Sunday, January 9, 2022

Republicans Want to Talk About Inflation. Democrats Focus on Job Creation. Here's Why They're Both Wrong

Republicans are facing a bit of a dilemma. In the midst of the Biden Boom, they are determined to paint the president's economic policies as a massive failure. Other than blaming him for measures designed to mitigate a pandemic that they're helping to fuel, the most potent tool they've used is to fear-monger about inflation. The GOP got a major assist on that one from mainstream media. As a result, three-quarters of Republicans now point to prices as the key indicator of economic health (up from 25% a year ago).

Democrats have taken the more traditional approach to measuring the health of the economy by focusing on job creation. On that front, Biden has been a tremendous success.

But with some major changes underway, both indicators will increasingly miss the point. When it comes to inflation, this has been a main driver:
The U.S. economic recovery from the covid pandemic was the strongest of any of the big Western economies...

The Biden stimulus pushed the bank accounts of even the lowest-income Americans to unexpected heights. On average, they had more than twice as much in their savings accounts as they did when the pandemic began.

The Federal Reserve, the U.S. central bank that controls interest rates, helped, too. It held rates near zero and pumped hundreds of billions of dollars into the economy.

The twin fire hoses of cash — one from Congress, one from the Fed — sent Americans’ spending roaring back.

The question that poses for Republicans is how they will pivot as inflation slows down

For Democrats, a focus on job creation ignores the fact that the economy isn't creating too few jobs, it's that we're facing a labor shortage. Economists are tying themselves in knots trying to figure out why Americans aren't going back to work. Of course, in the midst of an ongoing pandemic, some of those reasons are understandable, like fears about health, caring for someone who's sick, and lack of child care. But here's the big one:

Retirements explain a large chunk of the missing workers. For some, soaring retirement accounts and home values, combined with the lower expenses of a simplified work-from-home lifestyle, made it financially feasible to retire early. Others retired solely on Social Security, without retirement accounts to ease the way.

A Washington Post analysis found that over 1.5 million more people were retired in November 2021 than would have been expected based on pre-pandemic trends. Employment has actually declined in the last year among workers who were 55 or older at the start of the pandemic.

What almost no one is talking about is that this country was facing a labor shortage BEFORE the pandemic - much of it related to the fact that baby boomers are retiring. Today, boomers range in age from mid-50s to mid-70s, so many have been either retiring or planning to retire. It appears that the pandemic merely sped up that process. 

Here's what Ezra Klein wrote about that back in 2013:

Everyone agrees that aging economies with low birth rates are in trouble...The retirement of the baby boomers is correctly understood as an economic challenge. The ratio of working Americans to retirees will fall from 5-to-1 today to 3-to-1 in 2050. Fewer workers and more retirees is tough on any economy.

When Klein says that "everyone agrees," he's right. Back in 2017, Paul Ryan said the same thing - even if his solution to the problem was abhorrent.

 This is what the Wall Street Journal was reporting back in 2016:

In Dallas, the King of Texas Roofing Co. says it has turned down $20 million worth of projects in the past two years because it doesn’t have enough workers.

In the San Francisco Bay Area, Joe Hargrave is expanding his successful Tacolicious chain of restaurants, but says he is building smaller ones due to “a massive shortage of restaurant workers.”

And in Florida, Steve Johnson, who harvests oranges for the citrus industry, says, “Right now, if I had 80 guys, I could put every one of them to work.”

As hiring accelerates and the labor market tightens thanks to a steady U.S. recovery, employers who need low-skilled workers are increasingly struggling to fill vacancies.

The situation in rural American was even worse. Here's how Art Cullen described what was happening in Iowa:

The population numbers since 2010 look bad for most rural Iowa counties: Pocahontas, down 7.8%; Sac, down 6.1%; Audubon, down 10%; Cass, down 7.3%; Adams, down 9.5%. A small sampling of isolated rural counties. They may have peaked in population in 1940 or before. The sad news is: Nothing is on the horizon to turn it around.

Here is how a researcher in my home state of Minnesota documented the problem back in 2019:

Employment projections indicate that, by 2022, Minnesota will need nearly 3.2 million workers to keep pace with historic rates of economic growth statewide. With just 2.9 million people over the age of 16 expected to be in the labor force and working, our state is expected to fall about 239,000 workers short.

That is the economic challenge this country will continue to face - too few workers - even when the pandemic is no longer an issue.

Paul Ryan sounded an early warning about how Republicans are likely to respond to the challenge. We're already hearing right wingers talk about the need for women to have more babies. For the nativists, that is often pitted against the solution that has always been a hallmark of the U.S. economy: immigration. That is precisely what Klein was writing about in 2013.

There are few free lunches in public policy. But taking advantage of our unique position as a country where the world’s best, brightest and hardest-working desperately want to live is surely one. In the end, economies aren’t mainly about budgets and tax codes, though Congress occasionally pretends otherwise. They’re about workers and business owners. Immigration reform is a way to get more of both.

Immigration reform is often cast as an issue that is a concern for people of color - primarily Hispanics. But the fact is that it should be a priority for all of us. Our economy is going to depend on it.

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