it may affect policies. There is some concern among some observers that you are so sure you are right that you're going to push your ideas and not be the honest broker so that everybody...

SUMMERS: You know, the president's made it very clear that he's got zero tolerance — that he values everybody's advice, but he doesn't value anybody's advice to exclude other advice. And that's the rules we're all playing.

That's why the president didn't want to have his advice just come from all of us who are working on his economic team at OMB, at the Treasury, at the National Economic Council, but has established a group of people, business and labor, economists and practitioners, people who voted for him, people who probably didn't vote for him, to make sure that he's got all the best advice, chaired by Paul Volcker, who has immense experience and worked through the worst — the worst previous economic crisis that the country's had.

WALLACE: Mr. Summers, I want to thank you. Thank you for coming in today, and please come back to give us an update as you try to work through this mess.

SUMMERS: Thanks very much for having me.