There are good reasons to be optimistic about the economy. But there are also reasons not to get too carried away with optimism, as there are still short run and long run issues of concern.
As the economy is closely related to the pandemic, the high rates of vaccination have been accompanied by a national feeling of relief, and personal relief by those who have been vaccinated. Travel, tourism, and entertainment businesses have been opening up. Crowds are allowed at sports venues. Travel by those who have been vaccinated has been deemed safe, with precautions.
The March increase of 916,000 nonfarm employment exceeded expectations. The unemployment rate has dropped to 6%. As of this writing, financial markets are at record highs. Trump’s insistence that a Biden victory would tank the economy and financial markets has not happened.
As much as we all yearn for the economy to return to normal, there are good reasons for caution, with both short run and long run risks. This is still a race between vaccination and looming threat of new variants of the virus that pose unknown threats to public health. In the enthusiasm to get business back to normal, some governors are jumping the gun. It’s one thing for a governor to end a mask mandate. But it is foolhardy and irresponsible for a governor to deny municipalities the authority to impose a local mask mandate if they deem it necessary.
Public officials anxious to prematurely open up the economy, along with reluctance of many people to get vaccinated, are worrisome. The recent uptick of new cases, and deaths in some states, are grim reminders that we are not yet at the end of this ordeal.
Ending the worst of the pandemic, and getting back to something approaching normal, is the immediate economic imperative. But even as the economy returns to normal, the long existing problem of increasing inequality of income and wealth will still be with us. The difficult long run challenge for American capitalism is to retain the central features of capitalism, the role of prices, markets, and incentives that drive the economy, while ensuring that the fruits of production are shared by all who are responsible for that production. In this, I refer specifically to those typically low paid workers in enterprises as harvesting fruit and vegetables, meat packing, retail sales, delivery services, home care, staff workers in health care and education, and a range of other low wage service jobs.
Their crucial work during this pandemic should have reminded us how important these workers who lack bargaining power are to keep this economy functioning. Their low bargaining power should not preclude these essential workers from sharing equitably in the economy. Public policy is needed to accomplish what unfettered markets do not. Unfortunately, public policies that would increase the incomes of these typically low-paid workers are often decried as “socialism.”
The massive infrastructure bill proposed by the Biden Administration would be a giant step toward addressing longer run economic issues. It would include some $621 billion for transportation, including roads, railways, and bridges. It would include $650 billion for quality of life measures, including upgrading school buildings, rebuilding water systems, and broadband. And it would include another $400 billion to improve access to quality home care, including boosting pay for these workers.
In the past, Republicans have supported infrastructure that addressed roads, highways and bridges. This bill broadens the concept of infrastructure to include social infrastructure, such as improving access to health and home care for an aging population. Going beyond the more traditional concept of infrastructure is why opponents claim to oppose it. Senate Minority Leader McConnell has already indicated that he will fight the bill tooth and nail.
There are sound economic reasons for spending on infrastructure. It obviously creates employment. Many of these would be highly paid union jobs. An especially strong point of this bill is that the vast majority of the anticipated 9 million jobs would be those not requiring a college degree. Improving prospects for blue collar and a variety of low-paid service workers would be a welcome step in the right direction for this economy.
Infrastructure requires materials of a wide variety, locally produced, along with machinery and equipment that is manufactured in the U.S.
The local production and construction of projects creates a multiplier effect as workers need meals and places to stay when they work away from home. Recall that spending on these useful projects represents income on the receiving side, with its attendant multiplier effect.
The ultimate result is transportation, education, and municipal systems that enable the nation to function more efficiently, all while creating a boost to employment and income. The social infrastructure portion would increase incomes of essential home and health care workers while addressing needs of an aging population.
Our national interstate system was initiated by President Eisenhower. While Commander of the European Theater during WWII, Ike was impressed with how efficiently the German Army was able to move combat vehicles across Europe. As President, he realized that in event of such a need, the U.S. would not be able to match Germany’s performance. Hence, the ambitious American Interstate system was sold under the guise of national defense. In politics, it’s sometimes “whatever it takes” to get something accomplished.
While it would be difficult to imagine the U.S. without the Interstate System, it was not without downsides. Urban freeways too often disregarded the cohesion of minority communities. This bill is intended to prevent such future mistakes, and, however belatedly, rectify those mistakes where possible.
It is urgent that we get through this pandemic. The COVID-19 relief bill is designed to do that. This infrastructure bill is designed for the longer run. Yes, it will cost some money. But the spending geared to be over a 10-year period will generate employment and income, and enable the nation to function more efficiently. Upgrading infrastructure has been long overdue. It is needed now.
Next week: Controversy over financing the bill.
— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.
