Hello readers! Once, a very long time ago, I was a blogger. Blog-writing, for those of you too young (or old) to have experienced it, was an amazing way to carry on a public conversation about any number of things, from the state of the global economy to the relative merits of various DC neighborhoods to the best name for newborn pandas. Then, like everything good in the world, the thriving blogosphere was destroyed by the scourge of social media. I, personally, was happy to get away from blogging for a while and focus on writing fewer but more considered and polished things. But now I’m feeling ready to get back to turning not-quite-fully-developed ideas over in a blog-like setting. And so we have this...venture.
The motivation for doing this now is, partly, that I’m working on a new book, and I’m interested in road-testing some of the arguments to see whether the ideas make as much sense to others as they do to me. But I’m also keen to have a place to put down stray thoughts that can’t easily be turned into proper pieces, for The Economist or other publications, not at least until they have been developed a bit more. So here we are, we’ll see how it goes, thanks to all of you for your interest. If you have thoughts or suggestions, I hope you’ll let me know.
Preambles out of the way, let’s begin. The unemployment rate in America is 3.6%. That’s not the lowest it’s ever been—a month ago it was 3.5%, for example—but it is pretty darn low. (If you’re wondering, since the Bureau of Labor Statistics began collecting unemployment figures, the rate has only ever fallen below 3% for a very brief period in the early 1950s.) Today’s low rates are particularly welcome given where we were as a country a decade ago. It was exactly ten years ago last month—in October of 2009, just over a year removed from the collapse of Lehman Brothers—that the unemployment rate hit a peak of 10% and began its long, slow decline to where we are now.
Major crises and recessions are traumatic events. They do serious and lasting damage to a country’s economic potential, to the economic fortunes of the individuals affected by them, and to the social fabric. The world was dealing with a lot of shit prior to the Great Recession, but the Great Recession took the troubles and anxieties of the pre-crisis world and twisted and amplified them into a godawful mess. When people look around today at polarized and dysfunctional political systems, eroding social norms, and radical reconsiderations of intellectual orthodoxies, they are not wrong to see in such things the residual effects of the global financial crisis and its aftermath.
But the fact that the crisis helped put the world in its present position seems to have convinced many pundits that the slow reversal of the crisis’s economic effects—on the unemployment rate, for instance—will eventually “normalize” society back to its pre-crisis state. I’m going to pick on Tim Duy, who is a friend and a good economist (and blogger) because his tweet is the most recent example I can find of the above; Tim, no hard feelings. He writes, “Imagine running on the story ‘the economy is awful and we need a socialist overhaul to fix it’ with 3.2% unemployment.” (He’s riffing on another tweet suggesting that unemployment might fall even more by next year’s election.)
I’m going to interpret Tim’s tweet in my own particular way so as to make the point I’m interested in making. By “socialist overhaul”, I believe he means the sort of radical stuff on offer from Bernie Sanders and Elizabeth Warren: free college, universal healthcare, breaking up big banks and tech companies, imposing much higher taxes on the rich, a green new deal, and so on. So what about it? Are the youngsters going to dump Bernie for Mayor Pete once they realize how healthy the labor market is?
I think the answer is probably not. But more importantly, I think this sort of idea—and let me emphasize again that Tim is one of *many* of the Twitter pundits I follow who have expressed some version of this notion—misunderstands the impetus behind the interest in a radical rethinking of economic policy, and also glosses over some of the very important things we’ve learned about the world as a consequence of the crisis and its aftermath.
Take the second part first. The unemployment rate might be oh so low, but the economy we’re in looks anything but normal. It may not be apparent to those of you who don’t obsessively follow macroeconomic developments, but the place in which we now find ourselves is *super weird*. We may not be at full employment yet (the point at which everyone capable of finding sustainable employment has a job) but we’re getting pretty close. If you traveled back in time to...pretty much any postwar period prior to the financial crisis and described to them a country which:
Is close to full employment
Is running a government budget deficit of about 5% of GDP (extremely historically large outside of wartime and deep recessions)
Has managed to squeeze the entire yield curve (on government bonds) out to 30 years below 2.4% (again, extremely historically low)
And you asked them to venture a guess at the inflation rate, you might get all sorts of numbers, but the overwhelming majority of them would be considerably higher than where we are now. Ok, but so what?
