The economist and Harvard professor, former Secretary of the Treasury, analyzed why the Democrats lost the elections and what the consequences of Trump 2.0 would be, in a talk at the Kennedy School.
Former US Secretary of the Treasury. during the presidency of Bill Clinton, Larry Summersa voice heard in Washington and on Wall Street, considered that Democrats lost the election because they paid too much attention to positive macroeconomic trends and not enough to the economic reality of Americans. “In many ways, Democrats have lost sight of the common man and woman in favor of the attitudes and philosophies of the faculty common room,” Summers said during a talk about why Democrats lost the election and the risks they face. lay out President-elect Donald Trump’s policy plans for the American economy, with journalist John Ellis at the Harvard Kennedy School. What else did he say?
According to Cristina Pazanese of the traditional Boston study house, Summers explained that many voters leaned towards the Republican Party and Trump, who harshly criticized the Democrats for inflation, because they felt that they understood what they were going through better than the Democrats. , which moved away from their traditional focus on issues such as tabletop economics. The Democratic economist – now a professor at Charles W. Eliot University and director of the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School – suggested that the Fed also contributed to voter anger over inflation. He explained that in 2021, when $2.5 trillion of stimulus was flooding into the economy, the Fed still expected interest rates to remain at 0% through the summer of 2024 and would buy back long-term Treasury debt by issuing which was, in effect, short-term debt with a floating rate. This led to significant losses for the government that some estimate, in market value terms, between $500 billion and $1 trillion before the Fed finally corrected course.
Summers, who also served as director of the National Economic Council during the Obama administration, noted that he believed that Had there not been hyper-expansive policy in 2021, it would have been easier for Democrats to deflect blame for any inflation that occurred.
Inflation and the Fed: the possibility of making mistakes
By Pazanese’s account, Summers is concerned that the Fed could make another mistake during the new administration given current economic conditions, and warned that Trump’s economic policy plans, such as raising or adding new tariffs, could worsen inflation. “If President Trump does what he said he would do during his campaign, the inflationary shock that will be inflicted on the economy will be substantially greater than anything that occurred at the beginning of the last administration.”Summers said. “He has promised huge deficit increases by continuing his tax cuts and new tax cuts; has destroyed the idea of central bank independence; “He has said that we should want to have a less valued currency, which means less valuable money and higher prices, and that is just on the demand side,” he added. More importantly, “he’s talked about a big tariff on all the goods we import, which means higher import prices and it also means higher prices for everything that competes with imports,” he said.
The China effect
Summers, Pazanese says, also criticized Trump’s promise to slap 60% tariffs on all Chinese goods, saying it will not only force American consumers to pay much higher prices but will further strain US-China relations. , and stated that the country should precisely “calibrate” its trade policies against overall strategic objectives. “At a time when the Chinese economy is in difficulty, when there are very difficult economic problems, the worst thing we could do would be to make it easier for the Chinese government to use us as scapegoats for their own economic failures. Therefore, we have to be very careful and focus on our own security and not pursue policies that can be interpreted as reflecting a widespread desire to suppress the Chinese economy,” he advised, adding: “That’s going to require subtle policy decisions and it’s not going to require grandstanding, but very careful communication.” Furthermore, “it’s clear that we have to reinforce the American borders,” he said, but “if we’re talking about expelling millions of people who are here now from the country, that’s a recipe for large-scale labor shortages, and we’ve already seen in the past what that does to inflation,” he said.
The crack, also in American society
The crack in American society also had a space in the debate. According to Pazanese, Summers praised the attitude and message of Vice President Kamala Harris that addressed voters who “love our country,” a sentiment that she would like the Democratic Party and institutions like Harvard to defend. “Frankly, I wish this were a more accepted value at our university, where it’s not something we talk about, celebrate or think about,” he said. “We have done many things wrong throughout our history, but it is strange that the history received in our educational system is so negative about our country.” And in clear reference to the rift that American society is experiencing, Summers stated that the University needs to find a way to encourage patriotism as a positive principle on campus because today the United States faces real threats and because it is an alternative to each subgroup of Americans adopt a particular identity, which generates a lot of division.
Source: Ambito
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