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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: I'm David Weston and I'm joined now by the former

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Speaker 2: US treasure Sectory Larry Summers of Harvard. Larry, thank you

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Speaker 2: for being back with us. When we talked just a

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Speaker 2: week ago on Wednesday, the day of the announcedent tariffs,

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Speaker 2: there was a lot yet to be determined. The markets

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Speaker 2: have been through an amazing amount of volatility since then.

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Speaker 2: Three down days, they're sharply up today. You've been quite

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Speaker 2: explicitly critical of what President Trump has announced here. Do

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Speaker 2: you feel better today because the markets are coming back?

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Speaker 1: Sure? I feel better anytime instability seems to be calming.

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Speaker 1: But be not confused. There's only one reason why instability

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Speaker 1: is being reduced, and that is there's a growing hope

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Speaker 1: in markets that a larger part of these policies are

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Speaker 1: going to prove transitory and reversible. This does not reflect

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Speaker 1: any kind of market endorsement of the approach that the

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Speaker 1: President has followed. Rather, it reflects a judgment that the

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Speaker 1: president might recognize the reality that markets are telling him about,

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Speaker 1: that many of his advisors are telling him about that

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Speaker 1: corporate CEOs across the country are articulating that this kind

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Speaker 1: of wholesale tariff of policy is simply bad for economic performance.

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Speaker 1: We're seeing some signs that the administration may recognize that.

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Speaker 2: We're seeing signs. But do we have a better sense

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Speaker 2: of the goals in the process today than we got

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Speaker 2: from the Rose Garden last Wednesday.

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Speaker 1: I don't think so. I think this is fundamentally a

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Speaker 1: improvaizational effort. You could tell that when you knew that

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Speaker 1: there was a policy based on tariff reciprocity that didn't

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Speaker 1: use any data on the tariffs of other countries in

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Speaker 1: figuring out how to reciprocate. You could tell that from

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Speaker 1: the blatant contradictions between what presidential advisor Navarro was saying

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Speaker 1: and presidential advisor Treasury Secretary Scott Bessen was saying. You

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Speaker 1: could tell that from the degree of division between close

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Speaker 1: outside advisor Elon Musk and many members of the president's

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Speaker 1: economic team. This is a policy, it's a hugely consequential policy,

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Speaker 1: but by all appearances, it's being improvised on a daily basis,

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Speaker 1: and that's creating huge uncertainty. But it's only uncertain There's

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Speaker 1: only uncertainty if things go in both directions. And today

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Speaker 1: happened to be a day when things moved in a

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Speaker 1: positive direction. I hope that the moves to back off

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Speaker 1: these policies can continue, but we'll have to see. I

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Speaker 1: suspect we're going to have volatile markets for some time

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Speaker 1: to come, and no one can know, but my judgment

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Speaker 1: is that I'd be surprised if the bottom is yet

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Speaker 1: in with respect to this phase and markets.

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Speaker 2: How bad could it get?

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Speaker 1: Oh, I think the likelihood. I think it's more likely

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Speaker 1: than not that we're going to have a recession. And

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Speaker 1: in the context of a recession, and we'll see an

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Speaker 1: extra two million people be unemployed, We'll see losses in

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Speaker 1: household income that are five thousand dollars a family or more.

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Speaker 1: We are very likely, in the context of a recession,

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Speaker 1: to see markets reach levels significantly below their current levels.

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Speaker 1: So I think we could be looking for fairly serious

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Speaker 1: economic problems. And I think it will cash the shadow forward,

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Speaker 1: because if we have a recession, the budget deficit will

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Speaker 1: go up, the accumulated debt that we have to deal

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Speaker 1: with will go up, There'll be financial distress that will

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Speaker 1: affect higher risk companies and also higher risk countries in

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Speaker 1: the global economy. But David, there's a central thing to

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Speaker 1: understand about this moment of economic and financial difficulty. To

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Speaker 1: borrow a word from the doctors, it is our first

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Speaker 1: iatrogenic recession, our first diatrogenic financial crisis. Iatrogenic illness is

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Speaker 1: when you go into the hospital and you catch an

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Speaker 1: infection there. It's when the people whose job it is

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Speaker 1: to make things better are the active agents of making

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Speaker 1: things worse and Yatrogenic illness, staff, infections and alike in

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Speaker 1: hospitals is a major preoccupation for doctors. This is an

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Speaker 1: iatrogenic economic challenge. There is nothing in the outside world

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Speaker 1: that is causing this challenge. It is in due by

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Speaker 1: the words and deeds of President Trump and his administration.

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Speaker 1: The good news about that is it could be resolved

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Speaker 1: with words and deeds of President Trump if they backed

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Speaker 1: off these policy errors. I think there would be a

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Speaker 1: substantial resumption of normality. But as long as a hospital

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Speaker 1: maintains unsanitary conditions, it's patients get infections when they enter,

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Speaker 1: And as long as these policies are being pursued, we're

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Speaker 1: going to see substantial volatility and markets, substantial recession risk,

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Speaker 1: substantial damage to middle class families.

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Speaker 2: So just to follow up on that is there any

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Speaker 2: remedy for the patient other than for the chief doctor

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Speaker 2: that is President Trump to back off what you you

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Speaker 2: just describe as policy errors. Is there anybody else who

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Speaker 2: can save us?

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Speaker 1: Look, depending on what happens with other countries and how

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Speaker 1: they handle their diplomacy, it may be easier or harder

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Speaker 1: for him to back off these policies. Depending upon how

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Speaker 1: the business community responds. There may be more or less

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Speaker 1: ability to create an environment where there's a backing off

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Speaker 1: of these policies. But there's nothing complicated about this. You

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Speaker 1: impose huge tax increases on households in an uncertainty creating

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Speaker 1: way that's also damaging to establish business patterns, and the

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Speaker 1: economy turns downwards. There's nothing subtle or sophisticated about this.

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Speaker 1: This is introductory economics. It's the kind of question that

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Speaker 1: could have been on an introductory economics exam for decades.

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Speaker 1: Suppose the president of the United States decides suddenly to

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Speaker 1: impose a massive tariff tax increase on products from all

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Speaker 1: over the world. What will happen to the economy? And

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Speaker 1: any b student will know that the answer to that

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Speaker 1: is that it's a supply shock that raises prices and

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Speaker 1: raises unemployment as well, and makes the economy less efficient

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Speaker 1: and adds substantially to uncertainty in some sophisticated, complicated thing

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Speaker 1: to analyze.

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Speaker 2: Larry, thank you so much for being back on I

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Speaker 2: really appreciate that is. Former US Treasury Secretary Larry Summers

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Speaker 2: of Harvard