One remarkable thing has happened: the Democrats have responded to our economic problems to an extent that actually suits them. Liberal economic commentators pointed to a minimum of $ 3 trillion to ensure a swift recovery from the Covid-19 pandemic and the ensuing recession. And now President Joe Biden’s administration has passed a $ 1.9 trillion stimulus plan based on a $ 900 billion package approved in December. Senator Bernie Sanders was not exaggerating when he called the American bailout plan “the most important law for the benefit of working families in the modern history of this country.” It’s amazing how different the political reality is than it was 12 years ago when Barack Obama struggled to get a $ 800 billion incentive through Congress. Even then, most economists knew that his recovery calculation was not enough.
Unlike in 2009, the Federal Reserve Board today vocally supports the need for new spending and has pledged not to undermine the recovery with premature rate hikes. Conservatives, for whatever reason, are not focusing on these stimulus packages. Perhaps the nature of the pandemic shows us how we all need government support – unlike the 2008 financial crisis, when many policymakers thought federal spending was only going to bail out the banks.
Despite all the differences, some remain the same. There is still a risk that Republicans and Conservative Democrats will attempt to hold the economy back from full employment, which could sabotage the recovery once it emerges. For this reason, it is important for the White House to think in a very specific number: 9.5 million new jobs. That’s the number it takes to get back to where we were on the eve of the pandemic. The goal should be full employment, but the return to the labor market that existed in late 2019 is a critical first step. Anything else will be a missed opportunity.
There are many reasons to seek full employment, but the economic benefits of a tight labor market alone justify the goal. Before Covid-19, unemployment was below 4 percent for almost two years and was 3.5 percent for the last six months of 2019. During the Great Recession, policy makers on both sides assumed that unemployment would be low for such a period would be impossible without causing inflation and other problems. This led to a misguided focus on how workers were not prepared for the jobs available – too busy playing video games to be employable, as conservative economists would later complain. However, by the end of 2019 there was clear evidence of sustained wage growth at the lower end of the income distribution and increasing employment for people incarcerated or otherwise isolated from the labor market. Narrow labor markets give workers power and help ensure that they are better compensated.
But recovery was still ongoing before the coronavirus outbreak. The unemployment rate for blacks remained high at 6 percent. This underscores a second reason to continue to focus on the 9.5 million jobs figure: there will be many attempts to end full employment before we get there. This fall, we are likely to see some impressive monthly employment reports that will create a strong drive for some policy makers to declare “mission accomplished”. There are even those who believe the economy was too hot in 2019 and they will want to slow down long-term development. At this point, management could shift too quickly to other priorities and focus on maintaining the recovery.
The final reason for creating 9.5 million new jobs is political. Full employment – or at least proximity to it – shows the essential role government plays in ensuring economic well-being. The economy, of course, does not heal itself. The government must take action to reduce unemployment. We have seen this over the past decade. Although Donald Trump was largely unpopular, he voted more favorably than the Democrats when it came to dealing with the economy. Despite its economic policy failures that worsened conditions for workers and businesses, the experience of persistently low unemployment made a big difference to voters. And it is precisely these voters that the Democrats will need to build a lasting base in the coming decade.