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‘A Dangerous Level of Groupthink’

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Former Treasury secretary and Harvard University president Larry Summers was right to be pessimistic. The economist, long a prominent but polarizing figure, loudly warned that Democrats’ 2021 stimulus package would lead to high inflation. Summers’s prescience — and correct view that the phenomenon would persist — has positioned him as perhaps America’s most in-demand economic prognosticator. I spoke with him about the latest inflation data, how bad a recession could get, and why so many experts failed to read the monetary warning signs last year.

There seemed to be little good news in Wednesday’s inflation report, with the consumer price index coming in at a 41-year high of 9.1 percent. What was your initial reaction to these numbers?
These were discouraging numbers. Nobody can suppose that inflation is under control when three-month core inflation exceeds six-month core inflation and six-month core inflation exceeds 12-month core inflation. Inflation in today’s report is pervasive and particularly pronounced in persistent components like housing and medical care. Team Transitory was extremely selective last year in failing to recognize housing and medical-care inflation.

President Biden called the new numbers out of date, noting that gas prices have been falling steadily for most of the last month. Others have pointed to data showing that demand in some sectors, like apartment rentals and home sales, may have peaked. But we’ve been hearing this refrain that the worst is behind us for many months. Do you think there’s any validity to it this time?
One of these months it will turn out to have peaked, but core inflation is now running more than three times as rapidly as its target level, and that entirely excludes energy and food commodities. Inflation will come down at some point, but it is unlikely to be a soft landing without economic pain.

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