Summers: Blaming Inflation on Supply Shocks Is Contradicted by Data, the Last Gasp of ‘Team Transitory’

During an interview aired on Friday’s broadcast of Bloomberg’s “Wall Street Week,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers criticized arguments that inflation is due to a supply shock as the last attempt by people who thought inflation was transitory and said that “It keeps bouncing around what the story is.”

Summers said, “I can’t really see a lot of logic” in that view, adding, “Look, the basic fact is that the way you tell a supply shock from a demand shock, both of them raise prices, but when there’s a supply shock, quantity falls. When there’s a demand shock, output is strong. And output has been very strong. Employment has been very strong. The people who talk about supply shocks, it’s really just the last readout of team transitory. First, it was a story about COVID ending quickly. Then, it was a story about COVID ending slowly. It keeps bouncing around what the story is. We’ve still got high core inflation and gasoline prices were mostly down for a period of more than three months. So, I don’t hear the story yet. [There are] very simple ways of looking at the data, look at what’s happening to nominal GDP, total dollar volume of GDP. If that’s going up rapidly, that tells you that demand is going up strongly.”

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