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Hello. President Biden is making a big bet on full employment.
Over the past two decades, people who forecast economics for a living have repeatedly made the same mistake: They have been overly optimistic.
Wall Street economists have done so, as have officials at the Federal Reserve and other government agencies. I recently dug professional forecasters’ GDP forecasts for the past 15 years – all done two years in advance – and you can see the results here:
In 12 of the 15 years, the average forecast was overly optimistic. And the eight most important mistakes were all in the sense of overexuberance.
These mistakes had real costs. Policymakers, believing the economy to be stronger than it was, have done too little to stimulate growth and worried too much about whether an overheated economy could boost inflation. Fed officials, for example, were less aggressive in cutting interest rates than they later recognized as appropriate. Officials in Congress and the White House have at times been obsessed with the deficit and failed to spur job growth.
As a result, the United States has rarely reached a stage that economists characterize as full employment, when the economy is operating near full capacity and virtually everyone who wants a job has one.
The economy spent much of the 1940s, 1950s and 1960s near full employment, with an unemployment rate of around 4% or less – and wages have jumped. The country also approached full employment in the late 1990s and did so briefly again before the start of the pandemic. Again, incomes have increased, not just for the rich.
“In recent years, the United States has spent little time in this sacred place that economists call ‘full employment’,” the Wall Street Journal wrote last week. If the Biden administration has an early economic goal, it’s to bring the country back to this place.
The objective helps explain an argument that has recently arisen among top economists.
Several who normally support aggressive government action to stop an economic downturn – such as Olivier Blanchard, a former head of the International Monetary Fund, and Larry Summers, the former Treasury secretary – have criticized President Biden’s proposed $ 1.9 trillion virus relief bill as being too big. They argue that the economy can rebound sharply on its own once many people are vaccinated later this year.
Why? Consumer debt is relatively low and many households are in good financial health, thanks to a mix of high savings rates, rising home values and rising stock prices. And Congress just passed a $ 900 billion stimulus package in December.
Given all of this, critics say Biden’s $ 1.9 trillion stimulus package is unnecessary and could cause inflation, which would then lead the Federal Reserve to raise interest rates. “Why force the Fed to actually cancel part of the Biden package?” Blanchard wrote. (Summers presented the longer version of the case in a Washington Post editorial.)
Biden’s aides counter that normalcy – when a large majority of Americans have been vaccinated – remains in months. Last week’s jobs report shows the economy has stagnated and some coronavirus benefit programs are set to expire next month. Without a major new package, Janet Yellen, Secretary of the Treasury, said yesterday on CNN, the economy would suffer from a “long and slow recovery”.
It is impossible to know which side is right. Both make credible cases and the future is inherently uncertain.
But the strongest part of Biden’s argument may be his recognition of recent history. The US economy has struggled to grow at a healthy pace for most of the past two decades, and policymakers have repeatedly done too little to help it. Biden chooses not to make the same mistake again and make full employment his No.1 goal, even with the risks that this approach entails.
“The idea that we should cut back now, out of fear in the future that we might be doing too much, just doesn’t seem consistent with the economic evidence we have before us,” Heather Boushey, Board member of Biden of economic advisers, told Reuters. “The cost of inaction far outweighs the cost of maybe doing a little too much.”
Full employment brings benefits which are very difficult to obtain otherwise. It increases income – and the national mood, as happened in the late 1990s. It reduces poverty without depending on public spending. It helps workers develop skills that improve their long-term prospects.
As Boushey and Jared Bernstein, another adviser to Biden, wrote in a recent White House blog post: “Getting back to full employment, as quickly as possible, will make a major difference in the lives of tens of millions of people. , especially those at risk of being left behind. “
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ARTS AND IDEAS
Is it possible to make great entertainment on a continuing global crisis – and will people be watching it? Hollywood and the TV stations believe it.
HBO Max has previously released “Locked Down,” which follows an unhappy couple (Anne Hathaway and Chiwetel Ejiofor) who use quarantine to plot a heist. The ABC medical drama “Grey’s Anatomy” devoted its 17th season to the coronavirus, with several characters falling ill. On the NBC sitcom “Superstore”, the main characters take their breaks in a ventilated warehouse to stay distant. And on several other shows, like “NCIS: New Orleans,” the storylines include masks.
It is still too early to measure the appetite for such shows. There has not been a flash of the pandemic. But directors and writers say they have to try.
“Our show takes place in a store,” Jonathan Green, a “Superstore” showrunner, told The Times. “We felt like it might actually be awkward if it was business as usual.” There is also a precedent. Steven Knight, the screenwriter of “Locked Down,” said World War II quickly spawned novels, films and comics. In 1940, Charlie Chaplin starred in a satire on the Nazis called “The Great Dictator”, and “Casablanca” came out two years later.
“In the middle of it, like a war, you don’t know who is going to win. You don’t know what’s going to happen, ”Knight said. “And I think it’s important to capture this phase of uncertainty as it really was.”