One of President Obama's top economic advisers said Tuesday that the economy will eventually improve and that "people aren't going to live with their parents forever."
Speaking at the National Journal's Workforce of the Future conference, Larry Summers touted Democratic legislation to spur the economy and Obama's proposal to reauthorize expiring tax cuts for the middle class. He also said he took comfort in the "inherent cyclicality to economies."
"On average, the economy forms about 1.5 million family units each year," Summers said. "Housing starts are running at four or five hundred thousand. That's a natural economic response to the kind of inventory that exists. That's a reflection of the fact that family formation slows in more difficult times. But people aren't going to live with their parents forever. Family formation will come back to normal and indeed will catch up to reflect the delays that have taken place."
The Census Bureau reported this month that the number of families doubling up rose 11.6 percent from 2008 to 2010. An April study sponsored by the Mortgage Bankers Association found that "normal rates of household formation will not return until unemployment levels return to close to normal rates."
So how long will people live with their parents? Most forecasts have unemployment stubbornly high for the foreseeable future. Obama adviser Austan Goolsbee, for instance, said this month that unemployment is "going to stay high."
"It is true the economy is not fulfilling the promise many of us saw in the spring," Summers said. "I think that is a reflection of three factors. It's a reflection of the shocked confidence that came out of what was happening in Europe that raised risk premia, depressed markets, created uncertainty, and that proved to be much more virulent than most people expected. It's a reflection of the end of the inventory cycle, which had been a substantial source of tailwind leading to increased employment, increased hiring as inventories were replenished... And it's a reflection of the difficulty that firms have had in getting over the threshold and making a decision to expand their hiring, which led to lower levels of income which in turn led to lower levels of hiring."
Speaking about the looming game of chicken over the expiring Bush era tax cuts in Congress, Summers said, "Look at what middle class families have been through and it's hard to believe this is the right time to be raising gridlock concerns about whether we're going to substantially increase middle class families' taxes in the midst of a recession."
Speaking about the looming game of chicken over the expiring Bush-era tax cuts in Congress, Summers said, "Look at what middle class families have been through and it's hard to believe this is the right time to be raising gridlock concerns about whether we're going to substantially increase middle-class families' taxes in the midst of a recession."