Our esteemed technocrats have produced a cornucopia of creative answers for questions like ‘Why was wage growth tepid as unemployment dropped near historic lows?'
This board could have been more decorated. Photo: Gabby Jones/Bloomberg via Getty Images For much of the past decade, America’s foremost economic thinkers have been struggling to resolve two “mysteries”:2.
Regardless, wage growth couldn’t be significantly improved through further fiscal or monetary stimulus. The economy was already nearing full employment. The labor market simply couldn’t get much tighter. This reality has a major implication: The pool of surplus labor that employers have at their disposal at any given time is much larger than the unemployment rate lets on. Americans who are prepared to say that they’re looking for work when asked by government pollsters aren’t the only Americans who are actually keeping an eye out for employment opportunities.
Since then, the lonely voices appear to have been vindicated. Once Trump was in office, Republicans stopped caring about the debt and showered the economy in deficit-financed tax cuts and defense spending. Meanwhile, after much browbeating from the president, the Fed eventually backed off its rate hikes. Contrary to conventional wisdom, these moves have not sparked inflation.
Barnichon’s thesis still tacitly concedes that monetary and fiscal stimulus has helped expand the size of the workforce and thus our economy’s productive capacity. But it also suggests that neither of those things has much more room to grow. In Barnichon’s analysis, economists were largely correct when they insisted that prime-age labor-force dropouts could not be cajoled back to work by more favorable conditions.
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