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And we start with the backward looking economic conmbers of the United States this week and the forward looking statement of economic productions from the FED and what the chair Jay Powell had to say about it. And we welcome back our very special contributor. He's Larry Summers of Harvard. So, Larry, great to have you with us. What did you make out if we had some encouraging numbers actually on inflation. The same time, the FED is a little reluctant to talk too quickly about cutting.
The numbers were encouraging. It's one month, but you know, every month is data, and I think the right posture has to be agnosticism about where we are going forward. It's hard to interpret the Fed's forecast speak because they probably had a lot of inertia with everybody having set their view coming into the meeting, so it's not really clear that the projections that people were making genuinely reflected the new numbers. That was a point that Chairman Bowell stressed.
We also have fiscal policy issues coming up in a sense around the ballot come November. There's increasing discussion about the alternatives between Joe Biden and Donald Trump. There's a fiscal policy, and you've been outspoken on the question, as others have been about the possibility of inflation with the Trump economic policy. Take us through that.
Look. I don't think there's been a more inflationary presidential economic policy platform in my lifetime. Perhaps George McGovern in nineteen seventy two in some ways would be a comparison, But other than that, I don't think there's been remotely comparably irresponsible set of proposals. His tariff proposals are the biggest supply shock, pushing up prices not just of imported goods, but of all the goods that compete with imported goods.
That anybody who's worried about gouging should think that more competition, including from abroad, is a very very important step. And he's for much greater restrictions on the supply of labor, leading to more wage inflation pressures. And he's for scaling back the subsidies to renewable energy, raising energy costs. So look at it from demand, look at it from supply.
This is a prescription for a major increase in inflation, and of course, the expectation of that major increase in inflation, and possibly the fact that the FED will be under much more pressure to prove that it's credible. This could easily be a prescription for a ten percent mortgage rate, something that I lived through and I bought my first house, but that I didn't think we were going to see again in the United States. This is really dangerous stuff.
Literally, we pick up on the tariff's issue specifically, as we know, President former President Trump traveled to Capitol Hill this week and there were reports in the press that he floated, at least as an idea replacing some are all of income tax with tariffs. There was one report that actually would just replace it entirely. What would that do from an macroeconomic point of view?
Look, people miss people misspeak. Sometimes they're not serious about the things they say. That's probably a feature of candidate Trump. But replacing the income tax with revenue with tariff would be the worst macroeconomic policy proposal in US history. It of course burdens the middle class and the poor who purchased goods goods that exist on international markets. So it's regressive, as many economic commentators have suggested. But that is actually
the least of it. Think about it this way. The Smoot Hawley tariffs, which did enormous damage some people would say made the depression great, were six tenths of one percent of GDP. If you replaced half of income tax revenues, not all like he talked about, if you replaced half of income tax revenues with tariffs, those would be tax
those would be tariffs six times smooth Hally levels. That's got the potential to do enormous damage to the competitiveness of every US exporter, to do huge damage to all kinds of workers who use imported goods in what their businesses produce, to create a downward spiral, as much higher prices for everything we import means consumers have less to spend on everything else, create worldwide economic warfare as the rest of the world responds. This is a prescription for
the mother of all stagflations. Now, I don't think it's likely to happen even if President Trump is elected, so I don't know that markets should be discounting all of that. But this is something that I think should be viewed very ominously.
Let me turn to another subject that you and I have talked about in the past, but we had developments this week over in Barrie, Italy with the meeting of the G seven as they took action actually on the Russian assets. As I understand, it's not so much the principle but the interest off of them that would back a bond. You early on in this program called for the use of those Russian assets, the central back assets, the government assets, to be used for Ukraine. Are you
pleased with what they've done? Have they gone far enough?
There's a major step forward. I am very pleased, but I don't think they've done everything that could be done. Look, the best estimate is that there's in the neighborhood of three hundred billion dollars of frozen Russian assets. Those assets have already been frozen. Nobody thinks they're going back to Russia. So if there are issues about expectations about fairness, any of that, we crossed that rubicon two years ago. The big step they took was not just authorizing the use
of the interest, but setting up a loan mechanism. Today the Ukrainians are going to get access not just to this year's interest payments, but to interest payments out over quite a number of years, perhaps totaling fifty billion dollars or more. I think ultimately the right thing to do is going to be to simply take these assets or take the perpetuity of all the income that they will generate. But fifty billion dollars is a lot of money. It comes at a very important time to provide a shot
in the arm for Ukraine. It's going to be crucial for US, for the international financial institutions to work with the Ukrainians to make sure that those resources are used with maximum effectiveness. And this also David does something else
that's important. If this had not been done, I and others were very concerned that even if resources from Ukraine could be found in national budgets, it would come out of other vital international expenditures to come back global warming, to protect against pandemic threats, to reduce global poverty, and so this is also an important step for internationalism more broadly. It's been a long road on this, and while it didn't start with as aggressive an effort from the US
government as I might have hoped. I really want to congratulate Secretary Yellen, especially people at the National Security Council, her deputy Wallyadieimo Sherpa Deleep Singh for having driven something that is really profoundly important. This was US leadership with others being reluctant, and it was a case study in the last few months of effective, determined, creative economic diplomacy.
Okay, Larry, thank you so very much for being with us. That's Larry Summers of Harvard, our very special contributor here on Wall Street Week