Lawrence H. Summers Professor and President Emeritus at Harvard University, Former Secretary of the Treasury for President Clinton and the Director of the National Economic Council for President Obama joins Yahoo Finance's On The Move to discus the ongoing stimulus stalemate and what it means for millions of Americans.
ADAM SHAPIRO: Welcome back to Yahoo Finance "On the Move." We want to jump right into the discussion about stimulus. And to do that, we invite into the stream Larry Summers, former secretary of the Treasury as well as a director of the National Economic Council under President Barack Obama.
Mr. Summers, we got to talk to you about something you said earlier when you said everybody makes mistake focusing on the size of a stimulus package, as opposed to the duration of the package. But within the last hour, we've had President Trump boasting about the fact that he will hold up the stimulus negotiations with Congress, because Democrats want $25 billion to help fund mail-in voting. What do you think of the president boasting about holding this up?
LAWRENCE H. SUMMERS: I think the president is acting with epic irresponsibility. The consequence of not continuing the stimulus that has mitigated our economic problems to whatever degree they have been mitigated are likely to be catastrophic. This is the kind of political posturing and government abdication that under Herbert Hoover made the depression-- made the depression great.
It is unfathomable to me that at a time of such evident distress, that the president would stop money from going to hungry households, families with breadwinners who are out of work through no fault of their own would be denied support at a time when the post office is run-- being run by a crony of the President of the United States with serious ethical issues.
The idea that buttressing the post office so that it can meet its basic democratic obligations seems utterly natural and appropriate. I wish I could say I was hugely surprised that the president would act like this. I'm not, given the track record. But that it is not unexpected, does not make it any less unwelcome or unconsequential for our nation's economy and for the American people.
JULIE HYMAN: Larry, it's Julie Hyman here. So the president of course has signed an executive order to try to get money into people's pockets, although it's unclear exactly how that's going to play out. When you look at these stimulus discussions, how do you think-- what do you think that the two sides should be prioritizing here? Is it the actual stimulus checks? Is it the duration? Is it the size? Are there other things they need to be thinking about? What's most important?
LAWRENCE H. SUMMERS: Number one, making sure there's adequate resources, which we currently lack, for prompt-- with prompt results, testing, and contact tracing, and when the time comes, for vaccine testing and vaccine distribution. 5% of any stimulus should be devoted to directly fighting COVID, which is the primary source of our woes.
Number two-- support for state and local governments on the front line-- doing whatever we're going to be able to do for kids being educated, making sure we're able keep the streets safe, making sure that we're going to meet the increased health care needs outside of COVID at a time like this-- for example, in the mental health space after people have been driven out of their routine is going to be expensive. And state and local governments' revenue capacity with reduced sales tax collections, fewer people working and earning, has collapsed.
The second priority-- large-scale support for state and local government. Third priority-- we are going to be with this and with these problems and with shortfalls of demand for a long time to come, and so we need to begin a massive public investment program directed at renewing America's infrastructure, broadly defined-- everything from adequately clean water to 5G technology. And that should be the third priority in the stimulus bill.
Fourth, we need to maintain the level of unemployment insurance benefits. I think there are argument for modifying the $600. But the problem is with the design of the benefit, a flat benefit rather than with the level of support that's being provided to people who are desperate in terms of their ability to provide for their families. So support for those most affected, support for overall public investment, support for state and local governments, and support for the fight against COVID-- those should be the right priorities, and they should define a period of substantial government spending for quite some time to come. We have much more to [INAUDIBLE] from spending too little than from spending too much.
BRIAN CHEUNG: Hey, it's Brian Cheung here. So the third point that you made about demand-- it seems like that falls into your thesis about secular stagnation, the increasing in savings, which could keep us kind of in a slow growth environment for a while. I'm wondering, has the COVID-19 crisis accelerated the long term damage that we might expect to see to the US economy-- whether or not that's the labor market. I guess another way of phrasing this is, is there a way we can ever get back to 3.5% unemployment in this country?
LAWRENCE H. SUMMERS: Never say never, but events like this cast a shadow forward. The lost opportunities to be in school last spring and to be in school this fall are likely to have a continuing consequence on the skill levels and ability to get good jobs of our young people. 30 years later, people who came out and looked for their first job during the 1982 recession are doing less well than those that came out in 1979 or 1985.
So these kinds of periods of deprivation definitely do cast a substantial shadow forward. And that's why we need to do as much as we possibly can to mitigate it. We may not succeed in mitigating every aspect, but our error should be trying to do too much rather than engaging in stupid holdup battles over irrelevant issues, like trying to screw up the post office.
JULIA LA ROCHE: Professor Summers, it's Julia La Roche, and it's great to be with you again. I would like to get your thoughts on the upcoming election and if you had any view as to how you think that might play out. And then moving forward, depending on which administration-- let's say it's the Biden administration-- how they might handle the series of crises that we are going through, and how that might play into your own thesis as to what a recovery might look like.
LAWRENCE H. SUMMERS: It's not secret I think Donald Trump has been the worst of America's 45 presidents. I think he's doing grave damage every day, both in terms of the incompetence with which we're dealing with problems like COVID and in terms of the erosion of American institutions and the rule of law, traditions for respect of all Americans. So I'm very much hoping that President Biden and vice presidential candidate Kamala Harris will be elected.
My best guess is-- nobody knows these things-- is that they will, in fact, be elected. And I think they will bring three things. I think they will bring a return to traditional norms of American civility and seriousness of purpose-- whether the issue is listening to public health professionals on a disease, whether the issue is consulting in civil ways with our allies on matters of international concern, whether the issue is engagement with all Americans being treated equally rather than appealing to racism. They will return to the great American tradition.
Second, I think they put forth powerful ideas for addressing some of the most pressing problems that we face-- whether it is rebuilding the economy and sustaining the globe through aggressive programs of green investment, whether it is having a health system that can provide security for all Americans, whether it is having a set of tax rules and a set of rules on how corporations function and how labor market institutions were that can redress the grievous trends caused inequality we've seen in the last 20 years.
I think they've laid out an impressive and ambitious program. And I think if they received the mandate that I hope they will, I think there's a very good chance that a substantial part of that program can be enacted and enacted quite quickly. And I might just say to some of your listeners, that I know that there is a concern that Democrats or progressives are somehow anti-business. I'm certainly one who, at times, has felt he had to warn against those excesses.
But I can tell you that the data are remarkably clear-- that on average, the stock market, on average, corporate profits do better during Democratic administrations than they do during Republican administrations. And so it's not just the little guy that does better, it's actually capital and corporate America that does better. And that's because the foundation of our economy is the middle class. And when you have policies that are based around supporting the middle class, it ends up being better for everyone. And when you have policies that rely on a trickle-down theory, it's not even best for those who have bought the implementation of those policies.
ADAM SHAPIRO: Larry Summers is a former secretary of the US Treasury as well as the director of the Economic Council under President Barack Obama. We appreciate your being here, Mr. Summers.