Larry Summers Is Wrong About Inflation

[AZProgressive]

(Snip)

Behind the Curve

When Summers launched his trash-talking campaign against the stimulus last January, market inflation expectations had already been rising for months in anticipation of a big spending boost from the incoming administration.

Wall Street’s expected annual inflation rate for five years ahead (as implied by the price of five-year inflation-indexed bonds) rose from a dismal 1.5 percent in October 2020 — well below the Fed’s 2 percent inflation target — to 2.2 percent in February 2021.

Fed officials welcomed the rapid jump; it was an outcome they had spent the better part of a decade trying and failing to bring about. But according to Summers, this was sheer recklessness. Thanks to a climate created by “intransigence on the Democratic left,” he warned, the White House and the Fed were setting the economy up for a repeat of the horrors of the 1960s and 1970s.

“I’m concerned we’re having a dynamic that is in many ways reminiscent of the 1960s,” he said from his weekly soapbox on Bloomberg TV’s Wall Street Week, “when conflicting demands, great social concern, led thoughtful officials to be too optimistic about what the economy could handle and let things get away from them.”

https://jacobinmag.com/2021/09/larry-summers-inflation-predictions-biden-stimulus-american-rescue-plan-federal-reserve-treasury/

[mopinko]

1. bless his heart.

[Dave says]

16. Lol, perfect!

[House of Roberts]

2. We hear this every time the Dems bail the wealthy out with deficit spending.

Then all the money goes to the top, and the only inflation happens in the stock markets.

The "Fed' screwed up the 60s and 70s by treating the energy cost spike inflation due to the Arab oil embargo, as if it was broad prosperity, raising interest rates, and trapping consumers between rising prices, rising interest rates, and low compensation. The compensation lagged then, as it will now, if they raise interest rates.

[Metaphorical]

6. Inflation due to several factors in the early 1970s ... and today.

The biggest was Nixon's closing of the gold window and the abandonment of the Bretton Woods agreement, largely at the instigation of the big banks, coupled with the US hitting Peak Oil and going from an oil producing to an oil importing country. OPEC became significant at that point in great part because it marked the start of the move towards nationalization of various country's oil markets away from the (largely US-controlled) oil companies at the time. The combined moves meant that there was no floor supporting the US dollar (which had been essentially the proxy for gold in the markets until 1971.

Paul Volcker raised interest rates dramatically in the 1980s because of inflation, not the other way around. High interest rates strengthened the dollar, and added confidence globally that the US was not spiraling out of control. This, in turn, caused inflation to drop dramatically. Reagan was furious, of course, as it created a short recessionary spike, but between that and the formation of the Euro a few years later it tamed inflation, not the other way around.

Today, most of the inflation that is taking place is due to supply chain issues, and reality has almost nothing to do with stimulus money. The pandemic, like nearly every other pandemic in the last five hundred years, goes in waves as variants mutate to become more effective at spreading. It took about two and a half years for the Spanish flu to finally ebb, but there were enough periods where it seemed to be receding that caused people to become lax prematurely, and the same thing is happening now. This, plus a whole slew of factors on the demographic side that's affecting drivers, warehouse workers, longshoremen, and others in the logistical chain, is what's causing prices to spike - supply and demand are out of synch.

Inflation will likely continue for the next year or so then will start to recede as the pandemic finally wanes (assuming that we don't get another variant that's as deadly as delta). It's a slow process, which is why I'm flabbergasted that people are so quick to dismiss supply chain issues as the driving factor. It's so much easier to point to stimulus measures as the culprit, because that's political (and of course, is just another way of giving a tax break to the poor and middle class, which is why the Republicans don't like it).

[Klaralven]

18. It looks like supply is up a few percent, but demand is up more

Global auto production will be up about 8.3%. But it appears that demand had increased over last year enough to clear dealers lots.

https://ihsmarkit.com/research-analysis/global-light-vehicle-production-impacts-now-expected-well-into.html#:~:text=The%20global%20forecast%20for%20light,2.60%20million%20units%20in%20Q2.

Although there is a problem with container ships being delayed off LA, the port is handling a record number of containers.

The Long Beach port is on track to process in excess of 9 million container units this year, exceeding last year’s record of 8.1 million units, the most in the port’s 110-year history. Meanwhile, the Los Angeles port in June became the first western hemisphere port to process 10 million container units within a 12‑month period.

https://impakter.com/cargo-surge-sees-record-number-of-ships-stuck-outside-largest-ports-in-us/

[Tomconroy]

3. Everyone knows Paul Krugman is The Man!

[BootinUp]

4. The source you link to

Trash. Eom

[AZProgressive]

5. I read a variety of Sources

There is a lot worse on the left than Jacobin. I don’t mind Jacobin and also watch their Weekends show with Ana Kasparian.

[USALiberal]

7. Proof??

[zipplewrath]

8. What has Summers ever been right about?

He was wrong about the size of the required stimulus in '09. He was wrong about regulation of Credit Default Swaps. He wasn't a fan of Warren as I recall.

[Mr.Bill]

9. Anyone of these geniuses who thinks inflation

has been less than 20% these last two years has not been to a grocery store or a gas station.

[Sewa]

11. I wonder where these people live

that say inflation isn’t happening. Prices on almost everything has increased in the area where I live. Housing prices have soared. People with fixed incomes are feeling the pain. 💀🤙

[ProfessorGAC]

13. I've Been To Both

Inflation is not 20%. That's a quite extreme claim.
BTW: fuel cost is not included in inflation numbers by the federal government. We can make a good case that should be included, but it's not.
Many first rate economists use a value called Effective Inflation. It includes things, like the cost of gas, using a weighted formula to capture all "normal" life expenditures.
In 2020, due to the period when gas prices plummeted, Effective Inflation was actually negative.
For this year, it's been around 6.2%, but the starting point in 2021 was artificially low.
6.2% is very high, but adjusting for the artificially low starting point suggests about an actual of 2.4%.
20% over 2 years would be an effective inflation of over 9.5% per year. We haven't seen anything close to that for 40 years.

[Mr.Bill]

15. I have a hard time thinking of anything I buy at the grocery store that hasn't

increased by 20%. And gas here has gone from $3.00 to $4.50 a gallon. Now I'm retired and don't use much gas, but gas in this country drives the price of almost everything with about a 90 day lag time.

[ProfessorGAC]

17. I'm Seeing No Such Thing

And, I'm an impatient shopper, so I don't go to do 2 weeks of shopping. I go 3x per week and I can't think of a single item we regularly buy that's gone up 20%, except for chicken which went from very cheap, to sort of cheap.
Gas here peaked at $3.60, but is at $3.16 now. It was $2.85 or so 2 years ago. (Down last year because of the demand drop for 6 months, worldwide.).
Not sure why your area is so different than here, or the greater economy as a whole.

[Fiendish Thingy]

10. Larry Summer is wrong about everything. Nt

[ProfessorGAC]

14. Agreed!

He's a hack. How he reached the level he did is quite a mystery.
He's almost as bad as Kudlow.

[ymetca]

12. Glass-Steagall

should be restored. Anti-trust laws should be rigorously enforced. And the IRS should be clawing back the ill-gotten gains of the wealthy.

All this tinkering around the edges isn't going to stop the next bubble from bursting. They're just trying to stave it off, hoping it's far enough down the memory hole from the last one that they can spin the cause as something other than what it is --too much money in too few hands.