Former Treasury Secretary Lawrence Summers has warned that the US is suffering from the “least responsible” macroeconomic policy of the last four decades, pointing the finger at Democrats and Republicans for creating “enormous” risks.
In his latest attack on the recent stimulus, Summers told David Westin on Bloomberg Television’s “Wall Street Week” that “what ignites now ignites,” given that the recovery from Covid will put pressure on demand in at the same time as fiscal policy. it was aggressively relieved and the Federal Reserve “clung to its weapons” in its commitment to lose monetary policy.
“This is the least responsible macroeconomic fiscal policy we’ve had in the last 40 years,” Summers said. “It is fundamentally driven by the intransigence of the democratic left and the intransigence and completely irresponsible behavior of the entire Republican party.”
Former US Treasury Secretary Lawrence H. Summers, a Wall Street Week contributor, warns against dismissing concerns that the economy could overheat. He says there are tensions between Federal Reserve Chairman Powell’s statements between keeping rates low and maintaining price stability. He joins David Westin at Bloomberg Wall Street Week. (
Summers, a senior official in the last two Democratic administrations, has emerged as one of the most critical critics among Democratic economists of President Joe Biden’s $ 1.9 trillion pandemic plan. Summers warned in the interview that the United States is facing a “rather dramatic fiscal-monetary collision.”
He said there is a one-in-three chance that inflation will accelerate in the coming years and the US will face stagflation. He also saw the same chance of no inflation, as the Fed would have hit the brakes hard and pushed the economy into recession. The last possibility is for the Fed and the Treasury to achieve rapid growth without inflation.
“But there are more risks right now that macroeconomic policy poses more serious risks than I remember,” said Summers, who is a paid contributor to Bloomberg.
Read more: Yellen, Summers decrease the risk of overheating in the incentive plan
Administration officials have backed down from criticism, saying the Biden bill aims to provide help to those in need and will not overheat an economy that still suffers from high unemployment. Fed officials have broadly echoed this view – marking the risk of providing too little fiscal support and signaling that they do not intend to tighten monetary policy anytime soon.
Also speaking at Wall Street Week, Nobel Laureate Paul Krugman rejected the theory that the United States would witness a rise in inflation in the 1970s because of the stimulus.
“It took more than a decade to fool things – year after year – to get to that point, and I don’t think we’re going to do that again,” Krugman said, adding that the Fed has the tools to deal with pressure. price, if necessary.
Read more: Krugman Rejects inflation in the style of the 1970s, with faith in the Fed
The worst-case scenario in the fiscal stimulus package would be a transient rise in consumer prices, as seen at the start of the Korean War, he said. The aid bill is “certainly a significant stimulus, but not a wild inflationary stimulus,” he said.
(Add Krugman’s comments in the last two paragraphs.)