Markets are underestimating the potential for fiscal turbulence under a Donald Trump presidency that poses “enormous risks to the global economy,” according to Harvard professor and former U.S. Treasury Secretary Larry Summers.
During an interview with Bloomberg Television on Tuesday, Summers said that the global economy was entering a period of “extraordinary uncertainty,” with the possibility of protectionist measures and unprecedented changes to foreign policy looming.
“This is probably the largest transition ideologically and in terms of substantive policy that we’ve seen in the U.S. In the last three quarters of a century,” Summers said. “Those kinds of transitions have to be—given the central role of the U.S. In the global system—matters of enormous uncertainty. I don’t think that’s fully recognized by markets.”
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U.S.-driven political risk has yet to rumble markets, and investors are staying positive as Trump’s Jan. 20 inauguration draws closer. The S&P 500—bullish on economic growth and fiscal stimulus packages—rose almost 10% in 2016 and is close to a record high, Bloomberg reports. The Dow Jones also climbed 13% last year.
But Summers sees scant cause for optimism. He described the Navarro-Ross paper, published in September to outline Trump’s plans for trade and growth as “beyond voodoo economics.”
“The logic of it, the arguments made, are so far out of the mainstream of any kind of responsible economic thinking that they are the economic equivalent of creationism,” Summers said.
