Saturday, March 6, 2021

Are We Seeing a Fundamental Shift in the Macroeconomic Policy Set?

Getting the American Rescue Plan through the Senate was a great thing and pretty soon it should be signed into law. The effect of the bill should be very good for the country and its recovery. But could it be even better and more significant than that. Adam Tooze, not know for over-optimistic pronouncements thinks so:
"'[T]he stimulus is designed to deliberately generate a high-pressure economy.
This involves an element of inflationary risk. Bond markets are having a mini tantrum about that prospect. So far, the administration and the Federal Reserve System should be congratulated for holding their nerve. They clearly agree that the risk of doing too little is larger than the risk of doing too much. That is a matter of technocratic judgement. But, as the howls of protest from economist Lawrence Summers make clear, it is more than that. How you strike that balance is a matter of politics. And what we are seeing in 2021 is the balance shifting in favor of the left.
For more than a generation, all the way back to 1993 and the Clinton administration, the bias of technocratic judgement has been the other way. In both fiscal and monetary policy, the preference has been for erring on the side of caution, for penny-pinching when it came to stimulus, and for raising interest rates preemptively. That has left millions of people unemployed when they might have found jobs. It has undercut the bargaining position of working people when they might have been able to demand better pay and conditions. It has made it harder for organized labor to mobilize. It has undercut the case for minimum wages to be raised to a decent level. It has provided little incentive to prioritize investment in increasing labor productivity. And all of this has disproportionately disadvantaged Black workers and especially Black men."

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