An Economic Milestone and a Better Future

This commentary by Patrick Welle, an emeritus professor of economics and environmental studies at Bemidji State University, was recently published in the Bemidji Pioneer:

The U.S. economy reached an important milestone recently. This summer’s job reports show that the private sector has regained the jobs lost during the pandemic.

It is a good time to take stock of our economy and the short and long-term challenges the pandemic has exposed.

As hard as we might wish, the recovery of these jobs does not mean we’re done with the pandemic or the economic dislocations that are ongoing.

But at this time, we should recognize the success of relief efforts implemented at federal, state and local levels in 2020 and subsequent policies as we moved into the recovery phase.

Much work remains, especially by the Federal Reserve Board, in balancing inflationary and recessionary pressures. But we’ve progressed enough to breathe a sigh of relief in noting that things could have been much worse.

The depth of business closures and job loss combined with current rates of inflation are causing even more pain in many other countries.

Many economists have been arguing, at least since the Great Recession of 2008, that we need to practice capitalism better.

This goal takes on new meaning as the pandemic has revealed the severity of multiple weaknesses: vulnerabilities in the supply chains for key inputs, goods and services; too much concentration of power among large corporations in many industries; obstacles faced by many middle and working-class families to participate in the labor force and prosper; mismatches between the jobs employers have to offer and the education and training of workers who might fill them, to name a few.

In the near term, the pandemic severely tests our tools of countercyclical policy — measures designed to even out the ups and downs of the business cycle.

It is far too complicated to trust a simple Keynesian (demand-side) solution as if suppressing demand will successfully address these historic challenges.

The Federal Reserve’s increase in interest rates is intended to accomplish this, but the bluntness of this policy and the slowness of response in the macroeconomy raises concerns. The disruptions in global energy and food supplies due to Putin’s war in Ukraine are causing supply shocks of historic proportions.

Some forecasters are betting against the Federal Reserve to set interest rates properly and doubt that the forces of supply and demand can be balanced effectively in the face of huge supply shocks. They are predicting a recession next year or the year after.

However, the strong job creation in recent months is one reason for optimism.

Regardless of near-term swings, we need to support policies that put our economy on a stronger long-term footing.

The infrastructure bill pushed by President Biden and Democrats in Congress was enacted with some Republican support. It is a long-term investment in resources our economy critically needs. It is not a source of too much spending today, instead, it will kick in when other forces in our economy are slowing down.

Other promising policies enacted recently are the expansion of domestic computer chip manufacturing and the long-term cost savings contained in the Inflation Reduction Act.

A key provision is a historic investment in combatting the climate crisis. The economic evidence is overwhelming that the emerging social and economic damages of climate change will be far more severe than the costs of addressing this challenge.

The burdens it will relieve are not so much about current inflationary pain but rather to avoid climate catastrophes for future generations.

Other action is needed now to create a more solid foundation for a sound, sustainable economic future. Interested readers might learn from the discussion of ideas contained in the section on “Jobs and the Economy” on the website of Minnesota’s own Senator Amy Klobuchar.

She has been a leader in forward-looking solutions through her membership on the Senate Commerce and Joint Economic committees.

In addition to investing in infrastructure and combatting climate change, other major solutions to long-term challenges worsened by the pandemic include:

  • Reverse trends toward growing concentration of power among corporations by stopping tax breaks that tilt in favor of corporations against small businesses and workers in addition to enforcing and strengthening antitrust laws.
  • Promote forces for innovation so the U.S. economy (and Minnesota) can again lead the world in key industries such as mining, manufacturing, agriculture, tourism and clean energy.
  • Improve economic opportunity for middle and working-class families through policies that a. reward and dignify meaningful work and b. boost the supply side of our economy by investing in education and training and stimulating greater participation in the workforce.

A crucial lesson from the pandemic is that we need more sustainable development of the supply side of the economy, especially through investments in people.