Summers Says Growth Healthy, No Need for Jobs Panic (Transcript)
Former Treasury Secretary Lawrence Summers said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend, that he expects healthy economic growth in the U.S. this year and next and doesn’t see a “need to panic” over a March employment report that shows slowing job creation.
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
AL HUNT: We begin the show with Larry Summers, former Treasury secretary and national economic director for President Obama. Thank you for being with us, Dr. Summers.
LAWRENCE SUMMERS: Good to be with you, Al.
HUNT: Disappointing March jobs report. What are the chances that the economy is losing momentum after a strong start?
SUMMERS: It wasn’t a great report. Probably better than it looked. The previous month’s numbers were revised upwards. The average workweek was pretty good. The unemployment rate went down. But it’s hard to feel better after the report than one felt before.
There was a sense that the first quarter might come in above 3 percent. I don’t -- I don’t think we’ve got growth above 3 percent locked in for the year by any means. But I don’t think we need to panic over this report by any stretch. I think the basic momentum of an economy that is growing and is growing at a rate that is closing the unemployment gap, that’s probably still there, but we certainly could use more confidence, we certainly could use more demand, we certainly could use fiscal policy being in a different place.
HUNT: If we don’t achieve 3 percent growth this year, what do you think we will achieve? And what will - what - what will we achieve next year?
SUMMERS: My guess is still that we’re going to be north of 2.5 percent this year and that it’s going to accelerate into next year.
HUNT: Above 3 percent next year?
SUMMERS: You’ve got a good chance for above 3 percent next year. You’ve got a number of things. You’ve got housing, which is really starting to turn. You have a stock market that’s been robust, it’s created wealth, that’s going to drive spending. You have consumer balance sheets that have improved. People are less in debt. You have an energy sector that’s got a lot of opportunity in it in the United States in a way that most people didn’t expect.
HUNT: But you’ve generally supported the Federal Reserve’s quantitative easing. How soon do you think the central bank needs to ease off? And how real is the worry that ultimately -- not short term -- ultimately it’ll lead to serious inflation?
SUMMERS: Old Treasury secretary habits die hard, Al, and so I’m not going to prescribe or describe regarding the Fed. It is still the case right now that the risks in the United States of the kind of mistake we made in 1937 or the kind of mistake that’s been made repeatedly in Japan, where you never get all the way back to normal, are greater than the risks of what was the case in the United States in the 1970s, where you misjudged the situation and let there be stagflation.
But, look, you’ve got to be watching it every minute. You’ve got to be watching all the indicators on inflation, all the indicators on tightness in labor markets, tightness in product markets, and at the Federal Reserve, you have to be thinking very carefully about exit strategy, as well as entrance strategy --
HUNT: You mentioned -
SUMMERS: -- so it’s a -- it’s a very complicated balance that needs -- that needs to be struck, but, yes, I do think at this point the risks of slowdown still significantly exceed the risks of an acceleration of inflation. But anyone who is completely serene about either I think is making a real mistake.
HUNT: You mentioned Japan. The Bank of Japan (8301) just took a really radical step, more radical than the Fed, with the -- first of all, was it the right step, do you think? And their goal is to dampen down or end deflationary expectations, while still producing an increase to a manageable inflation rate of about 2 percent. Do you think it’ll work? And was it a right move?
SUMMERS: I think the impulse to discontinuity was right in Japan. The path they were on wasn’t working for them. Debt was rising, and prices were falling. The economy was falling. It was like the old Al Gore thing about what’s up should be up and what’s down should be down, and it was exactly the reverse in -- in Japan.
Whether this -- they are really in uncharted territory, and I think the world’s going to learn a lot from their experiment, Al. I do think they were right to be moving -- moving strongly, and I think on the evidence of the Japanese stock market, on the evidence of expectations in Japan over the last several months, you’d have to say that there’s a positive verdict on what they’ve been doing so far, but when you’ve had macro- economically irresponsible policies in the past, they often produce benefits that are very great for the first number of months and, like coiling a spring, provide for problems later.
So I think that it’s a -- it’s a bold -- it’s a bold experiment they’ve undertaken in Japan.
HUNT: Let’s shift to Europe, where there is austerity, which I think you think has been overdone or it’s a mistake. I guess what I really want to ask you is, what are the consequences? Could democracies be threatened by this all pain and no gain for a long time?
SUMMERS: You know, could -- could this all work out? If you look at what markets are pricing, they’re certainly assigning much less risk to Italy and Spain than they were nine months ago or a year ago, and that has got to say that something there is - - is working. But it seems to me the awkwardness with which they handled the Cyprus situation has got to have created a substantial sense of unease in Europe, and that is something that I think is worth worrying about.
HUNT: Let me come back home again. Corporate or individual income tax reform, do you think either has a chance? What are the prospects?
SUMMERS: I don’t think either is an odds-on bet at this -- at this point. I do think that it’s -- of all the propositions that there are, probably there are none that would command support across a wider range of economists than the idea that a broader base and a lower rate is fairer and makes the economy grow --
HUNT: But -- but not likely to happen.
SUMMERS: -- makes the economy grow better. But you’re better at political prognostication than I, Al, and I wouldn’t be betting on it.
HUNT: President Obama’s budget came out. Does he have the right mix of entitlements cutbacks and tax hikes? Would you alter it a little bit? And you see what’s happened in the last couple years. Do you think there’s any prospects for a grand bargain?
SUMMERS: I think President Obama’s budget is -- doesn’t have all the elements that he would prefer; it certainly doesn’t have all the elements that I would prefer, all the mix that many people on his side would prefer. But I think it’s a budget that will remove a lot of excuses for those who do not want to negotiate.
HUNT: You think Republicans will eventually have to negotiate?
SUMMERS: You know, what they’ll decide to do, I wouldn’t presume to try to judge. But President Obama’s budget is balanced. It recognizes that entitlements have to be part of an ultimate solution. It recognizes that civilian spending has to be part of a solution.
HUNT: Dr. Larry Summers, thank you so much.
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