Trump Tax Policies Would Produce ‘Mother of All Stagflations’: Larry Summers

Larry Summers

Speaking on Bloomberg TV Friday, former Treasury Secretary and noted inflation hawk Larry Summers blasted the tax proposals being discussed by former President Donald Trump, which include more tax cuts and massive tariffs. Summers, a Democrat, said those policies would spark rising inflation and unemployment, severely damaging the U.S. and global economies.

“I don't think there's been a more inflationary presidential economic policy platform in my lifetime,” Summers told Bloomberg’s David Westin. “What is President Trump advocating? He's advocating substantial increases in budget deficits through the continuation of tax cuts. He's advocating debasing the currency by calling for a lower value of the dollar. He's launching the most direct threat to central bank independence in historical memory. And so on the demand side, it's all inflation stuff.”

Summers said there are problems with Trump’s ideas on the supply side of the economy, as well. “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,” he said. “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.”

Summers said consumption would be crushed by the policies, sparking a downward spiral for the economy. But in response to the rising inflationary pressure, the Federal Reserve would likely feel obliged to raise interest rates.

“This could easily be a prescription for a 10% mortgage rate — something that I lived through when I bought my first house, but that I didn’t think we were going to see again in the United States,” Summers said. “This is really dangerous stuff.”