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Larry Summers on economic recovery: 'I worry about trying to operate in an environment of very, very low interest rates for the long term'

Ines Ferré
·Markets Reporter
·3 min read

The elections, concerns over the economy and the need for stimulus were some of the topics talked about during a chat on Thursday between economists Lawrence Summers and R. Glenn Hubbard.

The two economists have served roles under administrations on opposite sides of the aisle, so some of their views differed on how to best position the economy during its road to recovery.

“I’m not pessimistic about a package, but I think it’s going more moderately sized” than under a blue wave– type of scenario, said Hubbard during the virtual meeting held by the Economic Club of New York on Thursday.

“I would say that if we can center on aid to states, continuing to shore up unemployment insurance and thinking hard about some new kind of program for businesses; that, to me, would be an excellent package,” he said.

Summers agreed on various fiscal points — including a need for an infrastructure program. When it comes to aid for companies he said, “I think I’m a little less enthusiastic about business relief than you are. I think we need to be very careful about indiscriminate bailing out.”

He went on to say, “For example, if airlines are going to get financial assistance quite possibly they need to come with substantial large opportunity for the government to share in upsides, and I think that should be a more general principle than it has been so far.”

“I think as you look to the medium term, you look to a period where we’ve had a vaccine and put COVID behind us, people have run down the excess savings they’ve accumulated,” he said.

“I think we’re looking at an economy that is going to be problematic in terms of growth with normal budges and with even interest rates near zero,” he said.

“I think those interest rates near zero, are going to be an ongoing challenge to financial stability because they’re going to blow up asset prices to potential bubble levels, “ he said.

Director of the National Economic Council Lawrence Summers arrives for the tax cut extension bill to be signed President Obama during a ceremony at the Eisenhower Executive Office Building in the White House complex, Friday, Dec. 17, 2010, in Washington. Obama is expected to announce a replacement for Summers early in the new year, soon after he returns to Washington from his Hawaiian vacation. (AP Photo/J. Scott Applewhite)
Director of the National Economic Council Lawrence Summers arrives for the tax cut extension bill to be signed President Obama during a ceremony at the Eisenhower Executive Office Building in the White House complex, Friday, Dec. 17, 2010, in Washington. Obama is expected to announce a replacement for Summers early in the new year, soon after he returns to Washington from his Hawaiian vacation. (AP Photo/J. Scott Applewhite)

The Federal Reserve has signaled it plans to keep interest rates near zero through 2023.

Summers cites what happened through the decade of the 2000s.

“Even with the rather substantial fiscal expansion associated with the Bush tax cuts, the Iraq war, and the prescription drug benefit, it was necessary to push interest rates to extremely low levels. To maintain the forward motion of the economy,” said Summers.

“And at those very low levels, we set off a whole range of financial behaviors that contributed to the financial crisis,” he added.

“Yes we have better regulation now. But I worry about trying to operate in an environment of very very low interest rates for the long term, in terms of what that will mean for financial stability,” he said.

“So I tend to put more emphasis on public investment solutions, somebody else might want to put more emphasis on the promotion of private investment,” he said.

Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre

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