Bloomberg Audio Studios, podcasts, radio news.
Larry Summers, the former US Treasury Secretary and Harvard University president emeritus, who is here with us on Bloomberg TV and Radio. Mister Secretary, it's great to have you, and thanks very much for your patients with us as we work through all of this news. Obviously, and you've spoken
about this at length with our colleague David Weston. There is economic impact of tariffs to consider, but what about the potential economic toll when it comes to business investment and activity on the part of consumers of just a lack of certainty around what these policies actually look like. Is implementing them and pulling them back just as damaging potentially as leaving them intact.
Look, it's all there.
These tariffs are a self inflicted supply shock wound higher prices, less competitiveness because businesses are having to pay more for all their inputs, and because they have to pay higher prices, less purchasing power for consumers, which means fewer jobs down the road. So these are like an oil price shock. They're just all bad for the economy, and they're probably like it, and they probably were like an oil price shock of forty dollars a barrel in terms of what
was being done to Mexico and Canada. And now with these changes, maybe it's only twenty five or thirty dollars a barrel, but it's still clear big and bad. That's why before they started saying they were going to take the tariffs off, almost two trillion dollars of stock market wealth had been destroyed in a matter of two days.
Now nobody knows quite what's going to happen, But why would you make an important investment decision amidst all of this uncertainty if you were thinking about buying a new car or buying a new house. When you wait, and when everybody waits, the economy slows down. And that's why the risk of recession, which everybody thought was extremely unlikely on January twentieth, is now seen by many many people as a real and serious risk for some time this year.
So I think we're doing real damage to the economy.
It's not just a short run thing.
Inflation expectations for the long term, for five or ten years, are higher than they've been in a very long time.
According to the Michigan Survey.
You know, I heard the President talk about a little disturbance, and I heard the Senator talk about that, a little disturbance that will work through and then it will be good. You know what that sounds like. It sounds like transittory inflation. Transitory inflation didn't work out very well for the people who use that term in twenty twenty one and twenty twenty two. It didn't work out very well for the Biden administration, it didn't work out very well for the Fed.
And I don't think talking about it how inflation is transfittory is going to work out very well for the Trump administration either. So I hope they'll respond to the market signals and they'll find a way to save face and they'll back off all of this stuff. That would be what would be best.
For the country.
But I really do worry about the sense that we're becoming President calls this CEO calls that she so that we're becoming a bit of a crony capitalism.
Kind of country.
When you see that the Doze seems to be talking about recontracting things towards the Starlink company. When you see that law firms that represented parties adverse to the president are having all their clients penalized across the administration. This is the Argentine way, not the American way, and I think there's a substantial risk that it will have costs. And what's really sad to me about all this is there's a lot of truth in things that the President's
trying to do. There is waste in the way the federal government does technology in it should be fixed by people with more expertise than.
Long term government employees.
There have been huge problems in the way we have protected our borders. We've emphasized too much things other than excellence in hiring workers for too long. We've had too much regulation that has slowed things down too much and made it expensive to build things. Sometimes other countries have taken advantage of the United States, and so there are
impulses here that are right. But if you do things too impulsively, too quickly, too carelessly, and with too many conflicts of interest where the people who are advising you are also the people who are profiting from you, then I think you're taking big risks with our economic system.
Well, so, mister Secretary, you just said a lot that we can unpack her. When it comes to tariffs, we read you what will be the economic impact of the DOGE, because that's bringing an enormous amount of confusion as well. Hesitancy to hire is the headline on the ADP Jobs report today. Elon Musk is on Capitol Hill meeting with members of the House and Senate right now, presumably to connect the dots between what the DOGE is finding in some form of legislation that will be leading its way
to a budget. But the fog that's coming from DOGE, with the wall of receipts, some of the claims that have not turned out to be true. The gutting of the IRS means what for our economy.
I think it means.
More chaos, higher prices, probably next to no progress on the government deficit. Look, the irsh needs more workers, not fewer. In one recent three year period, there were one hundred people who had incomes over ten million dollars who didn't even get their returns audited in any way when they didn't file any return at all.
