Alex Brandon/AP Photo
President Joe Biden calls on reporters for questions as he speaks about the bipartisan infrastructure bill in the State Dining Room of the White House, November 6, 2021, in Washington.
Almost lost among all the other weekend events is the surprisingly good news on the economic-recovery front. Once Democrats finally get the infrastructure and budget deal done, the strong recovery along with the concrete benefits in the budget package should help Biden resurge politically.
The Labor Department’s monthly summary released Friday reported that the economy added 531,000 jobs in October, cutting the unemployment rate to 4.6 percent. The Congressional Budget Office had forecast that unemployment would not fall to that level until 2023, so the Biden recovery is two years ahead of schedule.
And it indeed deserves to be called the Biden recovery, because these rapid gains are due in substantial part to the $1.9 trillion American Rescue Plan Act (ARPA) of last March, which not only stimulated the overall economy but put money directly in people’s pockets via expanded unemployment comp, the near-universal child allowance, and other measures. As a result, we had the unheard-of experience of the poverty rate declining during a recession.
As you drill down into the Labor Department’s report, the news gets even better. Those with the least education experienced the most rapid drop in unemployment. Wages grew faster than inflation, after lagging inflation for the past several months. In the low-paid food service, hotel, and leisure sector, wages grew by 12.4 percent.
The Labor Department also reported that younger workers are beginning to return to the job market, as wages rise, COVID subsides, and kids return to school. That’s also encouraging.
Another encouraging item. When the August report came out, it showed a disappointing 235,000 new jobs created. This has now been revised upward, twice, to a formidable 483,000. So the recovery has been on track all along, and will grow even stronger as COVID continues to recede.
Sandbagging the economy by short-circuiting the recovery will not fix what’s broken in supply chains.
There are some people, both on the right and such nominal Democrats as Larry Summers, who see bad news in this good news, and complain that the recovery is coming on too strong and driving inflation. Many on Wall Street are unhappy that the Fed has put off raising interest rates. The strong recovery is being used as a rationale to cut Biden’s proposed spending on infrastructure and on human investments in Build Back Better.
But this view is just plain bad economics. For starters, the long-deferred gains in low wages are just the sort of increases that we want, and they are not what’s driving inflation.
Don’t take my word for it; Fed Chair Jerome Powell, nobody’s idea of a dangerous lefty, said at his press conference last week that “wages moving up, of course, is how standard of living increases over the years for generation upon generation. It’s very important, and it’s generally a good thing.” He added that there is no evidence of wages “rising persistently and materially above inflation and productivity gains … Productivity has been very high.”
As I’ve observed elsewhere, the recent price increases in some sectors are the result of a badly run supply chain system. Sandbagging the economy by short-circuiting the recovery will not fix what’s broken in supply chains.
Those like Summers who argue that the March ARPA spending was excessive and that we need to pull back on physical- and human-infrastructure investments because the recovery is on track misunderstand the function and logic of these investments. They get the economics backwards.
For starters, the spending under ARPA was not merely a macroeconomic stimulus at the pit of a recession. Much of it was intended to relieve human suffering.
Likewise, the infrastructure investments are badly understood as just macro. The U.S. has underinvested in basic infrastructure for decades. Some of the Biden program is long-overdue catch-up investment. Much of it is needed to help communities mitigate the short-term impacts of climate change and pay some of the costs of shifting to a post-carbon economy to save our cities, coasts, and the planet.
Build Back Better also has funds to rebuild domestic supply chains, which is a better strategy of damping down inflation and improving productivity than slamming the brakes on the recovery.
By the same token, the human-infrastructure parts of the program are intended to bring America’s social supports for working families a little closer to those of every other Western democracy. The very concept of macroeconomic stimulus is the wrong lens through which to view the Biden plan.
Indeed, because of the obsession with not increasing deficits, the entire spending program will be mostly paid for by taxes. That means little net macroeconomic stimulus, though the improvements to productivity should be good for noninflationary growth. As Josh Bivens of the Economic Policy Institute explains, CBO’s analysis indicates there is still plenty of slack in the economy for noninflationary expansion.
We are at a rare political moment, in that there are no austerity hawks either in the administration or at the Fed. Let’s make the most of it.
