Former Treasury Secretary Lawrence Summers warned that the United States is suffering the “least responsible” macroeconomic policy in four decades, singling out Democrats and Republicans for creating “enormous” risks.
In his latest attack on the recent rush of stimulus, Summers told David Westin on Bloomberg Television’s “Wall Street Week” that “what was turning on is now turning on,” given the recovery from Covid, it will stoke pressure from demand at the same time as fiscal policy. it has been aggressively relaxed and the Federal Reserve has “stood firm” by committing to loose monetary policy.
“These are the least responsible fiscal macroeconomic policy we’ve had in the last 40 years,” Summers said. “It is driven primarily by the intransigence of the Democratic left and the intransigence and completely irresponsible behavior of the entire Republican Party.”
Summers, a senior official in the last two Democratic administrations, has become a leading critic among Democratic-leaning economists of President Joe Biden’s $ 1.9 trillion pandemic plan. Summers warned in the interview that the United States was facing a “rather dramatic fiscal-monetary collision.”
He said there is a one-in-three chance that inflation will accelerate in the next few years and the United States could face stagflation. He also saw the same possibility of no inflation because the Fed would slow down hard and push the economy into recession. The last possibility is that the Fed and the Treasury will achieve rapid growth without inflation.
“But there are more risks right now that macroeconomic policy causes serious risks than I can remember,” said Summers, who is a paid Bloomberg contributor.
Read more:, Summers Spar on the risk of overheating in the stimulus plan
Administration officials have dismissed the criticism, saying the Biden bill aims to bring relief to those in need and will not overheat an economy still suffering from high unemployment. Fed officials have widely echoed that view, pointing to the risk of providing too little fiscal support and noting that they have no intention of tightening monetary policy anytime soon.
Also speaking at “Wall Street Week,” Nobel laureate Paul Krugman rejected the theory that the United States will witness a 1970s-style surge in inflation due to the stimulus.
“It really took over a decade of screwing things up, year after year, to get to that step, and I don’t think we’re going to do it again,” Krugman said, adding that the Fed has the tools to deal with the pressures. price if necessary.
Read more: Krugman Rule out 1970s-style inflation, with faith in the Fed
The worst-case scenario of the fiscal stimulus package would be a temporary increase in consumer prices as seen at the beginning of the Korean War, he said. The aid bill is “definitely a significant stimulus, but not a hugely inflationary stimulus,” he said.
(Add comments from Krugman in the final two paragraphs.)