Inflation has a way of taking policy-makers by surprise. It’s very clear that Larry Summers does not believe that the administration was paying sufficient attention to the inflationary risks posed by the spending bill passed earlier this year.
Larry Summers, a former top economic adviser to President Obama, said Wednesday that President Biden‘s White House has been “behind the curve” in their predictions about rising prices during the coronavirus pandemic.
“I think that the policymakers in Washington unfortunately have almost every month been behind the curve,” Summers said on CNN. “They said it was transitory; it doesn’t look so transitory. They said it was due to a few specific factors; doesn’t look to be a few specific factors. They said when September came and people went back to school, that the labor force would grow, and it didn’t happen.”
Summers, who has for months warned about inflation tied to the $1.9 trillion coronavirus relief bill passed by Congress this spring, said he hoped the Biden administration’s predictions about the inflation being transitory would pan out but urged officials to prepare for a more dire scenario.
“My experience is that you should hope for the best and plan for something much less than the best. I think that means stronger actions by the Fed, it means the administration has to be thinking about inflation,” Summers said.
(For more on Summers’s earlier comments, please check out this earlier Corner post by Rich Lowry.)
We’ll have to see what the Fed comes up with, but, for now, it’s hard to see many signs that the administration has learned very much from its earlier blunders. Summers doesn’t appear to be worried that the next two big spending bills will prove inflationary (I’m not so sure: The money will start to flow long before any productivity gains they may generate, and the associated tax increases are likely to discourage investment, and thus production, but time will tell.) He should, however, be concerned about what the war on fossil fuels is going to mean for the cost of energy.
The president himself appears to be unwilling to connect the dots, in public anyway, mainly contenting himself with calls to the nice people at OPEC to boost production, which they have rebuffed.
Senator Manchin, however, seems to be paying attention.
In a tweet, Manchin said “the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse.”
“From the grocery store to the gas pump, Americans know the inflation tax is real and DC can no longer ignore the economic pain Americans feel every day.
Manchin also appears to understand that inflation cannot safely be confined to one product. Once it’s loose in one area, it has a way of spreading to others.
And so does alarm.
U.S. consumer sentiment plunged in early November to the lowest level in a decade as surging inflation cut into households’ living standards, with few believing policymakers are taking sufficient steps to mitigate the issue, a widely followed survey published on Friday showed.
The University of Michigan’s Consumer Sentiment Index plunged to 66.8 in its preliminary November reading from October’s final reading of 71.7. That was the lowest level since November 2011 and was far short of the median estimate among economists of 72.4 in a Reuters poll.
The next big question: If “transitory” is dead, how long will not-transitory last?