Former Treasury Secretary Larry Summers, on Friday, offered his take on the economic policies the two frontrunners in the presidential race will likely pursue if they are elected for a second term.
Biden’s Sound Activist Approach: “This is probably the most consequential presidential election since the Second World War,” said Summers in an interview with Bloomberg’s “Wall Street Week.” If President Joe Biden is elected, he would likely continue with a Keynesian approach to economic management, he said.
Keynesian economics, a macroeconomic theory based on the work of the British economist John Maynard Keynes, suggests demand creation will stimulate economic growth.
Summers said, “He [Biden] has felt that one needs to put very substantial emphasis on market failures, particularly in areas relating to the environment and climate change.”
“And in the long democratic tradition, he has worked to do things to support those who have been left behind; he has focused on supporting what he regards as particularly salient job creating industries,” he added.
The economist, however aired criticisms regarding Bidenomics as well, as he said there have been an overemphasis on industrial policy and protectionism. He also said there was a costly misjudgment in the extent of the initial fiscal stimulus.
“Broadly, President Biden has supported what I think is a sound activist approach to economic policy,” the former Treasury official said.
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Very Worried About Trump: On Donald Trump, Summers said, while at office, the former president showed support for removal of all kinds of legal restraints on the power of the presidency. “He has spoken of being dictator for a day. He has spoken of severing traditional alliances with the rest of the world, of undercutting longstanding American approaches to international trade, to economic regulation, to much else,” the economist said.
“I think all of this is very threatening to the American economy,” he said.
Similar to how populism yielded temporary and initial economic benefits for Italy’s Benito Mussolini and Argentina’s Juan Peron, it could work for a short term for Trump, according to Summers. “Ultimately, [it] brings a great deal crashing down around it,” he said, adding “And so I am very worried that we will be a very different country that cannot rely on the rule of law and take it for granted, as we traditionally have if we experience a second Trump administration.”
When the host, David Westin, pointed to Summers that the economic track record of Trump wasn’t very bad and that the stock market did well, the economist said the rest of the world is going to see it differently.
“The rest of the world, which has had so much faith in the United States for all their resentments and so many have been so reliant for so long, were prepared to see a first term term as an aberration,” Summers said.
“But after 91 indictments, after the events of January 6th, that is not how they will see a second term,” he said.
Trump 2.0, according to Summers, will “represent a loss of the moral authority that the United States has had.” This will make for a “much less stable world.”
He also issued a warning to the business community. “History will judge very badly those who, for the sake of a more expedient, as they see it, corporate tax position or a relaxation of what they see as overly burdensome regulation, go along with the subversion of American democracy,” he said.
Summers also said he wouldn’t be too concerned if the election involved presidential candidates Nikki Haley or Chris Christie. “But I think the involvement of ex-president Trump takes all of this to an entirely different level of concern.”
The S&P 500 Index rose nearly 25% in 2023 and finished shy of its all-time record, but it has since started the new year on a weak note. The The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the performance of the S&P 500, ended Friday’s session up 0.14% at $467.92, although it ended down 1.5% for the truncated week.