The U.S. Economy's Rebound Since COVID Is Kind of Incredible. Why Doesn't Anyone Seem to Realize This?

[justaprogressive]

Many economic disputes are vague enough to allow for essentially endless ideological stalemate over statistics, but in this case, a straightforward real-world test was available. Summers and Furman were arguing that layoffs were the only way to bring inflation down. If inflation fell without a flood of layoffs, then the rest of their diagnosis would have to fall with it.

In the American economy, policymakers typically induce job losses through the Federal Reserve. When the Fed raises interest rates, it’s trying to tamp down inflation by creating job losses: Higher rates mean higher business costs, and businesses lay people off in order to remain profitable. This was the Fed’s strategy when it began hiking rates in spring 2022.

The layoffs, however, refused to materialize. When inflation peaked at 9.1 percent in June 2022, the unemployment rate stood at 3.6 percent. Today, using the same metrics, inflation is just 3.2 percent, and unemployment is at just 3.9 percent. For 12 of the previous 19 months, the jobless rate has held steady at or below its June 2022 level, while inflation has been running below 4 percent since June 2023. Economists are still debating why the Fed’s higher rates didn’t translate into job losses, but the important point is that millions of people were not, in fact, fired. Moreover, millions of people did not need to be fired in order to fix inflation. As Mike Konczal concluded in a report for the Roosevelt Institute in September 2023, the vast majority of inflation during the Biden years was driven by pandemic-related supply problems. Whatever was going wrong in 2022, it wasn’t because you were too rich.

There is some evidence that the economic commentariat is coming to its senses as the 2024 election approaches. Some of the same centrists who ripped Biden’s stimulus package in 2021 are now applauding his recovery. The anti-Biden left has largely abandoned the economic playing field, finding cleaner grounds for criticism on other subjects. Contrary to the narrative abuse directed at Biden over the past few years, the economic numbers across his presidency tell a simple, optimistic story about the art of government in the democratic world. The American economy is strong today for the same reason that the labor market has been strong throughout Biden’s presidency: the U.S. government spent a ton of money to support workers and their families. Biden has not only established a blueprint for successful crisis management, but he has achieved something on the economy that pessimists across the ideological spectrum have been declaring impossible for much of the 21st century: He learned from the government’s prior mistakes and found a way to govern better

[link:https://slate.com/news-and-politics/2024/03/biden-economy-voters-polling-numbers-covid-recovery.html|