The state of the economy, unlike the state of the union, seems to baffle people, including those who seemingly should know all about what’s going on.
One of them is Federal Reserve Chair Jerome Powell, originally appointed by Donald Trump in 2017 to reassure Wall Street after the chaotic start to his administration. Powell was reappointed by Joe Biden in a calculated gamble – rendered less risky because the previous chair, Janet Yellen, had joined the administration as Treasury Secretary.
Powell has been vocally fighting inflation for a year, raising interest rates by 4.5%.
He seemed flummoxed, however, by the December jobs report showing robust hiring by employers. “This is not a standard business cycle,” he said. “It’s unique. Certainty is not appropriate here.”
Yellen had a clearer response. Countering claims that the economy has fallen, or is about to fall into recession, she said, “You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years.”
Indeed you do not. What’s stumping Powell, and others trained in the Reagan school of economics, is that solid hiring and increased wages by definition yield high inflation, requiring a clampdown.
The economy isn’t following the script. We can now compare responses to the last two downturns, the 2007-08 “Great Recession” that greeted Barack Obama’s presidency, and the Pandemic Recession of 2020 that preceded Biden’s.
Obama, following his own cautious instincts, accepted a modest stimulus bill most economists thought should have been at least twice as large. Recession lingered; and it took almost eight years to return to pre-recession job levels.
Recovery was left to the Federal Reserve, reducing interest rates to near-zero. Without enough fiscal stimulus from Congress, hard times continued.
By contrast, the pandemic saw much larger stimulus, in the bipartisan CARES Act of 2020, then the Democrats-only American Rescue Plan after Biden took office. Employment returned to previous levels in less than two years.
The recession was short, and though inflation took off faster than predicted, these were truly uncharted waters – no economy like ours had ever been shut down, as in the first days of the pandemic when coronavirus ravaged the land.
Powell’s inflation-fighting has been successful. To even out month-to-month swings, the Commerce Department reports year-to-year figures, with inflation at 6.5 %.
But over the last six months, inflation has been just over 2%, very close to the Fed’s target rate. Not only has there been no recession, there are plenty of jobs and hiring in almost every sector.
What’s going on is that the Reagan model of the 1980s is being replaced by a Biden model friendlier to workers and families. One might add: It’s about time.
For decades, we were told that “globalization” following the fall of Communism and the Soviet Union meant a thriving business climate only, with scant attention to the growth of authoritarian states in Russia and China.
Employers cutting thousands of job in good times was hailed by Wall Street, as were CEOs who hollowed out their work force – supposedly the price of progress.
Workers displaced from well-paid manufacturing jobs were told “Tough luck. You’ll just have to accept the (low paid) service jobs on offer.”
Why service jobs had to be low-paid was never explained. Suddenly, they no longer are.
When labor activists began pushing for a $15 minimum wage, their efforts were treated mostly as fantasy. Maine voters in 2016 increased the state’s $7.50 minimum wage in annual installments to $12.
At the time, business interests predicted significant job loss if Maine got so far out of step with the national wage – still $7.25. Instead, inflation adjustments pushed it to $13.80 on Jan. 1, and employers still can’t find enough workers.
Rather than a “labor shortage,” perhaps it’s a long-delayed rebalancing of the economy. For decades, more and more of the national wealth flowed upward, creating countless billionaires but leaving blue collar workers with stagnant or declining pay.
After two years of what Biden calls “building from the bottom up and the middle out,” the results confound pundits and are ignored by much of the news media.
Nothing is guaranteed, but with another year of job gains and moderating inflation the public which supposedly believes Biden hasn’t done anything big may change its mind.
Enormous inequality of wealth and opportunity is corrosive to the social compact any democratic system must maintain. Finally shifting the balance back toward equality would have a dramatic effect on the social and community ills that now beset us.
An economy that works for everyone. What, in the end, is not to like?
Douglas Rooks, a Maine editor, commentator and reporter since 1984, is the author of three books, and is now researching the life and career of a U.S. Chief Justice. He welcomes comment at firstname.lastname@example.org