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**JUNE 1, 2022**
Kuttner on TAP
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**** Deflating Larry Summers
Once again, he doesn't check his facts and gets inflation wrong.
Larry Summers is at it again, misstating the connection between wage
growth and price inflation. In an extended interview
quoted in Tuesday's
**Washington Post**, Summers said, "I don't think there's a durable
reduction in inflation without a meaningful reduction in wage growth."
But Summers evidently failed to check the actual numbers. The estimable
Josh Bivens of EPI did. As Bivens reported in a recent piece
,
wages have been lagging well behind inflation, not driving it. Bivens is
worth quoting in detail:
To date, the rise of inflation has unambiguously
**not** been driven by tight labor markets pushing up wages.
Nominal wage growth has ... lagged far behind inflation, meaning that
labor costs are dampening-not amplifying-price pressures. Last
week's jobs report
showed that average hourly earnings growth over the last quarter was
4.4% (at an annualized rate), with wage growth actually slowing in the
last three months to under 4%.
If the only change in the economy over the past year had been the
acceleration of nominal wage growth relative to the recent past, then
inflation would be roughly 2.5-4.5% today, instead of the 8.6% pace it
ran through March.
**In short, nonwage factors are clearly the main drivers of inflation**.
(emphasis added)
Summers, in the same interview
,
flagrantly misstated the actual numbers. He said, "We now have wage
inflation running at a close to 6 percent rate." In fact, it was 3.7
percent in the last quarter, down substantially from 5.4 percent in
2021.
Just to rub it in, Summers added, "I don't see how we can get
inflation to substantially decelerate without wage inflation falling
substantially, and I don't see any reason to think wage inflation will
fall substantially unless there's a substantial loosening in labor
markets, which would mean higher unemployment."
In reality, labor markets are already looser than they were at the peak
of the recovery. Other economists, notably those at the Fed and the
Congressional Budget Office, expect inflation to start subsiding later
in 2022 and to keep moderating in 2023.
In its May 25 update
,
CBO projected inflation to fall to just 3.1 percent next year, and then
2.3 percent in the year's fourth quarter. Summers, having bashed
CBO's forecast, helpfully said in his
**Post** interview, "I think the CBO has been a bastion of credibility
over time."
Summers keeps getting things wrong-not just the interpretation but the
easily available data. Why is he taken seriously? Maybe because he tells
corporate elites what they want to hear. Want to fix the economy? Cut
workers' wages!
~ ROBERT KUTTNER
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