Native American child poverty more than doubled in 2022 after safety net cutbacks: Child poverty rate is higher than before the pandemic
This November, the U.S. observes National Native American Heritage Month. This commemoration celebrates the sovereignty, contributions, and resilience of tribal nations and Native people in the face of a violent, painful, and ongoing history.1 The enduring effects of colonialism, genocide, and state-sanctioned theft and violence continue to shape the socioeconomic outcomes of Native people. Today, the Native American community makes up a diverse and growing share of the U.S. population, with children accounting for more than one-quarter of the American Indian and Alaska Native (AIAN) population.2
Poverty increased sharply for AIAN children in 2022, as policymakers allowed key economic relief measures to expire that helped families absorb the shock of the pandemic. Native American children have historically been painfully exposed to economic vulnerability. Structural inequities in the labor market and the broader economy continue to limit the earnings of AIAN families and leave workers in this community unfairly exposed to job losses.
How the economy is doing has always been a contentious topic, particularly when friends and family with different politics gather for Thanksgiving dinner. And the question has gotten even thornier this year, with consumer sentiment and polling data about the economy becoming historically de-linked from official measures of economic health like GDP. It’s not our job to tell people how they should feel about the economy, but we can at least add some facts as context to common complaints.
Myth: “The economy is simply bad under the Biden administration”
In January 2020, the share of Americans saying that the U.S. economy was in “poor” shape was below 10%, but in recent months that share was above 40%. However, the unemployment rate in early 2020 and the middle of 2023 was essentially identical. The share of adults between the ages of 25 and 54 with a job was actually higher in the more recent period. Economic growth in the last quarter of 2019 was 2.6%, while it was 4.9% in the third quarter of 2023. The economy is growing (at least) as fast as it was pre-pandemic, and jobs are more plentiful.
This higher-pressure labor market has substantially eroded inequality in wages. Consider one metric of inequality—the ratio of the 90th-percentile wage (the wage earned by the worker who has higher pay than 90% of the workforce) to the 10th-percentile wage. Between 1980 and 2019, this ratio rose enormously by about 34%. But a full third of this 39-year increase has been erased in less than three years after 2019 because of rapid growth in pay for low-wage workers, which has not been a historical norm. If this inequality reduction sticks, it could well be the single most important development in the economy in decades.
The school bus driver shortage remains severe: Without job quality improvements, workers, children, and parents will suffer
When students returned to school in August and September, numerous media reports drew attention to school bus driver shortages across the country. The turbulence resulting from these shortages has at times been dramatic. In Louisville, Kentucky, school district leaders fumbled the rollout of an expensive new routing software intended to reduce the number of school bus drivers needed, leading to misplaced students and forcing the school district to halt classes for more than a week. Meanwhile, in New York City, the union contract for school bus drivers expired, with contentious negotiations resulting in a narrowly averted strike.
School bus drivers remain a vital part of the education system. Roughly half of school children rely on bus services to get to school. Interrupted services and instability can disrupt learning time and contribute to absenteeism. Reduced bus services can be a particularly challenging hurdle for children with disabilities, who sometimes travel far distances for specialized education. With many students and families already trying to recover from challenges and learning disruptions caused by the pandemic, it is more important than ever to have services as basic as bus transportation to school functioning effectively.
Amid increasing child labor violations and ongoing attempts to roll back protections for child labor in states across the country, bills to strengthen protections in multiple states and at the federal level are a welcome and long-overdue development. State lawmakers have especially important roles to play in addressing the urgent need to protect youth workers in dangerous jobs like agriculture, meatpacking, and construction.
In the past two years, seven states have introduced bills to strengthen child labor protections and four have enacted them
In the past two years, seven states have introduced bills to strengthen protections for child labor and four have enacted them (Arkansas, Colorado, Illinois, and California). In June 2023, Colorado enacted a law that allows a family to sue the employer of a child who was injured at work while employed in violation of the law. In September, Illinois passed a law mandating that child influencers and children who appear in their parents’ monetized digital content must be fairly compensated—the first of its kind in the nation. And in October, California’s governor signed into law a measure that will teach high school students about their workplace rights and right to join a union—also the first of its kind. Earlier this year, Arkansas passed a harmful bill eliminating youth work permits, which informed families of a child’s rights at work and provided documentation that can be used to aid compliance with the law. A week later—following a slew of negative press attention and alarm raised by child welfare advocates—Arkansas lawmakers passed a bill to increase penalties for child labor violations, though without adding any new enforcement funding or capacity.
