Former Treasury Secretary Larry Summers (D) said Wednesday that President Biden and congressional Democrats are focusing too much on creating jobs in their plans for the post-pandemic economy, arguing that the U.S. will likely see persistent labor shortages despite millions still being unemployed.
In an interview during The Hill’s “Future of Jobs Summit,” Summers said that Biden’s infrastructure and social support plans should prioritize “making sure we’re making the most productive investments, not simply emphasizing job creation.”
Summers argued that recent hiring struggles, seen in the food services and retail sectors, are a sign of broader labor shortages ahead as the U.S. economy recovers from the COVID-19 pandemic.
“I think we need, increasingly, to focus on what people are going to be doing when they work, and making sure we’re making the most productive investments, not simply emphasizing job creation,” Summers told The Hill’s Steve Clemons.
“Making sure that everybody’s got a job is the right thing to do during the COVID period, but when you’ve got employers having trouble finding work, that adjusts a bit the way you think about things,” he said.
Summers’s comments at the event, sponsored by Nokia, came just hours before Biden’s first address to a joint session of Congress on Wednesday evening. The president is expected to pitch his infrastructure proposal, dubbed the American Jobs Plan, and a follow-up American Families Plan meant significantly to expand access to preschool, community college, child care and health care benefits.
The U.S. was still 8.4 million jobs short of pre-pandemic levels as of March, a year after the economy lost more than 21 million jobs amid the onset of the COVID-19 pandemic. The unemployment rate has since dropped to 6 percent, but it does not reflect millions of Americans who left the labor force because of the pandemic.
While there are plenty of unemployed Americans still looking for work, restaurants, bars, fast food establishments and retailers around the U.S. have reported trouble hiring to meet a surge of demand. Job search interest also dipped briefly in March, but has since recovered.
Economists and policymakers have debated what role health concerns, enhanced unemployment benefits and industry-specific factors have played in the labor shortages, but most expect the shortages to pass as the U.S. works out the kinks of reopening.
Summers, however, did not explain why the labor shortages were happening, or why he expected them to persist and expand into other pockets of the economy.
Instead, the former Treasury secretary said that Biden should be careful about allowing the economy to overheat as it booms in recovery from the pandemic. He cited historic increases in the cost of lumber, rising shipping costs and the torrid housing market as signs of dangerously increasing inflation.
“That might in turn force the [Federal Reserve] to react in ways that would be financially destabilizing. Historically, inflations have had pretty catastrophic political consequences for progressives,” Summers said, citing the elections of former President Regan and former British Prime Minister Margaret Thatcher.
Summers has consistently argued that Biden’s $1.9 trillion COVID-19 economic relief bill would overheat the economy and spur uncontrollable increases in inflation. His criticism has drawn intense backlash from Biden economic officials and liberals, who blame Summers for hindering the recovery from the 2008 recession as former President Obama’s chief economic adviser.
The White House, Federal Reserve and a wide range of economists say that while inflation will briefly increase this summer as the U.S. economy recovers, it will even out as the country hits a more normal economic stride. Fed Chairman Jerome Powell and other central bank officials have also noted that inflation has stayed below the bank’s annual target range of 2 percent for decades.
Summers said that despite his concerns about Biden’s spending agenda, he agrees with the “vision” of both of his recent proposals, particularly a $80 billion increase in IRS funding meant to boost tax law enforcement.
“I think we’ll do better as a country as we legislate the [infrastructure and family plans], but the impulses there are exactly right,” he said.
Updated at 2:16 p.m.