Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Larry Summers, the former US Treasury Secretary and Harvard University
Speaker 2: president emeritus, who is here with us on Bloomberg TV
Speaker 2: and Radio. Mister Secretary, it's great to have you, and
Speaker 2: thanks very much for your patients with us as we
Speaker 2: work through all of this news. Obviously, and you've spoken
Speaker 2: about this at length with our colleague David Weston. There
Speaker 2: is economic impact of tariffs to consider, but what about
Speaker 2: the potential economic toll when it comes to business investment
Speaker 2: and activity on the part of consumers of just a
Speaker 2: lack of certainty around what these policies actually look like.
Speaker 2: Is implementing them and pulling them back just as damaging
Speaker 2: potentially as leaving them intact.
Speaker 1: Look, it's all there.
Speaker 3: These tariffs are a self inflicted supply shock wound higher prices,
Speaker 3: less competitiveness because businesses are having to pay more for
Speaker 3: all their inputs, and because they have to pay higher prices,
Speaker 3: less purchasing power for consumers, which means fewer jobs down
Speaker 3: the road. So these are like an oil price shock.
Speaker 3: They're just all bad for the economy, and they're probably
Speaker 3: like it, and they probably were like an oil price
Speaker 3: shock of forty dollars a barrel in terms of what
Speaker 3: was being done to Mexico and Canada. And now with
Speaker 3: these changes, maybe it's only twenty five or thirty dollars
Speaker 3: a barrel, but it's still clear big and bad. That's
Speaker 3: why before they started saying they were going to take
Speaker 3: the tariffs off, almost two trillion dollars of stock market
Speaker 3: wealth had been destroyed in a matter of two days.
Speaker 3: Now nobody knows quite what's going to happen, But why
Speaker 3: would you make an important investment decision amidst all of
Speaker 3: this uncertainty if you were thinking about buying a new
Speaker 3: car or buying a new house. When you wait, and
Speaker 3: when everybody waits, the economy slows down. And that's why
Speaker 3: the risk of recession, which everybody thought was extremely unlikely
Speaker 3: on January twentieth, is now seen by many many people
Speaker 3: as a real and serious risk for some time this year.
Speaker 3: So I think we're doing real damage to the economy.
Speaker 1: It's not just a short run thing.
Speaker 3: Inflation expectations for the long term, for five or ten years,
Speaker 3: are higher than they've been in a very long time.
Speaker 1: According to the Michigan Survey.
Speaker 3: You know, I heard the President talk about a little disturbance,
Speaker 3: and I heard the Senator talk about that, a little
Speaker 3: disturbance that will work through and then it will be good.
Speaker 3: You know what that sounds like. It sounds like transittory inflation.
Speaker 3: Transitory inflation didn't work out very well for the people
Speaker 3: who use that term in twenty twenty one and twenty
Speaker 3: twenty two. It didn't work out very well for the
Speaker 3: Biden administration, it didn't work out very well for the Fed.
Speaker 3: And I don't think talking about it how inflation is
Speaker 3: transfittory is going to work out very well for the
Speaker 3: Trump administration either. So I hope they'll respond to the
Speaker 3: market signals and they'll find a way to save face
Speaker 3: and they'll back off all of this stuff. That would
Speaker 3: be what would be best.
Speaker 1: For the country.
Speaker 3: But I really do worry about the sense that we're
Speaker 3: becoming President calls this CEO calls that she so that
Speaker 3: we're becoming a bit of a crony capitalism.
Speaker 1: Kind of country.
Speaker 3: When you see that the Doze seems to be talking
Speaker 3: about recontracting things towards the Starlink company. When you see
Speaker 3: that law firms that represented parties adverse to the president
Speaker 3: are having all their clients penalized across the administration. This
Speaker 3: is the Argentine way, not the American way, and I
Speaker 3: think there's a substantial risk that it will have costs.
Speaker 3: And what's really sad to me about all this is
Speaker 3: there's a lot of truth in things that the President's
Speaker 3: trying to do. There is waste in the way the
Speaker 3: federal government does technology in it should be fixed by
Speaker 3: people with more expertise than.
