Indeed, for the first time since the government has been keeping data on racial gaps in employment, Black men are roughly as likely to participate in the labor force as white men.
Amarnath acknowledged that there will always be an “inflationary speed limit,” underscoring the need to build more resilience into supply chains to avoid aggressive price spikes as demand surges, as it did in the wake of Covid. “But fiscal policy worked in terms of pulling off a really rapid recovery,” he added.
But not everyone is convinced, particularly more centrist economists who warned that the spending package in early 2021 was too big and would help stoke painful price increases. Now, they say, there are few alternatives to higher interest rates to prevent out-of-control inflation.
“I don’t think anyone would want the inflation rate to be permanently rising in exchange for this,” said Jason Furman, who served as chief economist to former President Barack Obama. “A lot of people are like, ‘Oh, I love workers, and therefore inflation can come down.’ It doesn’t really matter whether the Fed loves workers or doesn’t love workers. The economy is going to behave the way it’s going to behave.”
Higher-income gains for low-income workers are not, on their own, particularly inflationary because those people don’t make enough money to budge the whole economy. But those workers have benefitted from an economy where job openings far outweigh available workers, a symptom of a too-hot economy, argued Furman.
“If the only way to have this is to have high and rising inflation, this probably isn’t the recipe we want to have that income distribution,” he said.
Instead, Furman said it would be better to have the trajectory that the economy was on just before the pandemic, where wage gains had finally begun to speed up even as inflation remained low.
“The way we heated the economy in ’17, ’18 and ’19 was one log on the fire each year,” he said. “No one was talking about, ‘We might have to have a recession to deal with this.’”
This time, “we just threw so many logs in the fire at once,” he added.
Rachel Greszler, a senior policy analyst at conservative think tank Heritage Foundation, said the current labor market demonstrates how low unemployment can help boost conditions for workers but argued it’s best to achieve those results through a strong economy rather than government aid that artificially boosts demand beyond the economy’s capacity to produce or lowers incentives to take a job.
“Acting quickly, especially in a situation like the pandemic when it was government-imposed shutdowns — a lot of those policies made sense,” like extra aid for unemployed workers or small businesses, she said. “The problem is those went on far too long.”
Still, she added, there’s hope that some of these wage gains could persist. “The labor market is so much stronger right now going into a potential recession than it has been in the past, so hopefully that creates a cushion.”