Larry Summers, Biden, Vice President discussed on Bloomberg Radio New York Show
I'm Christopher Cruz Thiss is Bloomberg Wall Street Week with David Westin from Bloomberg Radio to take us through the economy under President Trump? We convene on our virtual roundtable contributors, Larry Summers, who served under President Clinton as treasure secretary and then as the director. Of the National Economic Council under President Obama and Glenn Hubbard, who served as chairman of the council Economic Advisers under President George W. Bush. So let me start since we're talking out of AA candidate for President Trump on the Republican side, Glenn, we start with you. When you hear the plans that were being told for the second four years will they get us that full employment that President Trump really promised? Well, I think conventions are obviously great Theatre. The president was pointing back to the pre covert world and he could point to some good successes. He did have success with the economy. Unemployment was very low market valuations were very high GDP growth was solid. I think he could well point to the tax cut on Jobs Act on he could point to his regulatory agenda. Having said that there is uncertainty about trade policy and what missing was missing to me was a since war of the future. Hey, talks about make America great again. I'd like to see Make America flourish again. What would it take to get every American to participate and prosper? I think their ideas their on the Republican side, But I wish Maura them had been at the GOP convention. Eso lo really bring you in on the other side of this is that word is what you heard from. Former vice president Biden gonna get full employment either when he's talking about something $3.8 trillion in new taxes. Is that what this economy needs right now? This economy needs a serious program of public investment. And some part of that public investment programme will pay for itself. And some part of that public investment program is rational to finance with debt. Some part of that public investment program probably should be paid for with tax increases, especially when those tax increases would make the economy fairer. Dad would also make the economy more efficient. We don't serve any useful purpose. By failing to collect $500 billion a year, most of it from the highest income people because we don't do a competent job of enforcing the tax law. We could move towards fixing that raised trillion dollars over the next decade from high income people and close tax shelters at the same time. We've got a variety of loopholes and special breaks that divert resources into inefficient uses and cost the government a ton of revenue. A famous carried interest provisions is one example in that regard. Those are candidate for rational tax reform, but at the same time would finance government doing what it needs to do. Time for that. I think there are people who have the idea that caused by envy. We should have tax increases in order to tear down the ridge. I think that would be a mistake. There are people who had the idea that we should have tax increases for the sake of having tax increases or justice a device for reducing the deficit. I think that's a mistake. What should we pay for some portion over time of the Huge public investment We need Yes, I think way we should. And I think that's the spirit in which Vice President Biden has talked about a tax increases so clean. What about it here from Larry that it's a matter of public investment, which really is what we need right now on the Republican side for President, Trump said. Let's cut the capital gains tax will private investment Is that the most efficient way really get investment, or is Larry right? Well, I think public investment is very important. We need a strong infrastructure program, not just physical but also technological. We're seeing that play out before our very eyes. It's hard to disagree with Larry on issues like avoiding tax avoidance. Of course, we should do that. Having said that is Vice President Biden serious about a large tax increase on business and business owners? In a recession or an incipient recovery. We've got very large proposed increases in the corporation tax on individual tax rates and the most radical expansion of the payroll tax not to be used for Social Security. Do you be used for other purposes, So the Biden plan may have been developed at a time and a place but we're not at that time in that place. So while I don't disagree with Larry, it's not really the Biden plant. Okay. So fairly quickly, Larry. More or less yes or no? Do you think Vice President Biden is serious about that $3.8 trillion tax increase? I think Vice President Biden He is serious about a major increase in public investment and paying for an important part of it, though not necessarily all of it. And I think that's the right thing to do. I do not think that it's anybody's intention to impose a major new set of austerity on the current economy. Glenn and I may have a disagreement the business community before the Trump tax cuts thought it would be fantastic at the corporate tax rate cut to 25. Percent. In fact, it was cut to 21%. There were a scent of tax cuts proposed for non corporate businesses that nobody was even asking for. I think we should repeal and replace some of that and use the revenues to push the economy forward for everyone. And I think that is the right thing to do. And that's the spirit of the of the Biden Planas. I understand Larry. I think you get a victory lap this week because over five years ago you wrote the financial times, and I'll quote it. The Fed could inject much needed confidence in the economy today and minimize future risks by announcing and following a strategy of not raising rates until it sees the whites of inflation's eyes as best. I understand that's sort of what J Paul said. This week isn't just more lies exactly what he said. I think, he said two important things. He made clear that the 2% figure was a two sided target. After a decade of being below 2%. It would be okay with him if we're above 2% For a while and we weren't being religious about 2% is the ceiling. That's what I and many others have been advocating for a long time. And he also said that he was going to reject what has been a Fed staff preoccupation for a long time. The Phillips curve idea. That we should stop the party before it gets started by raising rates. When it looks like the economy is going to be really strong and unemployment, it's going to be low and wages. We're going to rise fast. The last last people to be higher or going to be hired, and employers are going to be reaching for less skilled workers and those with some blood on their backgrounds. That we're not gonna cut off the economy's growth when those kinds of things happen until we actually see inflation materialized by those air to welcome welcome and frankly overdue changes in Perspective from the fat and they're things that I've been calling for for half a dozen years in recognition of the fact that our economy is basic problem. Isn't an inflationary gap. It's a deflationary gap where saving succeeds investment and that pushes interest rates too far down. Causes money to flow into liquid assets that then get inflated and caused bubbles on DH risks. Too much sluggishness in the economy. So I think the bad has Moved a substantial distance in the right direction. I think they still got some way to go in terms of recognizing the limits of what they're able to Dio and Putting the right kind of pressure on other policies to pushed a man forward. Well, let's talk about those limits. Exactly. Glenn. Let's assume you agree with Larry. They essentially more or less from better late than never, But same time. Is this the cure for what ails us right now? Because this doesn't get rid of Corona virus. It doesn't get increased productivity. It doesn't get gross going. This story does it? I think it's a It's a good step. I, too, have called for average inflation targeting for some time, but it's not a free lunch, and it does give the Fed room to let the economy run hot. It's a good thing..