This piece was originally published in the Review of Black Political Economy.
The Economic Policy Institute’s public statement on the death of Dr. William E. Spriggs characterizes his professional legacy as follows:
“A fierce proponent of racial and economic justice whose influence as a public intellectual and economist reached across academia, labor, think tanks, positions in the Clinton and Obama administrations, and the civil rights community. In addition to broadening discussions about race and economics within these critical institutions, Dr. Spriggs worked tirelessly behind the scenes to expand representation of people of color within the economics profession and to mentor future generations of economists.”
At the end of his life, his resume included titles, such as chief economist of the AFL-CIO, economics professor, and former chair of the Howard University economics department. His research was frequently published in The Review of Black Political Economy, covering topics such as occupational segregation, the returns to HBCU graduation, and the impact public policies like affirmative action and welfare reform have on economic inequality. His most cited article according to Google Scholar, “What Does the AFQT Really Measure: Race, Wages, Schooling and the AFQT Score”, was co-authored with William Rodgers and published in June 1996 volume of The Review of Black Political Economy.
This impressive but incomplete listing of professional accomplishments speaks volumes of the friend, colleague, and mentor many of us simply called Bill. In the field of economics—a discipline reputed to be impersonal, abstruse, and at times detached from reality on issues of racial, gender, and worker justice—Bill’s approach to economics was the complete opposite. His clear understanding of economic issues was always communicated with a level of honesty and in a manner that reflected Bill’s internal guiding truth and personal commitment to making life better for Black Americans and working people from all backgrounds.
In honor of Bill’s legacy, the following are personal reflections from Larry Mishel and Valerie Wilson—two people who witnessed, learned, and benefited from that commitment throughout his career.
Below, EPI economists offer their insights on the jobs report released this morning, which showed 150,000 jobs added in October.
Tackling the problem of ‘captive audience’ meetings: How states are stepping up to protect workers’ rights and freedoms
Political and religious coercion in the workplace is a growing problem affecting workers from all backgrounds and across the political spectrum. U.S. employers have tremendous power over worker conduct under current federal laws. For example, employers can require workers to attend “captive audience” meetings—and force employees to listen to political, religious, or anti-union employer views—on work time.
In the face of this growing threat, legislators in 18 states have advanced bills to protect workers from offensive or unwanted political and religious speech unrelated to job tasks or performance. These bills are designed to prohibit employers from threatening, disciplining, firing, or retaliating against workers who refuse to attend mandatory workplace meetings focused on communicating opinions on political or religious matters.
Importantly, these state laws do not limit employers’ rights to express their beliefs freely or even to continue inviting employees to attend workplace political or religious meetings. These laws simply empower workers to opt out of unwelcome political speech by protecting them from financial harm or retaliation if they choose not to attend such meetings.
The strong labor market recovery has helped Hispanic workers, but the end of economic relief measures has worsened income and poverty disparities
The U.S. recently celebrated the rich contributions and diverse heritage of the Latinx community by observing National Hispanic Heritage Month.1 Diverse and fluid identity terms are a hallmark of the Latinx community and are often the subject of debate. This reflects the size and diversity of the Hispanic community, which is the second-largest ethnic and racial group in the United States, representing 19.1% of the population. In addition to their contribution to our nation’s social fabric, these workers continue to help power the U.S. economy and have the highest labor force participation rate among all racial and ethnic groups.
We find that following the severe impact of the pandemic, Hispanic workers have enjoyed a strong rebound as a result of a historic stretch of job creation. But persistent labor market disparities continue to translate into broader income and poverty disparities for Hispanic people. Narrowing these disparities, which leave Latinx workers and families vulnerable to economic shocks, will require a commitment to strengthen the U.S. social safety net once again and to bolster labor laws to protect the right of Latinx workers to organize and join unions.
