As economists have long insisted, economic recovery is tied to getting the pandemic under control. With dramatic increase in vaccinations, we see certain progress in controlling the pandemic, but it’s not over yet. Accordingly, with progress regarding the pandemic, there is also significant progress with economic recovery, but the economy is not yet at full strength.
Problems still remain with the pandemic. Too many people are resisting vaccinations. And the pandemic rages on in much of the world. As the pandemic persists, the probability of mutations increases, with the prospect of new variants that may be resistant to existing vaccines. Americans are not safe until the rest of the world is safe.
The encouraging signs of the economy are tempered with both short run and long run issues that need attention.
The May economic report saw a gain of 559,000 jobs. Unemployment fell from 6.1% to 5.8%. As of this writing, in contrast to Trump’s warning of disaster, financial markets are flirting with record highs. But financial markets are not the real economy and are unpredictable. While the jobs numbers are encouraging, the result was below earlier estimates, and still below pre-pandemic levels. Further progress is needed on both the public health and economic fronts.
The three major COVID-19 relief bills, two signed by Trump with bi-partisan support, and the recent bill signed by Biden, with no Republican support, are credited with keeping the worst economic slump since the Great Depression from total disaster. Unemployment and relief payments enabled untold numbers of people to pay essential bills and maintain some sense of financial security while avoiding total financial ruin.
There remain both short run and long run issues.
There is a welcome optimism in the nation as businesses are opening up and recreation and travel is re-surging. But one in four Americans still report food insecurity, and many fully employed people struggle with paying their bills. While the reduction in unemployment is welcome, there remains a mismatch between jobs and workers to fill them. Employers report shortages of applicants for posted jobs.
Employers and some politicians assert that the chief cause of worker shortages is the augmented unemployment benefits that encourage unemployment over work. In an effort to get people back into the work force, several states have curtailed payment of the augmented unemployment benefits.
Other critics assert that the cause goes beyond unemployment benefits. Reasons include reluctance to take some of these jobs because of some combination of lingering fear of the virus, unavailability of affordable child care, and low pay and stressful working conditions, especially in the leisure and hospitality sector. In addition, there have been worker shortages in some sectors even prior to the pandemic; these cannot be blamed on augmented unemployment benefits.
Some laid off workers in the restaurant and hospitality sectors state that they are looking for jobs with greater long term financial prospects. Especially after major economic disruptions such as the pandemic, there is often realignment of jobs and workers that take some time to iron out. In any case, the augmented unemployment benefits are due to end in September. The question remains whether it will be sooner rather than later, and how much effect this will have on current worker shortages in these sectors.
Other current cyclical issues include disruptions in supply chains such as the chip shortage that is affecting automobile production, and rising lumber prices that affect construction costs. Add to this the recent criminal hacking of pipelines and meat packing, and we get into foreign policy issues, and another relationship between cyclical and long run problems.
The three major COVID-19 relief bills dealt mainly with emergency measures to prevent total economic collapse, and to maintain some floor of economic activity on which to build long run growth. This is where Biden’s major infrastructure bill comes in, and where the major barrier to solution is political.
The Biden proposal goes beyond the traditional “roads and bridges” concept of infrastructure. It includes broadband, pre-K education, and assistance for what has become known as the “care industry,” workers and institutions that provide child care and elder care.
Republicans insist that the bill stick to the traditional “roads and bridges” concept, insisting that those broader measures are not really infrastructure. That is an irrelevant debate. The question is whether the expanded measures are needed, and would increase long run efficiency of the economy.
Republicans assert that as the economy is rebounding, we don’t need a massive bill with additional expenditures that could be inflationary. However, even as these job-creating expenditures would indeed be injections into the economy, in contrast to the COVID-19 relief payments, these expenditures would be over a decade.
Republicans insist that roads and bridges be financed by user-fees and unspent money designated for COVID-19. Democrats insist that these COVID-19 moneys have designated purposes, and that funds should be raised from those whose incomes have increased during the pandemic. The collective wealth of American billionaires has recently increased by $1.3 trillion to a collective $4.2 trillion. Since Republicans refuse to increase the corporate tax from 21% to 25% — still lower than the pre-Trump tax bill — Biden proposes a minimum corporate tax rate of 15% to ensure that those corporations that have previously paid zero taxes, at least pay 15%. Congressional Republicans are staunchly resisting any tax increases whatsoever on corporations.
This infrastructure bill needs desperately to be passed, and paid at least in part by those corporations that will share in the benefits of the bill. Improved infrastructure would make the total American economy more efficient, increasing productivity. Increasing labor productivity allows for increasing wage rates.
No family, business, or nation can afford to deny the energy, talent, and work ethic of the female half of our population. The pandemic has been especially tough on female employment. We need the measures in that infrastructure bill to enable women who are so inclined to get back into the paid work force.
— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.
