Kelly Hawes column: Bipartisan plan could help economy, says former Treasury chief | Columns

Former US Treasury Secretary Larry Summers has been getting a lot of attention lately with his prediction that the US is heading into a recession.

“When you have unemployment below 4% and inflation above 4%, recession always follows within two years,” he said in an interview with Barron’s.

For the record, the PolitiFact site gave the comment a mostly false rating.

“Summers’ broader notion that low unemployment and high inflation portends a recession is well supported by economic theory,” wrote the website’s Louis Jacobson. “But it lacks the kind of empirical support that its argumentation implies.”

The conditions cited by Summers, writes Jacobson, are extremely rare, occurring only a handful of times since the mid-1950s.

Summers admits he might be wrong.

“Nothing is certain,” he said during an appearance on “Meet the Press,” “and all economic forecasts are uncertain.”

Host Chuck Todd asked if the Federal Reserve could get inflation under control without causing a recession, and Summers said that seemed unlikely.

“There’s always a first time for everything,” he said, “and I never want to make a prediction with certainty.”

Jeffry Bartash wrote about Summers’ predictions in an article for MarketWatch.

“Although the United States is not condemned to a slowdown, the risks of recession are increasing rapidly,” he wrote. “Economists polled by the Wall Street Journal now see a 44% chance of a recession over the next 12 months. In January, only 18% expected such a risk.

At the same time, Bartash wrote, Google searches for the word “recession” have reached their highest level since March 2020, when the pandemic was just beginning.

Republicans were almost gleeful citing Summers’ grim predictions. However, not everyone is happy with his apparent suggestion that the way to fight inflation is through higher unemployment.

Bartash quoted Joey Politano, financial management analyst at the Bureau of Labor Statistics. Politano tweeted that the “solution” proposed by Summers would amount to a recession on par with what the nation endured during the 2008 financial crisis.

“The human toll would be incredibly devastating,” he wrote.

Everyone, it seems, wants to know what Summers thinks about the economy. Even President Joe Biden.

“I was talking to Larry Summers this morning, and there’s nothing inevitable about a recession,” the president told reporters the day after Todd’s interview.

What Summers thinks the people of Washington could do to reverse the current economic trend is nearly lost in discussion.

Summers told Todd he was not a fan of the gas tax exemption that Biden is promoting.

“I think it’s kind of a gimmick,” he said, “and eventually you have to reverse it.”

On the other hand, he said, cutting China’s tariffs from the Trump administration is clearly a good idea.

“It will drive prices down,” he said. “It will allow us to take a more strategic approach to dealing with China.”

It could even reduce the consumer price index by a percentage point or more, he said.

And then Summers turned to what he described as the most important part of the discussion.

“I’m not sure it can save the day and prevent a recession,” he said, “but it would be a very positive contribution.”

What the nation really needs, he said, is a bipartisan budget deal with three elements:

• A reduction in pharmaceutical prices by using the great purchasing power of the government through Medicare.

• Partial repeal of Trump’s tax cuts.

• A comprehensive energy policy that emphasizes the release of fossil fuels in the short term and makes, with government support, the ultimate pivot to renewable energy.

“All of that would take the pressure off the Fed, lower the inflation rate, help restore confidence, and I think would be a very positive contribution,” Summers said.

Maybe we should talk about it.


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