The farmworker wage gap: Farmworkers earned 40% less than comparable nonagricultural workers in 2022
This is the second blog post in a series on farmworker employment and wages.
The public discourse around farmworkers’ wages has recently reached a fever pitch, with farm employers and industry associations arguing that wages have risen too quickly and are out of control. As a response, farm employers and industry associations have lobbied Congress to reduce the required wage rates for migrant farmworkers in the H-2A visa program—known as the Adverse Effect Wage Rate (AEWR)—and even sued the U.S. Department of Labor (DOL) to invalidate a new methodology for setting AEWRs.
But even a cursory review of the basic wage data on farmworkers and the H-2A program reveals that claims about farmworkers being overpaid are not based on any observable evidence, and in fact farmworkers are paid much less than similarly situated workers outside of agriculture. That is not to say that farmworkers’ wages have not increased over the past decade—they have risen in real terms—but farmworker wage growth must be viewed in the context of wage growth for other workers and employer claims of a labor shortage in agriculture.
In light of these claims and recent lobbying efforts, this next blog post in this series will examine the available evidence on farmworkers’ wages and wage growth compared with workers outside of agriculture. In subsequent posts, I’ll review changes in the AEWR over the past 10 years, and analyze the wages of directly hired farmworkers versus those who are employed by farm labor contractors.
The impact of the wave of strike activity goes far beyond the 2024 election: A revitalized labor movement could lead to a fairer economy for decades to come
Last week, both President Joe Biden and Donald Trump traveled to Michigan. Many in the media cast these visits as similar efforts to woo union voters for the 2024 election. But that is mostly wrong or misleading.
The visits were clearly not symmetric pro-union efforts. Biden walked a picket line in support of the United Auto Workers (UAW)—something no other president in history has done—and told them: “Folks, stick with it, because you deserve the significant raise you need.” Trump, on the other hand, accepted an invitation from the management of a non-union auto parts firm to appear at its factory. He then downplayed the UAW strike, telling his audience that the current negotiations “don’t mean as much as you think” while mostly ranting against electric vehicles.
The impact on next year’s election remains to be seen. But if working people vote based on who truly has their interests at heart—rather than who has repeatedly chosen to put corporate interests above those of workers—that will greatly favor Biden. If, instead, both candidates are portrayed as earnestly courting working-class voters, then the waters will be muddier.
But to assess the two visits to Michigan mainly in terms of their potential effect on the 2024 election is to think too small. The single most important trend in U.S. economic life in recent decades has been the rise of income inequality, which was overwhelmingly driven by anemic growth in wages for all but the very highest-paid workers.
In turn, perhaps the single largest driver of this rise in inequality has been the undermining of the power of organized labor and the subsequent decline of unionization and collective bargaining. If Biden’s walk on the picket line is one signal of a resuscitation of labor’s power, this could lead to a better economic life for low- and middle-income families for generations to come.
This is the first blog post in a series on farmworker employment and wages.
Basic facts about the employment of farmworkers, and the wages they earn, are often difficult to obtain and understand. Media coverage and even policymakers working on agricultural issues often mistake or confuse key data points. This is understandable, given that employment and wage data in agriculture must be pieced together from multiple data sets, which are often incomplete and inconsistent and provide information about different segments of the farm workforce.
This blog post is the first in a series that will attempt to address this information gap by providing some basic facts and information about farmworker employment and wages. I begin by addressing one of the most basic yet confusing questions about farmworkers: How many are employed in the United States?
Florida legislature proposes dangerous rollback of child labor protections: At least 16 states have introduced bills putting children at risk
Updated November 14, 2023
This post has been updated to reflect confirmation of the Foundation for Government Accountability’s role in drafting the proposal to roll back child labor protections in Florida. Previously, the post indicated the group’s support for similar bills in other states and the likelihood of their involvement in Florida.
