Former Treasury Secretary and economist Larry Summers told Bari Weiss that the Federal Reserve has lost credibility due to a string of poor decisions.
Weiss asked Summer if he thought that “institutions like the Fed are well prepared to navigate all of the crises” the economy is facing right now.
Summer argued that the Fed’s past decisions have damaged its reputation, making it harder for the public to put faith in the central bank as it deals with historically high inflation.
I believe the Fed has made a number of poor decisions, most notably in the year 2021. “Their inability to do what is required is a direct result of their poor decision-making,” Summer said. It is more challenging to be a leader when people do not respect you.
Weiss continued by pointing out how, as of late, government officials have been trying to play down worries about inflation and the recession, assuring the public that the difficulties are only “transitory” Summers warned that people shouldn’t “extend their unquestioning trust to any institution.”
Summers speculated that “some belief that the Fed knows best” contributed to the problem. “Economists may be especially reluctant to challenge the views of the Federal Reserve.”
When asked about economist John Maynard Keynes’s famous quote, “I changed my mind when the facts changed,” Summers said Keynes was right.
My guess is that “many people” aren’t open to changing their minds in light of new information.
According to a recent study by the Penn Wharton Budget Model, the Inflation Reduction Act will have “statistically indistinguishable [impact] from zero,” and yet Summers still declared himself “happy” with the legislation.
Summers expressed doubt about the study, saying it “underestimates the revenue gains from increased tax enforcement in the bill” and ignores several “non-macroeconomic factors.”
Summers, who reportedly persuaded Democratic West Virginia Senator Joe Manchin to support the bill by citing his contributions, said, “I am happy with [the bill]” in an interview. I don’t anticipate that it will significantly curb inflation as its main effect. But I do believe it will serve some crucial national interests in terms of defending the environment, increasing access to healthcare, and streamlining the tax system. Inflation will be lowered as a result of this process.
With the intention of taming spiraling inflation, lawmakers passed the so-called Inflation Reduction Act, which subsidized healthcare and energy costs. Even with the bill’s tax increases, the deficit is only expected to be cut by $248 billion, while the legislation will have a negligible effect on rampant inflation, the analysis found.
Although Manchin once opposed massive spending bills during times of high inflation, he has since reversed his stance.
After being asked by the Daily Caller for comment on Summers’ remarks, the Federal Reserve declined.
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