2021-02-08 11:40:16 | Full Employment – The New York Times


Story by: David Leonhardt The New York Times World News

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Over the past two decades, the people who make economic forecasts for a living have repeatedly made the same mistake: They have been too optimistic.

Wall Street economists have done it, as have officials at the Federal Reserve and other government agencies. I recently dug through the past 15 years of G.D.P. predictions from professional forecasters — all made two years in advance — and you can see the results here:

As a result, the U.S. has rarely reached a stage that economists describe as full employment, when the economy is operating close to capacity and virtually everybody who wants a job has one.

The economy spent large parts of the 1940s, ’50s and ’60s near full employment, with the unemployment rate at about 4 percent or less — and wages surged. The country also approached full employment in the late ’90s and briefly did so again before the pandemic began. Again, incomes rose, not just for the wealthy.

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“In recent years, the U.S. has spent little time in this hallowed place economists call ‘full employment,’” The Wall Street Journal wrote last week. If the Biden administration has one early economic goal, it’s to return the country to that place.

The goal helps explain an argument that has broken out recently among top economists.

Several who normally support aggressive government action to stop an economic downturn — like Olivier Blanchard, a former International Monetary Fund official, and Larry Summers, the former Treasury secretary — have criticized President Biden’s proposed $1.9 trillion virus relief bill as too big. They argue that the economy can recover strongly on its own once many people are vaccinated later this year.

Why? Consumer debt is relatively low, and many households are in good financial shape, thanks to a mixture of a high saving rate, rising home values and rising stock prices. And Congress just passed a $900 billion stimulus package in December.

It’s impossible to know which side is right. Both make credible cases, and the future is inherently uncertain.

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But the strongest part of the Biden argument may be its recognition of recent history. The U.S. 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 is choosing not to make that same error again and instead to make full employment his No. 1 goal, even with the risks that approach brings.

“The idea that we should pare back now, out of a future fear that maybe we might possibly do too much, just doesn’t seem consistent with the economic evidence we have in front of us,” Heather Boushey, a member of Biden’s Council of Economic Advisers, told Reuters. “The cost of inaction far outweighs the costs of perhaps doing a little bit too much.”

Full employment brings benefits that are very difficult to achieve otherwise. It lifts incomes — and the national mood, as happened in the late 1990s. It reduces poverty without relying on government spending. It helps workers develop skills that improve their long-term prospects.

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Source References: The New York Times World News

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