Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: And we start with the backward looking economic conmbers of
Speaker 2: the United States this week and the forward looking statement
Speaker 2: of economic productions from the FED and what the chair
Speaker 2: Jay Powell had to say about it. And we welcome
Speaker 2: back our very special contributor. He's Larry Summers of Harvard. So, Larry,
Speaker 2: great to have you with us. What did you make
Speaker 2: out if we had some encouraging numbers actually on inflation.
Speaker 2: The same time, the FED is a little reluctant to
Speaker 2: talk too quickly about cutting.
Speaker 1: The numbers were encouraging. It's one month, but you know,
Speaker 1: every month is data, and I think the right posture
Speaker 1: has to be agnosticism about where we are going forward.
Speaker 1: It's hard to interpret the Fed's forecast speak because they
Speaker 1: probably had a lot of inertia with everybody having set
Speaker 1: their view coming into the meeting, so it's not really
Speaker 1: clear that the projections that people were making genuinely reflected
Speaker 1: the new numbers. That was a point that Chairman Bowell stressed.
Speaker 2: We also have fiscal policy issues coming up in a
Speaker 2: sense around the ballot come November. There's increasing discussion about
Speaker 2: the alternatives between Joe Biden and Donald Trump. There's a
Speaker 2: fiscal policy, and you've been outspoken on the question, as
Speaker 2: others have been about the possibility of inflation with the
Speaker 2: Trump economic policy. Take us through that.
Speaker 1: Look. I don't think there's been a more inflationary presidential
Speaker 1: economic policy platform in my lifetime. Perhaps George McGovern in
Speaker 1: nineteen seventy two in some ways would be a comparison,
Speaker 1: But other than that, I don't think there's been remotely
Speaker 1: comparably irresponsible set of proposals. His tariff proposals are the
Speaker 1: biggest supply shock, pushing up prices not just of imported goods,
Speaker 1: but of all the goods that compete with imported goods.
Speaker 1: That anybody who's worried about gouging should think that more competition,
Speaker 1: including from abroad, is a very very important step. And
Speaker 1: he's for much greater restrictions on the supply of labor,
Speaker 1: leading to more wage inflation pressures. And he's for scaling
Speaker 1: back the subsidies to renewable energy, raising energy costs. So
Speaker 1: look at it from demand, look at it from supply.
Speaker 1: This is a prescription for a major increase in inflation,
Speaker 1: and of course, the expectation of that major increase in inflation,
Speaker 1: and possibly the fact that the FED will be under
Speaker 1: much more pressure to prove that it's credible. This could
Speaker 1: easily be a prescription for a ten percent mortgage rate,
Speaker 1: something that I lived through and I bought my first house,
Speaker 1: but that I didn't think we were going to see
Speaker 1: again in the United States. This is really dangerous stuff.
Speaker 2: Literally, we pick up on the tariff's issue specifically, as
Speaker 2: we know, President former President Trump traveled to Capitol Hill
Speaker 2: this week and there were reports in the press that
Speaker 2: he floated, at least as an idea replacing some are
Speaker 2: all of income tax with tariffs. There was one report
Speaker 2: that actually would just replace it entirely. What would that
Speaker 2: do from an macroeconomic point of view?
Speaker 1: Look, people miss people misspeak. Sometimes they're not serious about
Speaker 1: the things they say. That's probably a feature of candidate Trump.
