So, that would be a $250bn-$300bn hole in wages and salaries over the course of the year. If you look at the economy at the beginning of this year, prevailing forecasts were that Covid would reduce wages and salaries to American households by $20bn-$30bn a month, with that figure declining over the year. I think, in important respects, it lies with the Republicans and with those on the more extreme left of the Democratic party. Larry Summers: I’m going to focus on the American policy path and not talk about where responsibility lies for that path. Could you explain your criticisms? And how does this fit with your views on secular stagnation? You have been critical of these policies. Together, this is close to a quarter of gross domestic product. His administration has already passed an enormous new fiscal stimulus of $1.9tn and is talking about a longer-term investment package of $3tn. Martin Wolf: Let’s start with the current macroeconomic situation and, particularly, the legacy of Covid-19 and the arrival of Biden. If he is right, the hopes for a transformative presidency are likely to end in catastrophic economic and political disappointment. If Summers is wrong, it will matter little. But policy still needs to be grounded in economic realities and priorities - and these ones, he insists, are not. He agrees there is a strong case for a more aggressive approach to fiscal policy. In discussion with Martin Wolf, the FT’s chief economics commentator, Summers explains why the new approach might go disastrously wrong. Instead of applauding its boldness, he fears they will lead to significant overheating and waste of resources. Now, however, Summers - a Democrat with his party back in power - is criticising both the scale and direction of the administration’s fiscal policies. He then became the leading economist arguing in favour of less reliance on monetary policy and more on active fiscal policy. He used the label to explain the combination of a long period of easy, or ultra-easy monetary policy, with weak demand and disappointing growth. Notably, in 2013, he reintroduced into macroeconomic discussions the idea of “ secular stagnation”, first used by the Keynesian Alvin Hansen in the 1930s. Summers has never been reluctant to court controversy as a thinker and policymaker. He won the John Bates Clark medal in 1993 and has been chief economist at the World Bank, Treasury secretary under Bill Clinton and head of Barack Obama’s National Economic Council. Summers is an influential economist and policymaker on the US centre left. But Lawrence (Larry) Summers of Harvard has criticised the approach as the “least responsible” in 40 years. They want this to be seen as a transformative political moment. Is what the US administration doing well judged or excessively risky?įor its proponents, the idea of “going big” is designed, among other things, to rectify the mistakes, as they see it, of the Obama administration of 2009. Now, however, after the election of Joe Biden as president, the US is proposing to do more than double down on already generous support. During the worst of this pandemic, high-income countries provided a scale of fiscal and monetary largesse previously only seen in world wars. The world economy is struggling to escape the economic shock of Covid-19. This is part of a series, ‘ Economists Exchange ’, featuring conversations between top FT commentators and leading economists about coronavirus economic recovery Simply sign up to the Global Economy myFT Digest - delivered directly to your inbox.
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