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Nobel Prize-winning economist Richard Thaler says the US may have recorded two successive quarters of economic contraction, but it’s “just funny” to describe it as being a recession.
“I don’t see anything that resembles a recession. We have a record low unemployment, record high vacancies. That looks like a strong economy,” Thaler told CNBC’s Julianna Tatelbaum on Wednesday.
“The economy is growing, it’s just growing slightly less fast than prices. And that means real GDP fell a little bit, but I think it’s just funny to call that a recession,” he said. “It’s not like any recession we’ve seen in my rather long life.”
US gross domestic product, or GDP, fell by 0.9% year-on-year in the second quarter, following a 1.6% decline in the first quarter. Two consecutive falls in GDP growth meet the traditional definition of a recession. Officially, the National Bureau of Economic Research declares recessions and expansions, and likely won’t make a judgment on the period in question for months.
Thaler, the 2017 recipient of the Nobel Memorial Prize in Economic Sciences, is best known for his work in behavioral economics — and for explaining the so-called “hot hand” fallacy alongside singer Selena Gomez in the 2015 film “The Big Short.”
His work looks at how people make decisions that are seemingly irrational according to economic theory, and his co-written book, “Nudge: Improving Decisions About Health, Wealth, and Happiness,” describes how this can be used to create better public policy solutions and “nudge” human behavior.
Asked about US inflation, which rose 8.5% year-on-year in July, Thaler said, “There was this long debate about whether inflation was transitory or not, and team permanent seems to be winning, though I think they may be declaring victory a little too quickly.”
Inflation is the rate of change in prices as opposed to high prices, he noted.
“At least some of the high prices we’re observing are caused directly either by the war in Ukraine or by supply chain problems from China. And we hope that both of those factors are temporary,” he said.
“Maybe a year from now there will still be fighting in Ukraine and there will still be Covid in China, but we hope that’s not the case, and if one or both of those problems is mitigated then I could see some prices going down. ”
Thaler also addressed US wages, which have stagnated against productivity since the 1970s but recorded sharp rises In the two most recent quarters amid a tight labor market, reportedly spooking the Federal Reserve over the potential for a wage-price spiral.
“If I was the head of a union, I would certainly be asking for a big raise next year to compensate my workers for the higher prices they’re facing,” Thaler said.
“I would say if that happens once, personally I would applaud that, because people who are getting wages, what we’re callings, are the people who have been lagging behind the wages 1% in terms of how much money they’re making , he continued.
“Certainly everywhere I go you see signs of a shortage of labor, and supply and demand says wages should go up. I can’t go into a restaurant in the US that doesn’t have a ‘help wanted’ sign at the door. So wages are going to go up, and I think that’s good.”
—CNBC’s Jeff Cox contributed to this article.