Last week, Florida became at least the 16th state to introduce legislation rolling back child labor protections in the past two years, and the 13th state to introduce such legislation in 2023. Florida’s bill proposes eliminating all guidelines on hours employers can schedule youth ages 16 or 17 to work, allowing employers to schedule teens to work unlimited hours per day or per week—including overnight shifts on school days. The bill was drafted by the Foundation for Government Accountability (FGA)—a Florida-based right-wing dark money group that has lobbied for similar proposals in multiple states.
At a time when violations of child labor laws are on the rise nationally—and amid reports of serious violations in Florida—lawmakers must act to strengthen standards, not erode existing minimal standards designed to keep youth safe at work and guarantee all children equal access to education.
The expiration of pandemic-era public assistance measures fueled poverty increases in the majority of states (Corrected)
Poverty in the U.S. is a choice directly reflecting federal, state, and local policies. The expansion of safety net programs in response to the pandemic-driven recession reduced poverty rates nationally in 2021 to below pre-pandemic levels. However, because policymakers ended many of these programs—including expanded unemployment insurance, the expanded Child Tax Credit, and economic impact/stimulus payments—poverty rates rose from 7.8% in 2021 to 12.4% in 2022. Child poverty, which had fallen to record lows in 2021, increased from 5.2% to 12.4% in 2022.
In this post, we show poverty rates in each state. Data for the official poverty measure—the one most often quoted in media—are compared with the Supplemental Poverty Measure (SPM), which provides a more complete picture of the well-being of families in the states. When using the more comprehensive measure of poverty, we see that poverty rates increased in the majority of states after programs like the expanded Child Tax Credit were allowed to expire.
New data show that access to paid sick days remains vastly unequal: Amid federal inaction, 61% of low-wage workers are without paid sick days
The spike in child poverty highlighted in the latest Census release illustrated the consequences of allowing crucial government provisions to expire. Although less discussed, the Families First Coronavirus Response Act—a tax credit incentivizing employers to provide sick leave—was another important government provision that expired two years ago. Few policymakers seem intent on renewing it, though some have repeatedly proposed federal legislation that would make paid sick days a permanent benefit.
Absent federal action, new Bureau of Labor Statistics data released today reveal stark inequalities in access to paid sick leave. One that hits hard is the inability of 61% of the lowest-wage workers in the U.S. to be able to earn paid sick days to care for themselves or family members.
Figure A below breaks down access to paid sick days: Whereas 96% of the highest-wage workers (top 10%) had access to paid sick days, only 39% of the lowest-paid workers (bottom 10%) are able to earn paid sick days. That means the highest-wage workers are 2.5 times as likely to have access to paid sick leave as the lowest-paid workers.
Workers without paid sick leave often have to choose between going to work sick (or sending a child to school sick) or risk losing their job or forgoing a vital household expense. In a forthcoming EPI report, we will demonstrate that the costs of these expenses from not having paid sick leave can be high.
Despite a strong labor market, the choice to allow pandemic-era public assistance programs to expire increased poverty across all racial groups in 2022
The 2022 income and poverty report released last week by the Census Bureau offers an initial, authoritative insight into the economic well-being of U.S. households by race and ethnicity. This examination comes in the wake of a notable decrease in child poverty rates in 2021, primarily attributed to the expansion of safety net programs—like the Child Tax Credit (CTC)—that were an integral component of the COVID-19 economic recovery.
The report indicated that although real median household income fell 2.3% in 2022 for all households, there were notable differences across various racial and ethnic groups, as seen in Figure A. Specifically, Black households saw a modest 1.5% increase in real median household income, going from $52,080 to $52,860. Likewise, Hispanic households experienced a slight 0.5% uptick, with median income rising from $62,520 to $62,800. Asian households experienced a 0.6% dip in median household income, from $109,400 to $108,700. In contrast, white, non-Hispanic households experienced a more pronounced 3.6% decline in median household income, from $84,110 to $81,060.
