The Economy Is Good, Actually
We are living through the best labor market in 50 years. The U.S. economy created 467,000 jobs in January, more than triple the 125,000 that economists had anticipated. According to the most recent data, the economy created 700,000 more jobs at the end of last year than previously believed. Workers are leaving their jobs for greener pastures at record levels, organized labor is enjoying a resurgence of worker power unseen in a generation, and pay for low-wage workers is up even after adjusting for inflation.
Compared with the federal government’s response to the 2008 financial crisis, the recovery from the COVID-19 crash has been an extraordinary success. It took more than a decade after the onset of the previous recession for the unemployment rate to fall back to 4 percent, the level where it stands today. Even this figure understates the gap between the Great Recession and the pandemic-era economy. Most of the jobs created after the 2008 crisis paid poverty wages, and the country never recovered all of the manufacturing jobs it lost. Today, manufacturing jobs have nearly returned to their pre-pandemic levels amid a burst of onshoring activity across different industries. The stunning jobs numbers over the past two months were secured as the Omicron variant damaged commercial activity across the country.
It remains difficult to find intellectuals or policy makers eager to take credit for these triumphs. This silence is especially noticeable on the left, which can reasonably claim much of the change in approach as its own. The federal government spent far more money over the course of the pandemic than it did in response to the 2008 crash, and spent more of that money on ordinary families. The child-tax-credit expansion unveiled by President Joe Biden in early 2021 cut child poverty in half all by itself, never mind the hardships averted by expanded unemployment benefits and stimulus checks.
The primary rationale for this reluctance to declare victory is not a secret: Many Americans are pretty miserable at the moment. The pandemic itself is a grief machine, and most of the efforts that households and governments can take to mitigate the coronavirus’s spread are extremely frustrating. Biden’s approval rating has been in the toilet since the summer, and reached new lows last month. The collapse of Biden’s Build Back Better agenda, which was sabotaged by two senators in the president’s own party, has not helped his cause, and neither has his administration’s clunky and at times bizarre response to the pandemic itself. (White House Press Secretary Jen Psaki mocking the very idea of sending out free COVID-19 tests to households was probably the low point.)
But most of the conversation about the economy today is not about manufacturing jobs, strike activity, or quit rates. It’s about inflation. And wage growth across the pandemic is much less impressive when you focus on the past six months or so of consumer-price data. Inflation-adjusted wages are actually up since the first quarter of 2020, but they were down 2.4 percent over the course of 2021. (Even this data point carries a silver lining, though: Workers in the bottom third of the income distribution still enjoyed modest wage gains last year, a break with recent trends in which wage growth has been concentrated at the top.) Polling consistently indicates that voters loathe inflation. In 2013, when inflation was nonexistent, a majority of Americans cited inflation as “a very big problem.” It is less popular today.
Just why inflation remains a problem is a matter of intense debate among economists, but virtually everyone accepts two premises. First, the pandemic is a major cause of rising prices. Shutting down whole sectors and then starting them up again creates all sorts of disruptions and bottlenecks that lead to shortages, which in turn lead to price increases. Second, the higher prices created by those shortages are exacerbated by robust consumer purchasing power. How much of either factor—high household demand or bad bottlenecks—is responsible for the problem remains under dispute, but it seems likely that inflation will not dissipate until the supply-chain issues are resolved. In the meantime, any good economic news—more jobs, better pay—will put at least some upward pressure on prices. People are reluctant to claim credit for the recovery because they are reluctant to accept blame for inflation.
They shouldn’t be. Highlighting the strength of the job market may or may not be a winning message for politicians, but it’s essential for understanding both the calamity we avoided and how to respond to inflation going forward. The conventional response to rising prices—higher interest rates from the Federal Reserve, withdrawing fiscal stimulus—may well bring prices down, but it will do so by attacking the incomes of ordinary Americans, particularly those at the edges of the labor market. Given Senate gridlock, this may well be the best that policy makers can do with the tools available to them. But it is not the only way to deal with rising prices. An excess-profits tax on businesses is one; rent control for families is another. Both have the advantage of avoiding a direct hit to consumer pocketbooks.
The Great Recession was a generational cataclysm for the American middle class. The COVID-19 recession has not been, because policy makers have prioritized the benefits of a high-demand economy over the risk of moderately rising prices. They should not be ashamed of their success.