Speaker 1: Long term government employees.
Speaker 3: There have been huge problems in the way we have
Speaker 3: protected our borders. We've emphasized too much things other than
Speaker 3: excellence in hiring workers for too long. We've had too
Speaker 3: much regulation that has slowed things down too much and
Speaker 3: made it expensive to build things. Sometimes other countries have
Speaker 3: taken advantage of the United States, and so there are
Speaker 3: impulses here that are right. But if you do things
Speaker 3: too impulsively, too quickly, too carelessly, and with too many
Speaker 3: conflicts of interest where the people who are advising you
Speaker 3: are also the people who are profiting from you, then
Speaker 3: I think you're taking big risks with our economic system.
Speaker 4: Well, so, mister Secretary, you just said a lot that
Speaker 4: we can unpack her. When it comes to tariffs, we
Speaker 4: read you what will be the economic impact of the DOGE,
Speaker 4: because that's bringing an enormous amount of confusion as well.
Speaker 4: Hesitancy to hire is the headline on the ADP Jobs
Speaker 4: report today. Elon Musk is on Capitol Hill meeting with
Speaker 4: members of the House and Senate right now, presumably to
Speaker 4: connect the dots between what the DOGE is finding in
Speaker 4: some form of legislation that will be leading its way
Speaker 4: to a budget. But the fog that's coming from DOGE,
Speaker 4: with the wall of receipts, some of the claims that
Speaker 4: have not turned out to be true. The gutting of
Speaker 4: the IRS means what for our economy.
Speaker 1: I think it means.
Speaker 3: More chaos, higher prices, probably next to no progress on
Speaker 3: the government deficit. Look, the irsh needs more workers, not fewer.
Speaker 3: In one recent three year period, there were one hundred
Speaker 3: people who had incomes over ten million dollars who didn't
Speaker 3: even get their returns audited in any way when they
Speaker 3: didn't file any return at all.
Speaker 1: So, yeah, we got to work on the IRS.
Speaker 3: But when we go cutting the air traffic safety systems,
Speaker 3: when we go slashing thousands of people whose job it
Speaker 3: is to enforce the tax law, and to man the helplines,
Speaker 3: and we do it on an impulse and a few
Speaker 3: hours study by a person with no past experience in government. See,
Speaker 3: I think that's dangerous. And that's the American.
Speaker 1: Part of it.
Speaker 3: For the economy, that's probably what's most important to Americans.
Speaker 3: I have to say that when I read that the
Speaker 3: United States has, for decades since President Bush, who was
Speaker 3: certainly no fiery liberal, put in place program to build
Speaker 3: goodwill for the United States by providing medicines for AIDS
Speaker 3: and other diseases that has saved millions of.
Speaker 1: Lives, saved more than a million lives per year.
Speaker 3: When I see that medicine from that program has just
Speaker 3: been ruthlessly cut off despite congressional approval, with no protection
Speaker 3: or careful thought, and that people are dying because the
Speaker 3: United States just decided to go do a bunch of
Speaker 3: experiments like it was a business being.
Speaker 1: Restructured, that scares me.
Speaker 3: So I think this is going to be pretty serious
Speaker 3: for our economy. And look, President Trump is someone who
Speaker 3: has in the past, at least always when the stock
Speaker 3: market went up.
Speaker 1: He was always linking it to what he did.
Speaker 3: And we couldn't have had clearer evidence over the last
Speaker 3: couple days that when he's pursuing the policies about which
Speaker 3: he's enthusiastic, the market is plummeting, and when he's reversing course,
Speaker 3: the market is rallying. And I hope that'll be a
Speaker 3: lesson on many aspects of the broad approach.
Speaker 2: Well, it also is creating an interesting split screen, mister Secretary,
Speaker 2: because as we have the conversation here about the rattling
Speaker 2: of US equity markets, everything you just talked about in
Speaker 2: terms of what potentially could be happening in the US economy,
Speaker 2: you are seeing a flood of capital into Europe, as
Speaker 2: Germany is now signaling they're going to have whatever it
Speaker 2: takes approach to increase spending. We've seen a flood into
Speaker 2: European equities, obviously massive action in the boon market today.
