08/28/2021 9:01 AM
Clarín.com
Economy
Updated 08/28/2021 6:22 PM
By
Neil irwin
The New York Times
A powerful economic policy idea has moved up the ranks in recent years.
Great things can be accomplished for workers if the economy is allowed to warm up.
The notion of creating a "high pressure" economy is that
the government should be willing to risk a little inflation in the short term to achieve conditions that, in the long term, will lift people out of poverty
, prevent scars. of recessions are permanent and will strengthen the country's economic potential.
This idea has its origins in a 1973 work by Arthur M. Okun and was mainly confined to specialist conferences in the past decade.
Today it
constitutes the intellectual
underpinning of US economic policy, supported at the highest levels by the Biden government and the Federal Reserve.
It represents a real-world test of a new approach to economic policy.
The results so far show that
stepping on the economic accelerator to the maximum has advantages and disadvantages
, specifically the combination of trillions in federal spending with interest rates held at near zero.
While this combination produced some significant beneficial effects, the summer of 2021 did not produce the high-pressure economy that its fans had hoped for.
The good news is that job openings abound, wages for people at the bottom end of the pay scale are rising rapidly, and the post-pandemic recovery appears not to be like the arduous road that followed the three previous recessions.
But
consumer prices have been rising faster than
median
wages
, meaning that, on average, workers are seeing their purchasing power drop. Those who want to buy a car or build a house or purchase other products find it difficult to do so. And while much of that reflects temporary supply disruptions that are set to decline in the coming months, other forces could drive prices higher. This includes rising rents and lag effects of higher prices from companies that have to pay higher wages.
Unlike the slow-moving events of the past decade, when debates about warming up the economy took shape, now
things are moving so fast
that it is difficult to determine how they will be when conditions stabilize.
However, "I think the benefits of pursuing the growth strategy will come," says Josh Bivens, director of research at the Economic Policy Institute and a supporter of officials who support the high-pressure economy, noting the exceptionally high job creation in recent months.
A more traditional view argues that it is unwise for the authorities to try to lower unemployment so much, because this will generate inflation.
This stance lost credibility with the advance of the 2010s - the unemployment rate fell even lower, with little sign of an inflationary jump.
But while the tense labor market from 2017 to 2019 generated
strong inflation-adjusted wage adjustments
for workers, especially those with the lowest incomes, there is nothing automatic in that process.
In a booming economy, if companies raise prices faster than staff wages - taking the largest price increase from the products they sell - it will mean that employees are effectively earning less per hour worked.
In the past, both situations have occurred.
In the strong economies of the late 1960s and late 1990s, average hourly wages for non-managerial workers persistently rose faster than inflation.
In the late 1980s, the opposite happened.
And now it happens again.
According to data from the Employment Cost Index, wages and salaries in the private sector increased 3.6% in the second quarter compared to a year earlier, the largest increase since 2002. But the Consumer Price Index rose 4.8% in that same period, which means that workers lost ground.
Other measures of compensation and inflation tell a similar story.
A
big question is whether high inflation
is simply an inevitable consequence of the economy reopening after the pandemic, or whether it is, at least in part, a result of the aggressive use of fiscal and monetary policy to rapidly heat up the economy.
For example, car prices soared, according to analysts, primarily due to a shortage of microchips caused by production decisions that were made during the pandemic.
But is part of the price spike also a result of strong demand, fueled by stimulus checks sent by the government and low interest rates that make auto loans cheaper?
Jason Furman, a Harvard economist and former chair of the White House Council of Economic Advisers, notes that the
United States is experiencing significantly higher inflation than other countries
facing the same supply problems. Consumer prices rose 2.2% in the year ending in July in the eurozone, compared to 5.4% in the US “My guess is that real wage growth is better in Europe than in the United States, and it is doing better because there is less demand and therefore less inflation, "said Furman.
The story improves when we look at how the lowest paid workers in America are doing. The lack of workers, especially in the service sectors, is translating into
increases for those who do not earn much
. Data from the Federal Reserve Bank of Atlanta show that median hourly wages in the poorest 25% of the population increased at a rate of 4.6% last year, compared to 2.8% for the richest 25%. .
And many of the benefits of a hot economy come in the form of adding more people to the workforce and allowing them to work longer hours.
Employers have created an average of 617,000 jobs per month so far in 2021, versus 173,000 per month in 2011, following the global financial crisis.
If sustained, the United States is on track to
return to its pre-pandemic employment level two years after the recession ended
.
In the previous recession, it took the country five years to recover.
Supporters of a hot economy stress that a rapid recovery is good for reducing inequality, in part by ensuring that tons of job opportunities are created so that people do not have to be out of work for long periods.
"We see that constant stimulus and extensive income support programs are doing what they are supposed to do," said JW Mason, a fellow at the Roosevelt Institute and an advocate of heating up the economy.
“The numbers we should be looking at are job and wage growth, especially among the poorest, and those trends are positive and encouraging.
These are the figures that we would have liked to see at the beginning of the year ”.
In the later years of the latest expansion, increases in employment were particularly marked for racial minorities, people with low levels of education, and people struggling to get hired.
"The truth is that when you run a hot economy, people who would not otherwise get into work," says Furman.
“That, in itself, is reason enough to want to implement the warming of the economy.
We are saying that some of the most vulnerable workers are being hired, and this is a wonderful thing. "
However, even some advocates of heating up the economy
see a risk
that the scale and pace of the stimulus measures may have been excessive.
Michal Stran of the American Enterprise Institute is one of the center-right voices in support of this policy.
"Too much stimulus backs up, because inflation erodes wage improvements or because the supply side of the economy can't keep up."
Even those who believe in a high pressure economy, in other words, would do well to keep track of how high that pressure is getting and how sustainable it really is.