Larry Summers thinks Jerome Powell might have it all wrong.
Well, not all of it. But a lot of it. Maybe.
Summers, you’re reminded, is a card-carrying member of the gig economy now. As a paid contributor to Bloomberg Television, Summers gets a check to show up every so often on the network’s “Wall Street Week” program, where he complains about monetary and fiscal policy to an attentive mannequin called “David.”
In essence, Summers’s shtick entails doing a Homer Simpson impression: “Boy, everyone is stupid except me.”
This week, he (Larry, not Homer) weighed in on Powell’s Jackson Hole address, which wasn’t so much “address” as it was a short recap of the July FOMC minutes with some minor tweaks to account for developments since they were released 10 days ago.
On inflation, Summers reckoned Powell is too “serene.” “He made a whole set of arguments on the serene side,” Summers said. “He may turn out to be correct [but] I was struck that he didn’t say anything about the housing sector,” Larry continued, noting that, based on a statistic he saw (conveniently) on Bloomberg, new renters are paying around 17% more than old renters on average.
“None of that is being reflected in our price indices and yet, on any common sense definition, that’s surely inflation,” Larry added.
He’s right. And many expect it’s just a matter of time before some of the dynamics associated with the surge in house prices are reflected in various measures of inflation (familiar figure below).
Summers continued. “My guess is you’ll start to see the housing component of inflation show up [and] rise pretty rapidly or if you don’t, it’ll reflect defects in the way we create price indices,” he said. He’s right again.
The problem I have with Larry — and I’ve mentioned this countless times since he started an exciting new career as an on-air curmudgeon — is simply that he has better things to do than sneer at everybody who’s trying to help. God knows Larry has the keys to every door one might need to open in order to actually impact policy, and his iPhone contact list is doubtlessly just a who’s who of America’s policymaking elite, past and present.
He certainly doesn’t need the money, so the fact that this notoriously arrogant fixture of “the establishment” decided to demand Bloomberg pay him for the privilege of bi-weekly Zoom calls, is even more odious (to me anyway) than Janet Yellen cashing huge checks for speaking engagements between stints at the highest levels of the US government.
Whatever the case, Summers went on to suggest Powell might be wrong on the other side of the mandate too. Citing labor market frictions (e.g., record job openings and turnover), Larry said “we’re having far more structural change in the economy as businesses rethink their business model, as people rethink their lives after a year without commuting [and] as the whole structure of the economy changes.”
“You’re likely to see some substantial increase in the level of unemployment that the economy can sustain without excessive inflation,” Summers mused.
Here again, I find myself compelled to say that Larry is probably right. And, as Bloomberg noted in their coverage of their own programming (it must be nice when you can literally create news and then report on it after the fact), this is “a debate that cropped up in the Fed’s July policy meeting, where ‘several’ officials thought the pre-pandemic state of the job market ‘may not be the right benchmark’ to judge when the economy reaches full employment.”
Policymakers may well believe that the unemployment rate can be sustained at even lower levels once the labor market fully heals, while Summers is apparently taking the opposite side of the debate (a different “interpretation of the implications,” as Bloomberg put it), but the point is just that many believe the pandemic altered the way laborers conceptualize of their bargain with employers.
That doesn’t (necessarily) mean everyone, in every sector, will demand more money. But it might well mean that workers in many sectors demand more flexible working arrangements or otherwise rethink what counts as acceptable vis-à-vis terms of employment. After all, corporate America just logged record profits, on record margins, while operating under various virus protocols. Folks like Jamie Dimon insist that a return to full-time office work is somehow a prerequisite if we’re to reestablish pre-pandemic vibrancy and dynamism. Someone forgot to tell JPMorgan’s bottom line, though. You can say the same thing for hundreds of other corporate behemoths.
Of course, remote work (“flexibility”) isn’t an option for some sectors, with leisure and hospitality the most obvious example. In those businesses, the only way to entice workers may well be with higher wages.
Ultimately, then, Summers might be (mostly) right about (most) things. At the same time, though, he seems to have adopted the tried-and-true modus operandi of all “successful” pundits and Monday morning quarterbacks: Whatever it is you’re asked to weigh in on, criticize it and implicitly claim that you could do better if only everything were up to you. Never mind whether, when everything actually was up to you, outcomes were suboptimal.