So, yeah, we got to work on the IRS.
But when we go cutting the air traffic safety systems, when we go slashing thousands of people whose job it is to enforce the tax law, and to man the helplines, and we do it on an impulse and a few hours study by a person with no past experience in government. See, I think that's dangerous. And that's the American.
Part of it.
For the economy, that's probably what's most important to Americans. I have to say that when I read that the United States has, for decades since President Bush, who was certainly no fiery liberal, put in place program to build goodwill for the United States by providing medicines for AIDS and other diseases that has saved millions of.
Lives, saved more than a million lives per year.
When I see that medicine from that program has just been ruthlessly cut off despite congressional approval, with no protection or careful thought, and that people are dying because the United States just decided to go do a bunch of experiments like it was a business being.
Restructured, that scares me.
So I think this is going to be pretty serious for our economy. And look, President Trump is someone who has in the past, at least always when the stock market went up.
He was always linking it to what he did.
And we couldn't have had clearer evidence over the last couple days that when he's pursuing the policies about which he's enthusiastic, the market is plummeting, and when he's reversing course, the market is rallying. And I hope that'll be a lesson on many aspects of the broad approach.
Well, it also is creating an interesting split screen, mister Secretary, because as we have the conversation here about the rattling of US equity markets, everything you just talked about in terms of what potentially could be happening in the US economy, you are seeing a flood of capital into Europe, as Germany is now signaling they're going to have whatever it takes approach to increase spending. We've seen a flood into European equities, obviously massive action in the boon market today.
Is this the end, potentially of US exceptionalism.
I think it would be premature to say, on the basis of anything that happened in a few days or even a few weeks, that it was the end of
US exceptionalism. But I will say this, I think the broad approach we are taking to the rest of the world represents the biggest threat to the US dollars role as the central currency in the world economy that we've had in the last five decades, And if I were still sitting at the Treasury Department, I would be terrified about the consequences of the kind of rhetoric that the
President is engaging in vis a vis other countries. I would be alarmed by the way in which China and Europe were trapped being magnets for capital as people rushed out of dollars, were increasingly aliging with each other because they had both been alienated from us, And knowing that I was going to have trillions and trillions of dollars that I had to place, and that I was part of an administration that was going to raise substantially the scale of the national debt with these new ideas like
not taxing over time or not taxing tips, and extending the tax cuts for.
Businesses and businesses.
In the wealthy in a massive way, so that we were looking at budget deficits that could easy exceed two trillion dollars a year.
I had to plant.
I had to place all that debt. When the President was calling out and yelling and complaining about all the countries that were traditionally the biggest buyers of the debt, and the President was saying that anything was legal as long as it was working for the survival of the country, and he wanted.
To do it.
I'd be hugely alarmed about the role of the dollar in our system, and I'd be doing everything I could to try to persuade the President to change course. In fairness, I wouldn't be doing it publicly. I'd be doing it behind closed doors. But we have a Treasury Secretary whose principal comment on the President has been to suggest that he should.
Win a Nobel prize for his appeasement to President Putin.
So I think we have a really serious set of issues that may loom. There's time to change There's time to change course. There's time to eliminate these kinds of tariffs. There's time to try to draw on the expertise in the DOGE in more responsible ways. And if that happens, I think things could work out well. But gosh, we're looking at some risks and uncertainties of a kind we haven't seen before. You know, Wall Street, as you know better than I because you report on it all the time.
Has this thing the vics so called fear gauge. It went up by almost fifty percent, and in a matter of a couple of days because of the things that were being said.
So I just hope that.
We can all take a deep breath, that we can recognize that there are plenty of real problems that need to be addressed, and that the President in his campaign identified some important directions in which our country and its economy could be made better. But God, the way we're going about it is something that seems very scary to me.
That VIX is down today but still holding above twenty two. Larry, it's really great to have you with us here on balance of power. We do appreciate the conversation. The former US Treasury Secretary of Larry Summers, of course, Harvard University President emeritus, with his insights on tariffs, tax cuts, and a lot more today in a live conversation on Bloomberg TV and Radio.