Talk of recession and mass unemployment is all over the news — and former Treasury Secretary Larry Summers is the chief reason.
Summers on Monday said the U.S. needs several years of high unemployment to get the worst inflation in 40 years back under control.
Put in starker terms, the U.S. would have to endure a second recession in three years and as many as 10 million people would have to lose their jobs.
The views of Summers — one of the most famous economists of his generation, serving in multiple Democratic administrations as well as in the presidency of Harvard University — are being taken very seriously these days. That wasn’t the case last year when he warned the Biden administration that its $1.9 trillion stimulus plan could worsen inflation.
His warnings were brushed off at the time by the White House, the Federal Reserve and most professional economists. No longer.
See Barron’s interview with Summers: ‘We are still headed for a pretty hard landing’
His latest call isn’t making a lot of people happy, though. President Joe Biden, for one, said he spoke to Summers over the weekend and claimed that the longtime Harvard economist had told him a recession is not inevitable.
A lot of Americans would get hurt if Summers is right and high unemployment is needed to beat back inflation. Such a turnabout would undo much of the labor-market gains over the past two years.
The jobless rate recently fell to 3.6% — just a hair above the pre-recession peak — and the U.S. is on track this summer to recover all 20 million jobs it lost in the early stages of the coronavirus pandemic. Wages are rising rapidly, and almost anyone who wants a a job can find one.
A sharp recession — perhaps a deep one — might also be unavoidable.
Many liberals on social media have lashed out at Summers, a perennial target of the Democratic Party’s left flank. Among his perceived sins, he has been blamed for negotiating free-trade deals as Treasury secretary during the Clinton administration in whose wake many U.S. companies shifted manufacturing overseas.
Other left-leaning critics said Summers should be one of those millions of Americans who lose their jobs.
For once Republicans were all too happy to cite the longtime Democratic economist, a frequent critic of conservative policies. Republicans stand to recapture the House and even the Senate in the fall, judging from the historical midterm pattern and Biden’s poor poll numbers.
What do professional economists and Wall Street bigwigs say?
Although the U.S. is not doomed to a downturn, the odds of recession are rising fast. Economists polled by the Wall Street Journal now see a 44% chance of recession in the next 12 months. In January only 18% foresaw such a risk.
The number of searches on Google for the word “recession” have also hit the highest level since March 2020, when the coronavirus plunged the U.S. into a short but historically deep downturn.