Must-Read: What Larry Summers says:

Larry Summers: What You Need to Know About the Next Recession (Starring Donald Trump): "How should we respond to the next recession?...

...The possible election of ‘Demagogue Donald’ dwarfs congressional dysfunction as a threat to American prosperity... make[s] political risk of the kind usually discussed in the context of Argentina, China or Russia relevant to the United States. How else to interpret threats to renegotiate debt, prosecute insubordinate publications and rip up treaties? Creeping fascism as an issue dwarfs macroeconomic policy!...

On current forecasts the economy will have performed as badly over the 2007-18 period as it did over the Depression period from 1929-40. The single most important issue for containing government debt burdens, increasing national security, encouraging more generosity toward the poor and raising middle-class standards of living is accelerating U.S. economic growth.... Fiscal policy is now important as a stabilization policy tool in a way that has not been the case since the Depression.... When recessions come, the Federal Reserve normally reduces real rates by four to five percentage points. But there will in all likelihood be nothing like this amount of room when the next recession comes.... The Fed has unconventional tools at its disposal.... But I think it is very unlikely that additional stimulus equivalent to more than 1.5 percentage points of Fed easing is feasible....

.There is an additional case for fiscal policy. The economy as it now stands requires remarkably low interest rates to grow adequately. These rates are an invitation to leverage, to reaching for yield, to financial engineering and to bubbles. Raising rates significantly, as many suggest, without doing anything else risks recession. So the right strategy is to raise demand so as to make financially sustainable growth.  This comes back to fiscal policy along with measures such as tax, regulatory and immigration reform to spur private demand.... The decline in U.S. infrastructure investment is indefensible.... Other areas in which fiscal support seems desirable include housing--where residential investment still lags badly--and support for social security... good economics when, as at present, the growth rate far exceeds the government borrowing rate....

Much of what economists thought they knew about macroeconomic policy needs to be reassessed in light of events. Just as the events of the 1970s and the emergence of stagflation throughout the industrial world led to new policy paradigms, I believe that recent events will force us to develop new approaches to thinking about economic fluctuations and inflation that will drive major changes in thinking about fiscal and monetary policy.

https://www.washingtonpost.com/news/wonk/wp/2016/05/24/larry-summers-what-you-need-to-know-about-the-next-recession-starring-donald-trump/

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