Has the Most Important Part of Bidenomics Already Been “Passed”?
No, I don’t mean the American Rescue Plan though it is bound up with what I’m referring to: Bidenomics’ commitment to a full-employment, high-pressure economy. America has now had four decades or so of *not* being committed to a full employment economy and it has not gone well, generating a chronic disadvantage for labor vis a vis capital, stagnating wages, soaring inequality and slow productivity growth. Resetting American economic policy away from this disastrous course could be the most important thing Biden accomplishes as President.
Eric Levitz at New York magazine notes:
“For the bulk of the past four decades, our government hasn’t merely declined to achieve full employment through public hiring; it has actively sought to keep millions of Americans perpetually unemployed.
This bipartisan consensus against full employment was rarely articulated to the public in forthright terms. During the crisis that consolidated the paradigm, policy-makers were sometimes blunt; in 1979, Fed chair Paul Volcker told Congress that in order for inflation to be brought down to a tolerable level, “the standard of living of the average American has to decline.” But as inflation became more of a historical memory than a present danger, the government’s prioritization of price stability over employment became increasingly camouflaged behind the dry technocratic verbiage of central-bank press conferences. Once decoded, the gist of this new consensus was simple enough: If unemployment falls beneath its “natural” threshold, then employers will be forced into a bidding war for scarce workers, who will then secure wages in excess of their productivity, which will force businesses to raise prices, which will lead workers to demand yet-higher wages, which will force businesses to raise prices further still, thereby setting off an inflationary spiral that will be difficult to stop. Thus, to save the economy from such destabilization, the government has to reduce economic demand — by raising interest rates, or cutting federal spending, or both — before unemployment gets too low, even if inflation is not yet apparent.
This official narrative obscured the class interests implicated by the government’s prioritization of low inflation over plentiful jobs. America’s wealthy have a greater material interest in price stability than they do in full employment; moderate inflation erodes the value of their bonds and cash holdings, while moderate unemployment has little adverse impact on their finances — and may even increase the value of their stocks by suppressing labor’s bargaining power. The bulk of U.S. workers, on the other hand, have a much greater interest in abundant jobs than ultralow prices. In a full-employment economy — where firms must compete for scarce labor — employers will be more likely to offer opportunities to “low skill” workers, on-the-job training to inexperienced ones, accommodations to the partially disabled, and wage increases to all. Nevertheless, policy-makers spent the bulk of the past 40 years preventing that economy from coming into being. In fact, as recently as 2015, the Fed treated preempting the mere risk of modest inflation as a higher priority than the achievement of an unemployment rate below 5 percent.”
But now, on the heels of massive fiscal support for the economy and workers, both in the latter part of the Trump administration and rapidly out of the box by the Biden administration, we seem to be getting the highly desired reset of macroeconomic policy. Joe Biden recently said in Cleveland:
“My sole measure of economic success is how working families are doing, whether they have jobs that deliver dignity. That means we have to focus on wages like we used to. When it comes to the economy we’re building, rising wages aren’t a bug; they’re a feature. We want to get — we want to get something economists call “full employment.” Instead of workers competing with each other for jobs that are scarce, we want employees to compete with each other to attract work. We want the — the companies to compete to attract workers.
That kind of competition in the market doesn’t just give workers more ability to earn a higher wage, it gives them the power to demand to be treated with dignity and respect in the workplace. And it helps ensure that America — when you walk into work, you don’t have to check your right to be treated with respect at the door. “
“Biden’s speech was remarkable for its acknowledgment of full employment’s class implications: When jobs are plentiful, workers get leverage over bosses — which is a good thing, since workers cannot reliably secure “dignity and respect in the workplace” unless they have some material power over their employers.
This was especially notable in light of the speech’s context. In recent weeks, lamentations of a “labor shortage” have filled the business press, while multiple Obama-administration economists have sounded alarms over inflation. The president’s remarks serve as a tacit rebuke to both of those criticisms. Biden suggests that a scarcity of labor isn’t a blight to be avoided, but a goal to be pursued (after all, a synonym for “labor shortage” is “a dearth of involuntarily unemployed people”). And he also signaled an allegiance to full employment and wage growth over the minimization of inflationary risk.”
In addition, Matt Yglesias notes:
“[A]s Jared Bernstein [now a key Biden economic advisor] wrote as far back as 1999, there is a reason Martin Luther King put full employment at the center of the civil rights agenda. For all the attention paid to diversity and inclusion in white-collar workplaces, the vast majority of workers have working-class jobs….Full employment lifts up people on the margins of the labor market [and] punishes discrimination…by genuinely changing the calculus about how much sense it makes to be choosy.”
In short, full employment, as Joe Biden himself might put it, is a big fucking deal.