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(Bloomberg) – Former Treasury Secretary Lawrence Summers has warned that the United States suffers from the “least responsible” macroeconomic policy in four decades, pointing fingers at Democrats and Republicans for creating “enormous risks “.
In his latest attack on the recent stimulus wave, Summers told David Westin during Bloomberg Television’s “Wall Street Week” that “what was igniting is now igniting” given that the recovery of Covid will fuel demand pressure alongside fiscal policy. has been aggressively eased and the Federal Reserve has “stuck to its guns” by committing to ease monetary policy.
“This is the least responsible fiscal macroeconomic policy we have had in the past 40 years,” Summers said. “He is fundamentally motivated 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 is facing a “pretty dramatic fiscal-monetary collision.”
He said there was a one in three chance that inflation would accelerate in the coming years and the United States could face stagflation. He also saw the same chance of no inflation because the Fed would hit the brakes 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 entails serious risks than I can remember,” said Summers, who is a paid contributor to Bloomberg.
Administration officials have pushed back the criticism, saying the Biden bill aims to provide relief to those in need and will not overheat an economy that still suffers from high unemployment. Fed officials largely echoed this view – signaling the risk of providing insufficient budget support and signaling that they have no plans to tighten monetary policy anytime soon.
Also speaking on “Wall Street Week,” Nobel Laureate Paul Krugman rejected the theory that the United States will witness a 1970s-style inflation surge due to the comeback.
“It really took over a decade of screwing everything up – year after year – to get there, and I don’t think we’re going to do it again,” Krugman said, adding that the Fed had the tools. to combat price pressures if necessary.
The worst-case scenario outside of the fiscal stimulus package would be a transitory surge in consumer prices as seen at the start of the Korean War, he said. The relief bill is “a really significant stimulus but not an overly inflationary stimulus,” he said.
(Add Krugman’s comments in the last two paragraphs.)
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