Larry Summers warns Biden’s economic agenda is ‘increasingly dangerous’ and ‘inflationary’

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Summers said during a Tuesday event staged by the Peterson Institute for International Economics that he largely supported the Inflation Reduction Act, which included large subsidies for green-energy producers, because it is “overwhelmingly important that the United States have a strong, aggressive climate strategy” and the CHIPS Act because there’s a national-security argument for producing semiconductors within U.S. borders.

“I think one should distinguish what the administration has mostly done, a large part of which I agree with, from the administration doctrine, which I think is increasingly dangerous,” he said.

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Summers argued that the Biden administration is taking its eye off the ball when it comes to inflation, which he sees as a major economic problem facing the U.S., noting that real wages for the average American, which account for the impact of inflation, are below what trends would have predicted prior to the COVID-19 crisis.

“It’s right to be concerned about the environment, and it’s right to be concerned about [supply-chain] resilience. It’s wrong to suppose that manufacturing-based economic nationalism is a route to higher incomes or better standards of living for the middle class,” Summers said.

Summers, who served in economic advisory roles in the Clinton and Obama administrations, lamented President Biden’s “non-attitude toward trade,” which he sees as working to de-emphasize seeking new trade agreements with economic partners.

He argued that free-trade agreements over the past 50 years have lowered costs for U.S. consumers and helped create good-paying jobs at home, despite successful political efforts to tarnish these treaties as responsible for the loss of manufacturing jobs.

He lamented the Biden administration’s decision to maintain tariffs on imports of some Chinese goods that were put in place during Donald Trump’s presidency as a missed opportunity for reducing inflation.

He pointed to the fact that the number of workers in U.S. steel manufacturing are just 1% of the total number of workers in industries that use steel in their manufacturing processes. “All of those industries suffer when steel prices are increased as a consequence of protection,” Summers said.

He also took aim at the Biden administration’s efforts to ramp up enforcement of antitrust laws as potentially “inflationary.” He said that new merger guidelines issued last week “discard as the animating principle of antitrust, the idea of lower consumer costs and greater consumer welfare.”

Despite these policies, inflation has fallen to 3% in June from a 40-year high of 9.1% one year ago, as measures by the Bureau of Labor Statistics’ consumer-price index, though some economists fear this reduction is due in part to unsustainable decreases in energy prices.

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