Brad DeLong: Worthy reads on equitable growth, March 2-8, 2021

Worthy reads from Equitable Growth:

1. My friends among the Biden plan doubters—who do not seem to have internalized exactly how devastating the slow recovery of the 2010s was—do not seem to recognize how great the uncertainty is about the economy’s likely trajectory today. Those factors militate very strongly in favor of taking steps to make sure that you do not repeat the mistakes made in the previous decade. On the other side, I see little in the way of argument save what I regard as an unwarranted suspicion that the Federal Reserve will not do its proper job—plus a fear that the financial system could not cope without a crisis with an even moderate revaluation of the asset price structure. Austin Clemens is right here, focusing attention where it should be focused. Read his “New Great Recession data suggest Congress should go big to spur a broad-based, sustained U.S. economic recovery,” in which he writes: “Joe Biden’s proposed $1.9 trillion American Rescue Plan, critics now argue that it will ‘overshoot’ [but] … Undershooting the policy response would be a far more dangerous prospect … The U.S. Department of Commerce’s Bureau of Economic Analysis’s Distribution of Personal Income … shows just how devastating this pattern was for most U.S. workers and their families … In the bottom 50 percent … disposable personal income incorporates transfers from the federal government to households, so losses in this group were partially compensated for by rising Unemployment Insurance payments, Supplemental Nutrition Assistance Program benefits, and other government benefits. But this group then became mired in years of stagnant, or even declining, income as these benefits ended amid a still-tepid economic recovery, and did not experience substantial income gains until 2015. By comparison, households in the top 10 percent of income recovered almost immediately after the end of the Great Recession and ended 2018 up 22 percent compared to 2007.”

2. David Mitchell has a very good list of things that Biden and his staff could do to start to turn that around. Read his “Executive action to-do list for achieving strong, stable, and broad-based U.S. economic growth,” in which he bullets a series of factsheets, including: “Executive action to coordinate federal countercyclical regulatory policyExecutive action to combat wage theftExecutive action to coordinate antitrust and competition policiesExecutive action to reform the cost-benefit analysis of U.S. tax regulations … [and] Executive action to improve U.S. economic measurements.”

Worthy reads not from Equitable Growth:

1. Jason Furman and William Powell once more try to keep people from looking at the official unemployment rate and taking it as a reliable guide to any dimension of the economic situation. Please listen to them. Read their “US Unemployment remains worse than it seems as millions still out of the labor force,” in which they write: “Throughout the pandemic the official unemployment rate has been kept down by a misclassification error and the unusually large withdrawal of millions of people from the workforce. Our estimate of the realistic unemployment rate for February was 8.2 percent … Another concept, the fixed participation rate unemployment rate, cited by Federal Reserve Chair Jay Powell and Treasury Secretary Janet Yellen, was 9.5 percent; the comparable concept peaked at 11.8 percent in the financial crisis. The headline unemployment rate was 6.2 percent in February, down slightly from 6.3 percent in January. This concept works well in normal times but has had some deficiencies in the context of the pandemic.”

2. I want to highlight my attempt to understand what is really worrying my friends among the new inflation hawks. For reasons I do not understand, they let what I think are their real concerns stay submerged in subtext. They do not stress that they do not trust the Federal Reserve. They do not stress that they worry that the financial web is on the point of another crisis and would collapse in response to even moderate shifts in the asset price structure. Yet their worries and their focus make no sense to me, unless such considerations are in the very forefront of their minds. Please “What Are the New Inflation Hawks Thinking?,” in which I write: “These warnings … all reflect a fear that the Fed might have to hike the federal funds rate and return it to the range we used to consider normal. I say “might” because, as the aforementioned critics acknowledge, any inflationary pressures generated by the $1.9 trillion package remain merely a possibility, not a certainty. It is equally likely that the new spending will end up filling holes in aggregate demand. In any case, if the past 15 years of debates about “secular stagnation” and “global savings gluts” have taught us anything, it is that we should want to create the conditions in which a higher federal funds rate is warranted.”

March 8, 2021


Brad DeLong


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