Speaker 2: Is this the end, potentially of US exceptionalism.
Speaker 3: I think it would be premature to say, on the
Speaker 3: basis of anything that happened in a few days or
Speaker 3: even a few weeks, that it was the end of
Speaker 3: US exceptionalism. But I will say this, I think the
Speaker 3: broad approach we are taking to the rest of the
Speaker 3: world represents the biggest threat to the US dollars role
Speaker 3: as the central currency in the world economy that we've
Speaker 3: had in the last five decades, And if I were
Speaker 3: still sitting at the Treasury Department, I would be terrified
Speaker 3: about the consequences of the kind of rhetoric that the
Speaker 3: President is engaging in vis a vis other countries. I
Speaker 3: would be alarmed by the way in which China and
Speaker 3: Europe were trapped being magnets for capital as people rushed
Speaker 3: out of dollars, were increasingly aliging with each other because
Speaker 3: they had both been alienated from us, And knowing that
Speaker 3: I was going to have trillions and trillions of dollars
Speaker 3: that I had to place, and that I was part
Speaker 3: of an administration that was going to raise substantially the
Speaker 3: scale of the national debt with these new ideas like
Speaker 3: not taxing over time or not taxing tips, and extending
Speaker 3: the tax cuts for.
Speaker 1: Businesses and businesses.
Speaker 3: In the wealthy in a massive way, so that we
Speaker 3: were looking at budget deficits that could easy exceed two
Speaker 3: trillion dollars a year.
Speaker 1: I had to plant.
Speaker 3: I had to place all that debt. When the President
Speaker 3: was calling out and yelling and complaining about all the
Speaker 3: countries that were traditionally the biggest buyers of the debt,
Speaker 3: and the President was saying that anything was legal as
Speaker 3: long as it was working for the survival of the country,
Speaker 3: and he wanted.
Speaker 1: To do it.
Speaker 3: I'd be hugely alarmed about the role of the dollar
Speaker 3: in our system, and I'd be doing everything I could
Speaker 3: to try to persuade the President to change course. In fairness,
Speaker 3: I wouldn't be doing it publicly. I'd be doing it
Speaker 3: behind closed doors. But we have a Treasury Secretary whose
Speaker 3: principal comment on the President has been to suggest that
Speaker 3: he should.
Speaker 1: Win a Nobel prize for his appeasement to President Putin.
Speaker 3: So I think we have a really serious set of
Speaker 3: issues that may loom. There's time to change There's time
Speaker 3: to change course. There's time to eliminate these kinds of tariffs.
Speaker 3: There's time to try to draw on the expertise in
Speaker 3: the DOGE in more responsible ways. And if that happens,
Speaker 3: I think things could work out well. But gosh, we're
Speaker 3: looking at some risks and uncertainties of a kind we
Speaker 3: haven't seen before. You know, Wall Street, as you know
Speaker 3: better than I because you report on it all the time.
Speaker 3: Has this thing the vics so called fear gauge. It
Speaker 3: went up by almost fifty percent, and in a matter
Speaker 3: of a couple of days because of the things that
Speaker 3: were being said.
Speaker 1: So I just hope that.
Speaker 3: We can all take a deep breath, that we can
Speaker 3: recognize that there are plenty of real problems that need
Speaker 3: to be addressed, and that the President in his campaign
Speaker 3: identified some important directions in which our country and its
Speaker 3: economy could be made better. But God, the way we're
Speaker 3: going about it is something that seems very scary to me.
Speaker 4: That VIX is down today but still holding above twenty two. Larry,
Speaker 4: it's really great to have you with us here on
Speaker 4: balance of power. We do appreciate the conversation. The former
Speaker 4: US Treasury Secretary of Larry Summers, of course, Harvard University
Speaker 4: President emeritus, with his insights on tariffs, tax cuts, and
Speaker 4: a lot more today in a live conversation on Bloomberg
Speaker 4: TV and Radio.