Notably, one of the key factors explaining why Black household median income was seemingly less affected than that of white households is the increased employment of Black workers in the labor market, which managed to counteract the negative impact of inflation on income. In 2022, the number of Black full-time, year-round earners increased by 1.3 million—or 9%— compared with an increase of 450,000 white earners—or 0.6%.
Microsoft’s proposed acquisition of Activision Blizzard could well close in the next month because the regulatory process is ending. In this case, the European Commission has shown even more creativity than the newly-energized U.S. Federal Trade Commission (FTC), approving the transaction in May with some structural consumer protection provisions that are likely to be amplified by the United Kingdom’s Competition and Markets Authority. (Fun fact, an economics dissertation in 2012 argued the merger made sense.)
European Union (EU) and UK authorities basically require the proposed merged company to ensure equal access for consumers and improve consumers’ experience. According to these two European regulators, the merger is allowed only if Microsoft helps consumers. To satisfy the UK, Microsoft is divesting the cloud licensing business of Activision Blizzard to Ubisoft. This apparently addresses the antitrust agency’s demands that consumers get more choice and better outcomes under the merger.
The FTC should act now to be part of the global merger settlement that protects consumer, community, and worker interests.
But, I worry. My concern is that the FTC (and progressive pro-consumer and antitrust economists) will stick to old-fashioned frameworks that assume enforcing smallness equates to enhancing competition. A “break ‘em up no matter what” stance would miss the opportunity to get the best of what well-regulated large firms have to offer. Also, the “small is always beautiful” approach to antitrust defies modern labor and industrial economics research. This modern research highlights that real-world markets—even those with many players operating in a given market—allow for significant exercise of market power, particularly employers’ power over wage-setting for employees.
UAW-automakers negotiations pit falling wages against skyrocketing CEO pay: U.S. auto companies have the means to invest in EVs, pay workers a fair share, and still earn healthy profits
- Profits at the “Big 3” auto companies—Ford, General Motors, and Stellantis— skyrocketed 92% from 2013 to 2022, totaling $250 billion. Forecasts for 2023 expect more than $32 billion in additional profits.
- CEO pay at the Big 3 companies has jumped by 40% during the same period and the companies paid out nearly $66 billion in shareholder dividend payments and stock buybacks.
- Autoworker concessions made following the 2008 auto industry crisis were never reinstated, including a suspension of cost-of-living adjustments. As a result, workers’ wages in the union and nonunion sector alike are falling farther behind inflation: Across the U.S., auto manufacturing workers have seen their average real hourly earnings fall 19.3% since 2008.
- Broadly sharing profits with workers will be even more critical as the industry focuses on becoming greener—both in what and how they produce cars and trucks. The Big 3 firms are set to receive record taxpayer-funded incentives to support their expansion into electric vehicle (EV) manufacturing. EV transition policies and the economic and climate potential they promise will not be sustained if auto workers and auto communities are again asked to sacrifice good jobs.
United Auto Workers (UAW) members at the “Big 3” companies—Ford, General Motors (GM), and Stellantis—are poised to strike this week when their contracts expire September 14. It’s a historic and economically momentous time for this foundational industry in America’s industrial-technological base, and the outcome of the negotiations has potentially profound implications for how successfully we tackle the climate crisis.
The deep roots of the UAW’s current dissatisfaction share much with those taking labor actions to fight back after decades of rising inequality: The pay of typical workers has lagged far behind more-privileged actors in our economy, and the reason for this growing inequality is an erosion of workers’ leverage and bargaining power in labor markets. After surveying here the recent trends in auto industry wages, corporate profits, and executive compensation, it’s hard to blame workers for standing up now. It’s also clear that the companies have more than enough means to meet worker demands, remain profitable, and make the necessary investments to grow into electric vehicles. In fact, the “Big 3” companies can ill-afford not to recruit and retain talented workers in a rapidly transforming industry.
In the 2008 auto industry crisis, GM and Chrysler (now Stellantis) agreed to bankruptcy and government-supported restructuring. While this deal saved jobs throughout the auto sector, it came with steep costs to workers. Union workers agreed to a wage freeze, entry of lower-wage “tiered” workers, and other concessions affecting retiree pensions and health care benefits.1 In 2009, the companies suspended contractual cost of living adjustments and have not had one since. Since that time, average consumer prices have increased nearly 40% and autoworker wages have not come anywhere close to keeping up.
