Larry Summer is still criticizing the American Recovery Plan. Summers:
In his latest attack on the recent rush of stimulus, Summers told David Westin on Bloomberg Television’s “Wall Street Week” that “what was kindling, is now igniting” given the recovery from Covid will stoke demand pressure at the same time as fiscal policy has been aggressively eased and the Federal Reserve has “stuck to its guns” in committing to loose monetary policy.
“These are the least responsible fiscal macroeconomic policy we’ve have had for the last 40 years,” Summers said. “It’s fundamentally driven by intransigence on the Democratic left and intransigence and the completely irresponsible behavior in the whole of the Republican Party.”
Summers, a top official in the past two Democratic administrations, has emerged as one of the leading critics among Democrat-leaning economists of President Joe Biden’s $1.9 trillion pandemic plan. Summers warned in the interview the U.S. was facing a “pretty dramatic fiscal-monetary collision.”
He said there is a one-in-three chance that inflation will accelerate in the coming years and the U.S. could face stagflation. He also saw the same chance of no inflation because the Fed would hit the brakes hard and push the economy toward recession. The final possibility is that the Fed and Treasury will get rapid growth without inflation.
I don’t have any expertise on the macroeconomic issues, but I do disagree with his exclusive focus on macroeconomic policy, and with his view of the politics, especially his criticism of the Democratic left.
Let’s assume that the ARP steps too hard on the gas pedal and creates some risk of inflation/stagnation/recession. That could happen, and in a perfect world Congress might have passed a smaller bill today focused on preventing immediate suffering, and then passed additional stimulus if needed in 6 or 12 months. I think Democrats had two good reasons not to do this.