Former Treasury Secretary Lawrence Summers warned that the United States has been suffering from “less responsible” macroeconomic policy in four decades, pointing the finger at Democrats and Republicans for creating “huge” risks.
In his latest attack on the recent stimulus wave, Summers told David Westin on Bloomberg Television’s “Wall Street Week” that “what was lighting up is now on fire”, given Covid’s recovery, will increase the pressure on demand for the same time as fiscal policy. it was aggressively mitigated and the Federal Reserve “held on” by committing itself to loose monetary policy.
“These are the least responsible fiscal macroeconomic policies that we have had in the last 40 years,” said Summers. “It is fundamentally motivated 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 fears that the economy may overheat. He says there is tension between Federal Reserve Chairman Powell’s statements between keeping rates low and price stability. He joins David Westin at “Bloomberg Wall Street Week”. (
Summers, a senior official in the past two Democratic administrations, has emerged as one of the top critics among Democratic-minded economists in President Joe Biden’s $ 1.9 trillion pandemic plan. Summers warned in the interview that the United States was facing a “very dramatic fiscal-monetary collision”.
He said there is a one in three chance that inflation will accelerate in the coming years and the United States may face stagflation. He also saw the same chance that there would be no inflation because the Fed would hit the brakes hard and drive the economy into recession. The final possibility is that the Fed and the Treasury will achieve rapid growth without inflation.
“But right now, there are more risks that macroeconomic policy will pose serious risks than I can remember,” said Summers, who is a paid contributor to Bloomberg.
Read More: Yellen, Summers Spar on the risk of overheating in the stimulus plan
Government officials have backed away from criticism, saying the Biden project aims to provide relief to the needy and will not overheat an economy that still suffers from high unemployment. Fed officials have widely shared this view – signaling the risk of providing too little fiscal support and signaling that they have no intention of tightening monetary policy anytime soon.
Also speaking at “Wall Street Week,” Nobel Prize winner Paul Krugman rejected the theory that the United States will witness a rise in inflation in the 1970s style because of the stimulus.
“It really took more than a decade of messing things up – year after year – to get to that point, and I don’t think we’ll do it again,” said Krugman, adding that the Fed has the tools to deal with price pressures, if required.
Read More: Krugman Rejects inflation in the 1970s style, with faith in the Fed
The worst case scenario for the fiscal stimulus package would be a transitory increase in consumer prices, as was seen at the beginning of the Korean War, he said. The relief bill is “definitely a significant stimulus, but not a highly inflationary stimulus,” he said.
(Adds Krugman’s comments in the final two paragraphs.)