As unionized auto wages fell behind, so did non-unionized auto wages. This spillover effect whereby wage suppression of union workers filters out into the broader economy and damages the wages of non-union workers as well is a key dynamic driving U.S. inequality in recent years. Bureau of Labor Statistics data in Figure A show that production and non-supervisory workers across the broader motor vehicle industry, union and non-union, have taken it on the chin since the 2009 deal. Those working in motor vehicle manufacturing saw their average hourly earnings fall a staggering 19.3% since 2008, after adjusting for inflation. Including the broader motor vehicle parts industries—where outsourcing strategies have long compressed industry wage structures and thus didn’t have as far to fall—average earnings fell 10% in real terms.
Economic relief measures enacted in response to the pandemic strengthened the U.S. social safety net and made a historic dent on poverty in 2021. New Census Bureau data show that the expiration of these key programs caused a significant increase in poverty last year, with the number of children in poverty more than doubling.
Bold policy initiatives such as economic impact/stimulus payments and the expansion of the Child Tax Credit (CTC) helped to shelter millions of people from poverty during a time of social and economic uncertainty at the beginning of the COVID-19 pandemic. For example, the Census Bureau’s most accurate measure of poverty—the Supplemental Poverty Measure—showed that poverty declined by more than 30% between 2019 and 2021, reaching a historic low of 7.8% in 2021. During the same three-year period, child poverty declined by more than half, reaching a historic low of 5.2% in 2021. Importantly, gains during this period were observed across all racial and ethnic groups.
New poverty data for 2022 show that all these gains in poverty reduction have now disappeared. More than 40 million people in 2022 fell below the poverty line, an increase of over 15 million (see Figure A). The substantial weakening of welfare state programs that had protected families from economic deprivation in 2021 resulted in poverty increases across all major racial and ethnic groups last year, further deepening the disadvantages of historically marginalized individuals and families.
2022 Census data preview: Poverty rates expected to increase as high inflation and the loss of safety net programs overshadow labor market improvements
Bold fiscal relief and recovery measures passed in response to the pandemic boosted the economy and helped millions of Americans avoid joblessness and poverty in 2020 and 2021. While the economic recovery has continued to strengthen since then, most of the government relief measures that helped workers and families weather the economic shock have now expired. Upcoming Census Bureau data on earnings, income, and poverty for 2022—released on Tuesday—will reflect how these policy choices impacted the economic well-being of workers, families, and children across the country.
To help place the upcoming data release in context, we highlight key economic trends that have characterized the recovery since 2021. We also show how the current labor market is already on pace to becoming a better year for workers and families with expanding job opportunities and falling inflation.
Extraordinary fiscal recovery measures during the COVID-19 pandemic pushed U.S. public debt to levels rivaling its historic highs. Interest rates are significantly higher than they have been in over a decade. Many projections—including near-canonical graphs of debt as a share of gross domestic product (GDP) produced by the Congressional Budget Office—look extremely daunting, with debt ratios skyrocketing over the next few decades. In short, the benefits of measures to reduce budget deficits appear higher than they have in years.
However, without context, these presentations of debt can make the overall fiscal challenge look near-hopeless and create an environment where any measure to reduce debt seems necessary—no matter its other costs.
This post aims to do two things: (1) bring some context to the size of the policy adjustments needed to stabilize the U.S. debt-to-GDP ratio (or just debt ratio); and (2) compare the size of this policy adjustment with plausible efforts to stabilize the U.S. debt ratio using tax increases alone.
The minimum wage is a New Deal era policy established initially through the Fair Labor Standards Act of 1938 (FLSA). The original bill set a wage floor, instituted a 44-hour work week, and protected children from prematurely entering the workforce. Since its inception, the FLSA has been amended multiple times, with added exemptions and expansions specifying which groups of workers are covered under different aspects of the law. The latest proposed changes in Congress—the Raise the Wage Act of 2023—would increase the federal minimum wage to $17 per hour.
