WELCOME BACK, CARTER: Larry Summers: ‘The situation continues to resemble the 1970s.’
I’m probably as apprehensive about the prospects for a soft landing of the U.S. economy as I have been any time in the last year. Probably actually a bit more apprehensive. In a way, the situation continues to resemble the 1970s, Ezra. In the late ‘60s and in the early ‘70s, we made mistakes of excessive demand expansion that created an inflationary environment…
And so now I think we’ve got a real problem of high underlying inflation that I don’t think will come down to anything like acceptable levels of its own accord. And so very difficult dilemmas as to whether to accept economic restraint or to live with high and quite possibly accelerating inflation. So I don’t envy the tasks that the Fed has before it.
…I think it’s very important not to be shortsighted and to recognize that what we care about is not just the level of employment this year, but the level of employment averaged over the next 10 years. That we care not just about wages and opportunities this year, but we care about wages and opportunities over the long-term.
And the doctor who prescribes you painkillers that make you feel good to which you become addicted is generous and compassionate, but ultimately is very damaging to you. And while the example is a bit melodramatic, the pursuit of excessively expansionary policies that ultimately lead to inflation, which reduces people’s purchasing power, and the need for sharply contractionary policies, which hurt the biggest victims, the most disadvantaged in the society, that’s not doing the people we care most about any favor. It’s, in fact, hurting them.
The “Ezra” Summers name-checks in the above interview is Ezra Klein, formerly with The American Prospect and “Young Adult Website*” Vox.com, now with the New York Times. Ezra may want to dust off his 2009 TAP post on why Carter’s Malaise Speech really wasn’t such a bad moment after all.