Former U.S. Treasury Secretary Larry Summers had some unsolicited advice for President-elect Donald Trump on Wednesday: Don’t follow through on his campaign promises unless he wants prices to soar again.
The renowned economist, who served as a senior official in both the Clinton and Obama administrations, is alarmed by the potential impact of Trump's proposals to cut taxes, raise tariffs, deport undocumented immigrant workers and weaken the Federal Reserve's independence.
“If he follows through on what he said during the campaign, the inflation shock to the United States would be significantly larger than in 2021,” Summers said.
Given the scale of the last round of inflation, this is a pretty serious warning.
U.S. consumer prices began to rise rapidly in the spring of 2021, with inflation eventually reaching a 40-year high of 9.1% in June 2022. This is something many Americans have never experienced, and the shock is still being felt in the U.S. economic and political system to this day.
Although inflation has eased sharply, prices remain high, and deep voter dissatisfaction with the high cost of living helped return Trump to the White House.
Of course, it is not yet known to anyone how Trump plans to implement his economic agenda and whether he will be persuaded to moderate his proposals.
"I hope he gets the message from this election and adjusts his plans so that we don't get inflation," Summers told CNN. "I hope that if we get inflation, the Fed doesn't encourage it."
The Trump transition team pushed back on Summers' inflation warnings.
"During Trump's first term, his tariffs created jobs, spurred investment, and did not cause inflation," Trump transition spokeswoman Karoline Leavitt said in a statement. "Trump will move quickly to quickly repair and restore the economy and put more American workers to work by bringing back American jobs, reducing inflation, raising real wages, lowering taxes, cutting regulations, and untying American energy."
Scott Bessent, a hedge fund executive who could become Trump's Treasury secretary, also dismissed concerns about inflation.
Bessant told Axios that the "idea that he (Trump) would recreate an affordability crisis is ridiculous" and that Trump "sees himself as the mayor of 330 million Americans and he wants them to do well and have a great four years."
Of course, Summers is far from the only one warning that Trump’s agenda will lead to inflation.
Nobel laureates in economics have also warned that Trump's agenda will "reignite" inflation. (The Wall Street Journal) More than two-thirds (68%) of economists recently surveyed said prices will be higher under Trump than under Vice President Harris.
In Summers' view, the Biden administration has triggered inflation by overstimulating the economy in 2021. He said the current situation has similarities with the period after the last election.
“The big checks that are going out in 2021 are what people dream of, they just don’t want to deal with the higher inflation that comes with it,” Summers said.
The outbreak of inflation at the time was also related to supply chain problems caused by the COVID-19 pandemic and the Russia-Ukraine conflict, which led to a surge in oil and gasoline prices.
Today Summers sees a similar setup in Trump’s agenda.
“The cumulative effect of this agenda — reining in the Fed, raising tariffs, kicking out undocumented immigrant workers, expanding the budget deficit — is highly inflationary, and it has generated more consensus among people who care about the economy than any proposal I can remember in the 40 years I’ve been doing this job,” Summers said.
Article forwarded from: Jinshi Data