Summers Says It’s ‘Preposterous’ to Call U.S. Labor Market Slack
(Bloomberg) -- Former U.S. Treasury Secretary Lawrence Summers said that it’s “preposterous” to argue there is excess labor supply in the U.S., and reiterated that the economy is more vulnerable to inflation than many realize.
Summers noted the current unemployment rate of 4.8% is lower than through much of recent U.S. history. He said many people exited the workforce for reasons including the coronavirus changing how they want to live their lives. He also cited extra savings from pandemic-relief packages and continuing health concerns tied to Covid-19.
“The view that there’s a lot of labor market slack is looking preposterous right now,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin Friday.
The labor-force participation rate was 61.6% in September, versus an average of 62.9% over the five years through 2019.
Summers, a paid contributor to Bloomberg, said the tightening labor market was among the reasons he’s been worried about inflation and said investors are now increasingly sharing that view.
“People are getting more and more concerned about the possibility of rising inflation and inflation continuing for longer,” he said. “It’s a reflection of growing concern that this is going to feed through into wages, that’s going to feed through into higher expectations which is going to create something of a spiral.”
Summers also said it was “dangerous and misguided” for lawmakers and businesses to oppose any increase in corporate taxes.
With the Federal Reserve this week introducing new limits on its senior officials trading stocks and bonds, Summers said the central bank needed to do some “soul searching” over its ethics rules.
Two regional Fed bank presidents resigned in recent weeks following revelations of unusual trading in 2020 that was cleared by lawyers within their institutions.
“There’s a lot of work to do at the Fed looking over ethical issues,” Summers said.
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