Speaker 1: But replacing the income tax with revenue with tariff would
Speaker 1: be the worst macroeconomic policy proposal in US history. It
Speaker 1: of course burdens the middle class and the poor who
Speaker 1: purchased goods goods that exist on international markets. So it's regressive,
Speaker 1: as many economic commentators have suggested. But that is actually
Speaker 1: the least of it. Think about it this way. The
Speaker 1: Smoot Hawley tariffs, which did enormous damage some people would
Speaker 1: say made the depression great, were six tenths of one
Speaker 1: percent of GDP. If you replaced half of income tax revenues,
Speaker 1: not all like he talked about, if you replaced half
Speaker 1: of income tax revenues with tariffs, those would be tax
Speaker 1: those would be tariffs six times smooth Hally levels. That's
Speaker 1: got the potential to do enormous damage to the competitiveness
Speaker 1: of every US exporter, to do huge damage to all
Speaker 1: kinds of workers who use imported goods in what their
Speaker 1: businesses produce, to create a downward spiral, as much higher
Speaker 1: prices for everything we import means consumers have less to
Speaker 1: spend on everything else, create worldwide economic warfare as the
Speaker 1: rest of the world responds. This is a prescription for
Speaker 1: the mother of all stagflations. Now, I don't think it's
Speaker 1: likely to happen even if President Trump is elected, so
Speaker 1: I don't know that markets should be discounting all of that.
Speaker 1: But this is something that I think should be viewed
Speaker 1: very ominously.
Speaker 2: Let me turn to another subject that you and I
Speaker 2: have talked about in the past, but we had developments
Speaker 2: this week over in Barrie, Italy with the meeting of
Speaker 2: the G seven as they took action actually on the
Speaker 2: Russian assets. As I understand, it's not so much the
Speaker 2: principle but the interest off of them that would back
Speaker 2: a bond. You early on in this program called for
Speaker 2: the use of those Russian assets, the central back assets,
Speaker 2: the government assets, to be used for Ukraine. Are you
Speaker 2: pleased with what they've done? Have they gone far enough?
Speaker 1: There's a major step forward. I am very pleased, but
Speaker 1: I don't think they've done everything that could be done. Look,
Speaker 1: the best estimate is that there's in the neighborhood of
Speaker 1: three hundred billion dollars of frozen Russian assets. Those assets
Speaker 1: have already been frozen. Nobody thinks they're going back to Russia.
Speaker 1: So if there are issues about expectations about fairness, any
Speaker 1: of that, we crossed that rubicon two years ago. The
Speaker 1: big step they took was not just authorizing the use
Speaker 1: of the interest, but setting up a loan mechanism. Today
Speaker 1: the Ukrainians are going to get access not just to
Speaker 1: this year's interest payments, but to interest payments out over
Speaker 1: quite a number of years, perhaps totaling fifty billion dollars
Speaker 1: or more. I think ultimately the right thing to do
Speaker 1: is going to be to simply take these assets or
Speaker 1: take the perpetuity of all the income that they will generate.
Speaker 1: But fifty billion dollars is a lot of money. It
Speaker 1: comes at a very important time to provide a shot
Speaker 1: in the arm for Ukraine. It's going to be crucial
Speaker 1: for US, for the international financial institutions to work with
Speaker 1: the Ukrainians to make sure that those resources are used
Speaker 1: with maximum effectiveness. And this also David does something else
Speaker 1: that's important. If this had not been done, I and
Speaker 1: others were very concerned that even if resources from Ukraine
Speaker 1: could be found in national budgets, it would come out
Speaker 1: of other vital international expenditures to come back global warming,
Speaker 1: to protect against pandemic threats, to reduce global poverty, and
Speaker 1: so this is also an important step for internationalism more broadly.
Speaker 1: It's been a long road on this, and while it
Speaker 1: didn't start with as aggressive an effort from the US
Speaker 1: government as I might have hoped. I really want to
Speaker 1: congratulate Secretary Yellen, especially people at the National Security Council,
Speaker 1: her deputy Wallyadieimo Sherpa Deleep Singh for having driven something
Speaker 1: that is really profoundly important. This was US leadership with
Speaker 1: others being reluctant, and it was a case study in
Speaker 1: the last few months of effective, determined, creative economic diplomacy.
Speaker 2: Okay, Larry, thank you so very much for being with us.
Speaker 2: That's Larry Summers of Harvard, our very special contributor here
Speaker 2: on Wall Street Week