On Wednesday’s broadcast of NPR’s “Here and Now,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers stated that “the cost of money,” something that isn’t included in cost of living measurements “has gone way up with higher interest rates.” And that’s a good explanation for why people are dissatisfied with the economy.
Summers said that while we have a “good economy in most respects,” “the difficulty is with the cost of living, as people are experiencing it. It’s true that inflation is relatively low, but prices are still much higher than they were a few years ago, even if they’re now growing more slowly. And what I’ve emphasized in my own research, is that the cost of money, which is not something that is counted in the traditional price index, has gone way up with higher interest rates. Most people who buy cars have a monthly car payment, and that’s what they look at, not the inflation rate or the price of a car.”
He added, “I’m saying the price of everything, even if grocery prices used to be going up 10% and now they’re going up 5%, they’re still going up from a level that’s too high. The second point is that interest costs, which are very important to people as their monthly payment on their house or their monthly payment on their credit card, don’t show up in the Consumer Price Index, they’re not counted as part of the cost of living. And once you take account of interest rates, you get much more of a sense of why people are not feeling so great about the economy right now.”
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