We have had the best labor market for 50 years. The US economy added 467,000 jobs in January, more than triple the 125,000 predicted by economists. According to the most recent data, the economy created 700,000 Following jobs at the end of last year than previously believed. Workers are quitting their jobs for greener pastures at record highs, organized labor is seeing a resurgence in worker power not seen in a generation, and wages for low-wage workers are rising even after adjusting for inflation.
Compared to the federal government’s response to the 2008 financial crisis, the recovery from the COVID-19 crash has been extraordinarily successful. It took more than a decade after the start of the previous recession for the unemployment rate to fall back to 4%, where it is today. Even that figure underestimates 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 the manufacturing jobs it had lost. Today, manufacturing jobs are nearly back to pre-pandemic levels amid a burst of offshoring activity across different industries. The staggering number of jobs over the past two months has been secured as the Omicron variant has hurt business activity across the country.
It remains difficult to find intellectuals or policy makers willing to take credit for these triumphs. This silence is particularly noticeable on the left, which can reasonably claim much of the change in approach. The federal government spent far more money during 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 alone, not to mention the hardship averted by increased unemployment benefits and stimulus checks .
The main reason for this reluctance to declare victory is no secret: many Americans are pretty miserable right now. The pandemic itself is a grief machine, and most of the efforts households and governments can make to mitigate the spread of the coronavirus are extremely frustrating. Biden’s approval rating has been in the toilet since the summer and hit new lows last month. The collapse of Biden’s Build Back Better program, which was sabotaged by two senators from the president’s own party, hasn’t helped his cause, nor has his administration’s clumsy and sometimes bizarre response to the pandemic itself. . (White House press secretary Jen Psaki scoffing at the very idea of sending free COVID-19 tests to households was likely the low point.)
But most conversations about the economy today aren’t about manufacturing jobs, strikes or quit rates. It’s a matter of inflation. And wage growth throughout the pandemic is far less impressive when you focus on the past six months or so of consumer price data. Inflation-adjusted wages have actually been rising since the first quarter of 2020, but fell 2.4% over 2021. wage gains last year, a break from recent trends in which growth wages has been concentrated at the top.) Polls consistently show that voters hate inflation. In 2013, when inflation was non-existent, a majority of Americans cited inflation as “a really big problem.” It is less popular today.
Why inflation remains a problem is hotly debated among economists, but virtually everyone accepts two premises. First, the pandemic is a major cause of rising prices. Shutting down entire sectors and then re-launching them creates all sorts of disruptions and bottlenecks that lead to shortages, which in turn lead to price increases. Second, the higher prices created by these shortages are exacerbated by the robust purchasing power of consumers. Whether one factor or the other (high household demand or bad bottlenecks) is responsible for the problem remains controversial, but it seems likely that inflation will not dissipate until the supply chain problems supply will not be resolved. In the meantime, any good economic news – more jobs, better wages – will put at least some upward pressure on prices. People are reluctant to take credit for the recovery because they are reluctant to accept blame for inflation.
They shouldn’t be. Highlighting the strength of the labor market may or may not be a winning message for politicians, but it’s essential to understanding both the calamity we’ve averted and how to respond to inflation in the future. The conventional response to rising prices – raising Federal Reserve interest rates, withdrawing fiscal stimulus – may well drive prices down, but it will do so by attacking the incomes of ordinary Americans, especially those who are on the margins of the labor market. Given the Senate deadlock, that may be the best policymakers can do with the tools at their disposal. But that’s not the only way to deal with rising prices. A corporate excess profits tax is one; rent control for families is another. Both have the advantage of avoiding a direct impact on consumer wallets.
The Great Recession was a generational cataclysm for the American middle class. The COVID-19 recession was not, as policymakers prioritized the benefits of a strong demand economy over the risk of moderate price increases. They shouldn’t be ashamed of their success.