Economist Larry H. Summers in Kyiv, Ukraine on September 13, 2018 (Paparazza/Shutterstock.com)
On September 5, the U.S. Bureau of Labor Statistics (BLS) reported that in August, the United States had 4.3 percent unemployment. The U.S. is not in a recession, yet there are warning signs for the American economy.
Job creation, according to the BLS, is weak. And major economists like Paul Krugman and Robert Reich fear that President Donald Trump's steep new tariffs will lead to "stagflation" — a painful combination of inflation, high unemployment and weak economic growth that the U.S. suffered in the late 1970s and early 1980s.
Stagflation fears are addressed in a conversation between four economists — Larry H. Summers, Rebecca Patterson, Oren Cass and Jason Furman — published in Q&A form in the New York Times' opinion section on September 18.
Summers, who served as U.S. Treasury secretary under former President Bill Clinton and director of the National Economic Council (NEC) under former President Barack Obama, told the others, "I think we may be at the foothills of stagflation. I don't think tariff impacts have been fully felt or will be for some time, and confidence has more room to decline than to rise. I think inflation will surprise a bit on the high side. I suspect we are seeing unemployment and inflation forecasts both being revised up."
Furman noted that he shared "Larry's inflation concerns," adding, "Core inflation, excluding items like food and energy, has been running at a 3 percent rate. Some of that is tariffs, and they might be transitory. But even without tariffs, inflation is still running about 2.5 percent."
Patterson stressed that while some Americans are doing well economically, others are "struggling" to find work.
Patterson told Summers, Furman and Cass, "While overall economic growth has been fine, it is masking very different experiences for different parts of the population. High-income earners with homes and equities have rising levels of wealth and continue to spend. But young people just out of college, lower-income earners and retirees on fixed incomes are increasingly struggling, given high and still-rising prices, a stagnant job market and a lack of housing supply."
Cass, meanwhile, described himself as "the biggest optimist in the group."
Cass recalled, "When Ronald Reagan came into office in 1981, the Fed induced a sharp recession to tame stagflation. Even at the time, certainly in hindsight, people recognized that the short-term numbers were not the right measure."
Read the full New York Times article at this link (subscription required).