- Larry Summers said the United States has seen macroeconomic policy “less responsible” for decades.
- The former Treasury secretary criticized Biden’s $ 1.9 trillion COVID-19 aid package.
- Summers said there is a “one-third chance” of significant inflation in the coming years.
- See more stories on the Insider business page.
Former US Treasury Secretary Larry Summers said the country is having the “least responsible” macroeconomic policy of the past 40 years, placing the blame on lawmakers on both sides of the corridor.
Summers presented the negative economic forecast during an appearance on Bloomberg Television’s “Wall Street Week” on Friday. Summers strongly criticized the $ 1.9 trillion COVID-19 aid package recently signed by President Joe Biden, saying it could overheat the economy.
“THE [
Federal Reserve
] kept its weapons on no rate hikes for years and years and continued to increase its balance sheet, “he told Bloomberg.” What’s lighting up now is on fire. I am much more concerned about the possibility of inflation or a very dramatic fiscal-monetary collision. “
He added: “I think this is the least responsible macroeconomic policy we have had in the last 40 years. I think it is fundamentally driven by the intransigence of the Democratic left and the intransigence and completely irrational behavior of the entire Republican Party.”
Summers, who served in Bill Clinton’s office and headed the National Economic Council in 2009 and 2010 under former President Barack Obama, argued that the country is “taking enormous risks”. He said he believed there was “a one-third chance that inflation would accelerate significantly in the coming years”.
He offered additional scenarios related to the country’s economic prospects.
“There is a third chance that we will not see inflation, but the reason we will not see inflation is that the Fed will hit the brakes, markets will be very unstable and the economy will slide closer to one.
recession
“, he said.” I think there is about a third chance that the Fed and the Treasury will achieve what they expect and we will achieve rapid growth that will be moderated in a non-inflationary way. ”
He added: “There is a real risk that macroeconomic policy will become destabilized.”
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For months, Summers has been sounding the alarm of inflation fears, writing an article in The Washington Post in January, where he wrote that Biden’s relief package could cause “inflationary pressures of a kind that we have not seen in a generation, with consequences for the value of the dollar and financial stability. “
While Summers praised the “ambition” of the COVID-19 package and its “rejection of the austerity orthodoxy”, he said that garnering legislative support for tax increases or spending cuts could be difficult and could pose a “risk of sharply rising expectations inflation “.
Treasury Secretary Janet Yellen had a different perspective, encouraging robust stimulus measures.
“It’s a big package, but I think we need to grow now, and that we can afford to do it,” Yellen told PBS NewsHour anchor Judy Woodruff in an interview shortly before the legislation passed the Senate.
Yellen has also repeatedly rejected concerns about inflation. “I spent many years studying inflation and worrying about it. And I can say that we have the tools to deal with that risk if it materializes,” she told CNN in January.
The Biden government has been vigilant not to repeat the legislative and political mistakes of the US $ 787 billion Recovery and Reinvestment Act, which was sanctioned by former President Barack Obama in response to the economic impacts of the Great Recession.
The stimulus measure, which was advocated by Obama and Democrats in Congress, became a political liability for the party in the 2010 midterm elections, which saw the Republican Party retake the House and make big gains across the country.
President of the White House Council of Economic Consultants, Cecilia Rouse said on MSNBC’s “The Sunday Show with Jonathan Capehart” last week that not doing enough to help the economy would pose a greater threat, especially as the country is working to end the COVID-19 pandemic.
“When you make an economic investment, there are risks,” she said. “There is a risk that this [relief package] will overheat the economy and cause inflation. However, we do estimate that the risk of doing too little is actually greater the risk of doing too much. “