Blaming inflation on supply shocks is contradicted by the data, the last gasp of the ‘transient team’

During an interview aired Friday on Bloomberg’s “Wall Street Week” program, Harvard professor, economist, director of the National Economic Council under President Barack Obama and Secretary of the Treasury under President Bill Clinton, Larry Summers , criticized arguments that inflation is due to a supply shock. as the latest attempt by people who thought inflation was transitory and said “it keeps bouncing back from what history is.”

Summers said, “I don’t really see any logic” in that view, adding, “Look, the basic fact is that how you tell a supply shock from a demand shock, both increase the price, but when there is a supply shock, the quantity drops. When there is a demand shock, production is strong. And production has been very strong. Employment has been very strong. People talking about supply shocks, that’s really just the last read from the transient team. First, it was a fast-ending COVID story. Second, it was a COVID story that was was ending slowly. It continues to bounce around what the story is. We still have high underlying inflation and gasoline prices have mostly been down for over three months. So I don’t haven’t heard the story yet. [There are] very simple ways to look at the data, look at what’s happening to nominal GDP, to the total dollar volume of GDP. If it increases rapidly, it tells you that demand is increasing sharply.

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