Larry Summers Quietly Changes Tune on Inflation, Admits It’s Transitory

Larry Summers Quietly Changes Tune on Inflation, Admits It's Transitory

Today, former Treasury Secretary Lawrence Summers reversed his position entirely, telling Bloomberg that “transitory factors were pushing inflation up from bottlenecks that are now mean reverting and are pushing inflation down.”

Groundwork’s Acting Executive Director Kitty Richards responded to this blatant reversal and called for the media – and all those who propped up Summers’ misleading predictions – to hold Summers accountable:

“Larry Summers has spent the past two years weaponizing fears of persistent inflation against American workers and families and our clean energy transition, and deriding the many economists who held a different view. Now, exactly two years after calling for ‘Team Transitory’ to ‘stand down,’ it is not enough for him to simply switch sides without reckoning with the damage these arguments have caused.

“The 10% unemployment that Summers repeatedly called for would have decimated the labor market and plunged millions of families into deeper precarity. We never had to throw millions of people out of work under the banner of price stability. Yet Summers pushed this false bargain for years, urging harsh rate hikes at the expense of workers and families.

“The economic evidence is clear: Summers’ prescriptions were not only misguided, but deeply dangerous. It’s time for Larry Summers to stand down – and for the rest of us to stop listening.”

LARRY SUMMERS’ FALSE PREDICTIONS ABOUT INFLATION

• In November 2021, Larry Summers penned an op-ed titled, “On inflation, it’s past time for team ‘transitory’ to stand down.”
• In March 2022, Larry Summers said the Fed’s current policy trajectory was “likely to lead to stagflation, with average unemployment and inflation both averaging 5% over the next few years – and ultimately to a major recession.” In the same op-ed, he said the Fed had made a “momentous error” by “expressing optimism that inflation was transitory.”
• In June 2022, Larry Summers stated in a speech that “we need five years of unemployment above 5% to contain inflation – in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment.” That would mean nearly 17 million people out of work.
• In a June 2022 interview with Barron’s, Larry Summers stated plainly: “Team Transitory is wrong. It’s going to require substantial economic slack – a substantial increase in unemployment and reduction in GDP growth – to bring inflation, running above 8% and accelerating, down to acceptable levels.”
• In July 2022, Larry Summers co-published a research memo that purported to show that only rising unemployment would fight inflation: “The Federal Reserve seeks to cool an overheated US labor market to ease wage hikes and reduce job vacancies, without a painful spike in unemployment. But empirical evidence indicates that these goals have never been accomplished together and remain unlikely now. In fact, fighting inflation will require a reduction in job vacancies and also an increase in unemployment.”
• In July 2022, Larry Summers called Senator Warren’s “attacks” on the Federal Reserve – which correctly addressed the ineffectiveness of the Fed’s blunt rate hike campaign at targeting the causes of inflation – misguided and said “if heeded could have devastating consequences for tens of millions of workers.”
• In August 2022, Summers jointly published a memo that concluded “We find it entirely unconvincing as support for the ‘soft landing’ idea – pushed mostly recently by Fed chair Jerome Powell in his July press conference – that vacancies can decline substantially taking pressure off inflation without driving unemployment way up. Rather the data support our conclusion that vacancies are very unlikely to normalize without a major increase in unemployment.”
• In September 2022, Larry Summers said he wasn’t sure we could restrain inflation unless the unemployment rate increased to 5%, and “to significantly restrain inflation you’re likely to need unemployment for some period at 6%.” The unemployment rate was then and is now below 5%.
• In October 2022, Summers tweeted, “The history of developed countries since 1970 is very discouraging about the prospects of bringing down 8% inflation” and followed by emphasizing “Almost never does high inflation come down fast.”
• As recently as August 2023, Larry Summers insisted that the American Rescue Plan – passed by Congress more than two years prior – sparked inflation that was still at risk of becoming “entrenched.” He insisted that “the idea that bringing inflation down has nothing to do with increasing unemployment” was inconsistent with all macroeconomic conventions.