The Obama administration's $787 billion stimulus package is working despite rising U.S. unemployment and stabilizing the economy must take precedence over tackling the bloated deficit, a top White House economic adviser said on Friday.

Lawrence Summers, head of the National Economic Council, also defended President Barack Obama's ambitious policy agenda, saying addressing big issues such as health care and energy reform would lay the foundation for future prosperity.

Obama made creating or saving jobs the measure of success for the stimulus package he signed into law in February, so the White House has taken considerable heat as the U.S. unemployment rate hit a 26-year high of 9.5 percent in June.

Some critics have argued that rising joblessness shows the stimulus package is not working, while others contend the spending plan was too small to begin with and a second dose was needed.

Given lags in spending and hiring, the peak impact of the stimulus on jobs was expected not to be achieved until the end of 2010, Summers said in a speech at the Peterson Institute for International Economics in Washington.

Summers fielded a number of questions about the rising U.S. deficit, which in June passed the $1 trillion mark for the first nine months of the fiscal year, and the risk that the current financial rescue policies would spawn high inflation.

He dismissed concerns about price pressures, arguing that there was scant risk of the economy overheating when there was so much slack in the labor market and manufacturing industry.

The greatest risk to future U.S. deficits would be uncontrolled economic contraction in the United States, he said.

Summers also said he was very much aware of the lessons of the 1970s, when policymakers waited too long to tackle inflation, and current efforts to stimulate the economy must stay in place only long enough to ensure a self-sustaining recovery.

Containing this downturn and preventing the kind of debt dynamics you saw in Japan or you saw during the Depression in the United States has to be the first priority of anyone concerned with national creditworthiness or any intellectually honest deficit hawk, he added.


Summers devoted a large portion of his speech to praising the government's successes in averting an economic disaster.

We were at the brink of catastrophe at the beginning of the year, but we have walked some substantial distance back from the abyss, he said. Substantial progress has been made in rescuing the economy from the risk of economic collapse that looked all too real six months ago.

The rebuilt U.S. economy must be more export-oriented, with less of a focus on consumer spending and the sort of financial engineering that has been blamed for contributing to the current economic crisis.

The economic recovery should be more middle-class-oriented and less oriented to income growth that disproportionately favors a very small share of the population, he said.

Critics of Obama's policy plans have argued that they are overly costly and ambitious -- particularly in the middle of a deep recession.

However, Summers said the reforms were essential for repairing the economy.

Yes, the president has an ambitious agenda, he said. But it is an agenda comprised of measures that lay a foundation for future prosperity and for the confidence on which the current recovery depends.