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I'm David Weston and I'm joined now by the former US treasure Sectory Larry Summers of Harvard. Larry, thank you for being back with us. When we talked just a week ago on Wednesday, the day of the announcedent tariffs, there was a lot yet to be determined. The markets have been through an amazing amount of volatility since then. Three down days, they're sharply up today. You've been quite
explicitly critical of what President Trump has announced here. Do you feel better today because the markets are coming back?
Sure? I feel better anytime instability seems to be calming. But be not confused. There's only one reason why instability is being reduced, and that is there's a growing hope in markets that a larger part of these policies are going to prove transitory and reversible. This does not reflect any kind of market endorsement of the approach that the
President has followed. Rather, it reflects a judgment that the president might recognize the reality that markets are telling him about, that many of his advisors are telling him about that corporate CEOs across the country are articulating that this kind of wholesale tariff of policy is simply bad for economic performance. We're seeing some signs that the administration may recognize that.
We're seeing signs. But do we have a better sense of the goals in the process today than we got from the Rose Garden last Wednesday.
I don't think so. I think this is fundamentally a improvaizational effort. You could tell that when you knew that there was a policy based on tariff reciprocity that didn't use any data on the tariffs of other countries in figuring out how to reciprocate. You could tell that from the blatant contradictions between what presidential advisor Navarro was saying
and presidential advisor Treasury Secretary Scott Bessen was saying. You could tell that from the degree of division between close outside advisor Elon Musk and many members of the president's economic team. This is a policy, it's a hugely consequential policy, but by all appearances, it's being improvised on a daily basis, and that's creating huge uncertainty. But it's only uncertain There's only uncertainty if things go in both directions. And today happened to be a day when things moved in a
positive direction. I hope that the moves to back off these policies can continue, but we'll have to see. I suspect we're going to have volatile markets for some time to come, and no one can know, but my judgment is that I'd be surprised if the bottom is yet in with respect to this phase and markets.
How bad could it get?
Oh, I think the likelihood. I think it's more likely than not that we're going to have a recession. And in the context of a recession, and we'll see an extra two million people be unemployed, We'll see losses in household income that are five thousand dollars a family or more. We are very likely, in the context of a recession, to see markets reach levels significantly below their current levels. So I think we could be looking for fairly serious
economic problems. And I think it will cash the shadow forward, because if we have a recession, the budget deficit will go up, the accumulated debt that we have to deal with will go up, There'll be financial distress that will affect higher risk companies and also higher risk countries in the global economy. But David, there's a central thing to understand about this moment of economic and financial difficulty. To borrow a word from the doctors, it is our first
iatrogenic recession, our first diatrogenic financial crisis. Iatrogenic illness is when you go into the hospital and you catch an infection there. It's when the people whose job it is to make things better are the active agents of making things worse and Yatrogenic illness, staff, infections and alike in hospitals is a major preoccupation for doctors. This is an iatrogenic economic challenge. There is nothing in the outside world
that is causing this challenge. It is in due by the words and deeds of President Trump and his administration. The good news about that is it could be resolved with words and deeds of President Trump if they backed off these policy errors. I think there would be a
substantial resumption of normality. But as long as a hospital maintains unsanitary conditions, it's patients get infections when they enter, And as long as these policies are being pursued, we're going to see substantial volatility and markets, substantial recession risk, substantial damage to middle class families.
So just to follow up on that is there any remedy for the patient other than for the chief doctor that is President Trump to back off what you you just describe as policy errors. Is there anybody else who can save us?
Look, depending on what happens with other countries and how they handle their diplomacy, it may be easier or harder for him to back off these policies. Depending upon how the business community responds. There may be more or less ability to create an environment where there's a backing off of these policies. But there's nothing complicated about this. You impose huge tax increases on households in an uncertainty creating way that's also damaging to establish business patterns, and the
economy turns downwards. There's nothing subtle or sophisticated about this. This is introductory economics. It's the kind of question that could have been on an introductory economics exam for decades. Suppose the president of the United States decides suddenly to impose a massive tariff tax increase on products from all
over the world. What will happen to the economy? And any b student will know that the answer to that is that it's a supply shock that raises prices and raises unemployment as well, and makes the economy less efficient and adds substantially to uncertainty in some sophisticated, complicated thing to analyze.
Larry, thank you so much for being back on I really appreciate that is. Former US Treasury Secretary Larry Summers of Harvard