The fact that inflation is low means that demand across the economy—spending, essentially—is only barely keeping up with the country’s economic potential. If you were to move either the government budget deficit or interest rates or both toward historically normal levels, then demand would fall, possibly by a lot, and the “close to full employment” status would evaporate. There are other ways to make up a demand shortfall. America could flip its current account from a massive deficit (meaning it imports much more than it exports) to a surplus, thus importing demand from abroad. But America has run a whopping deficit for roughly 40 years now and simply could not turn it over to surplus without some pretty revolutionary macroeconomic reforms. Alternatively, America could probably gin up adequate demand amid higher interest rates and less government borrowing if it were simultaneously inflating a debt-fuelled asset bubble: if we recreated the conditions that prevailed in 2005, in other words. But we all know how that turned out.
Now, maybe current policy settings are sustainable. But accepting the need for permanent budget deficits of 5% of GDP is *pretty radical*: that’s the kind of thing that could fund a much more generous welfare state and a green new deal, if one were prepared to restore tax rates to their pre-Trump condition. If you like your current unemployment rate and want to keep it, then you also have to choose some sort of radicalism. Maybe that’s federal tax revenues as a share of GDP that are ridiculously low for a modern advanced economy. Maybe that’s much more government spending. Maybe that’s a crazily progressive tax overhaul which redistributes money from the rich, who don’t spend very much of their income, to the poor, who do. Saying that the economy is broken and we need a socialist overhaul to fix it is kind of like saying: of the crazy options available to maintain the current low unemployment rate, let’s go with the one that delivers the biggest benefits to the non-rich rather than the rich. I can imagine running on that story? I mean not me, I’m uncomfortable around people. But I can imagine others with better political skills doing reasonably well with that message.
The trick is to remember that—unemployment rate notwithstanding—the economy is in a *weird* place. And seems to be stuck there…
Then there’s the first part: the way in which the pundits who think sub-4% unemployment means no more radicalism misunderstand the interest in people like Bernie and Warren. Both orient their campaigns around the need to end corruption in Washington. Not just the wildly overt and inappropriate sort where foreign governments in search of policy favors book rooms in the president’s hotel. Also the sort where people who make vast sums of money selling dangerous financial products or pushing highly addictive opioids onto vulnerable people never face serious consequences. The sort where gun lobbies are able to kill even the weakest of new gun regulations despite broad popular support for them.
It’s not just joblessness, or even mostly joblessness, that motivates a desire for something different. It’s the fact that even an inspiring political figure of the highest integrity like Barack Obama had an administration staffed with people who were happy to accept vast sums of money from corporations after leaving the White House. Is that wrong? Not legally, no. Does it undermine confidence in the institutions of government? Absolutely it does. You’re an Obama voter, working hard, counting on people to do right by you after the things you’ve suffered economically, and you see people who are supposed to be looking out for your interests jumping to Wall Street and Silicon Valley for six and seven figures: money you could never even hope to earn. Were they ever really working for you in the first place? Were they being honest when they said they couldn’t crack down on Wall Street post-crisis because they needed the banks to help get the recovery going? Hell, it’s refreshing in a perverse way to see folks in Washington like the Trumps, who don’t try to hide what they’re doing behind lofty sentiments.
Low unemployment doesn’t change the fact that powerful tech companies have enabled racists and undermined our democracy. It doesn’t change the fact that billionaires exert extraordinary political and social influence, yet act as if their civil rights are being violated when a politician proposes to raise their taxes. It doesn’t change the fact that we’ve completely normalized wholesale tax avoidance by major corporations whose success is built atop all sorts of public goods. It doesn’t change the fact that America’s health-insurance system is a maddening labyrinth of despair. It damn sure doesn’t change the fact that we are nowhere close to meeting climate goals which were pitifully inadequate when they were agreed.
Now, is a socialist overhaul, or the Warren platform, going to fix all of that? No, mostly because not even a Democratic landslide will give the party enough votes to do anything truly radical. Are some Bernie bros keen on left-wing revolution for less high-minded reasons than I’ve given, like getting their student loans cancelled? Undoubtedly. But come on. There are a thousand reasons to be frustrated, angry even, at business-as-usual in Washington. Many of them, including the ones that matter most, won’t get the littlest bit better if unemployment drops to 3.2% or 2.4% or whatever. And the idea that people who are steamed about petty corruption and unaccountable corporations and climate change are going to suddenly get excited about Biden because wage growth is now 3.4% year-on-year rather than 2.8%: I mean, I’m not sure the Warren fans are the ones who are being unrealistic here.
By day, I write for The Economist. There aren’t any bylines, so you’ll have to take my word for it. In the current issue, I’ve written my column, which looks at a new and fascinating book by Branko Milanovic, and a piece on whether the US economy can continue to steer clear of recession. Check them out! If you’re a subscriber. Thanks for reading and tune in next week(?) or whenever I send out another one of these.