In light of this new legislation, we take a look back at the 85-year history of the minimum wage, how it differs in states and localities, and how minimum wage laws continue to have implications for racial, gender, and economic justice today.
Below, EPI senior economist Elise Gould offers her initial insights on today’s release of the Job Openings and Labor Turnover Survey (JOLTS) for July. Read the full thread here.
The mild drop in hiring puts the hires rate solidly in pre-pandemic territory. While quits edged down, the quits rate remains consistent with a tight labor market; less churn than in the height of the great reshuffling, but still a positive sign for workers. Layoffs remain low. pic.twitter.com/LvdZYhgfVz
— Elise Gould (@eliselgould) August 29, 2023
Even as hires have softened, hiring remains above the quits rate in every sector. The great reshuffling isn’t what it was two years ago, but it continues as workers look and find better job opportunities. pic.twitter.com/xW9o2JCznG
— Elise Gould (@eliselgould) August 29, 2023
Inflation—both overall and core—has been steadily normalizing from its elevated levels of the past two years. Notably, this has happened without any pronounced slowdown in economic growth or any rise in unemployment. In short, the much-discussed “soft landing” seems to be happening. Many have declared this a highly unexpected development that was unforeseen by any economists. This is obviously not true—there have been plenty of us making the case that inflation would indeed likely normalize even without a rise in unemployment.
That said, it has been a highly unusual few years and no economic analyst has called every zig and zag of the inflation debate exactly. Given that this unusual period seems to be ending, it’s a useful time for a retrospective look at predictions I made. This retrospective can be divided into four categories:
- Unambiguously wrong: I predicted a relatively short and narrow burst of inflation, with very little spillover into faster nominal wage growth. Much of this was wrong due to new shocks occurring after this initial prediction, but not all of it.
- Unambiguously right: Higher unemployment was not needed to pull down inflation or even the pace of nominal wage growth.
- Probably wrong: I thought interest rate increases as fast and high as what was done over the past year would have appreciably slowed the economy far more than they have so far.
- Probably right: The role of generic macroeconomic overheating in driving inflation has been far overemphasized. Instead, the evidence is more consistent with a story of extreme shocks causing unexpectedly large ripple effects in the wider economy.
- Totally mixed: What role, if any, did higher interest rates contribute to normalizing inflation?
Below, I’ll say a bit more about each of these.
The Inflation Reduction Act (IRA) was signed into law a year ago this week. It is widely seen as the crown jewel of the “industrial policy” agenda of the Biden administration. While no piece of legislation is perfect, the full potential of the IRA to deliver a radically better future is often underrated. In this post, we highlight many of the IRA’s huge steps forward and also talk about the unfinished agenda for securing faster, fairer, and greener growth in the U.S. economy.
Put simply, the IRA puts the U.S. on a path where meeting its global climate change commitments is within reach—commitments which would provide a genuine chance at securing a livable planet for future generations if they are kept. At the beginning of August 2022, there was no such path to secure this livable future, but there is now—and that is a mammoth victory.
The IRA was essentially a climate change bill that included extraordinarily important health and tax changes as ride-alongs. If the bill had only included these health and tax policy changes, it would have been eminently worthy of applause. The fact that these changes were essentially side-shows to the IRA’s climate impacts is one clue about how transformative it might turn out to be.
Economist Larry Summers made waves with highly critical remarks about the Biden administration’s economic policies while attending a Peterson Institute for International Economics event on industrial policy and U.S. foreign policy last month. Although Summers expressed support for the trio of industrial policy bills that the Biden administration has passed—the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act (IRA)—he strongly criticized the “doctrines” (his word) of the Biden administration.
For now, we’ll set aside the question of whether supporting the administration’s concrete actions but disliking their rhetoric merits this level of blistering criticism. Instead, we’ll point out two things. First, Summers’s description of the aims of these industrial policy bills (and hence the “doctrine” of Bidenomics) is obviously inaccurate. Second, to the degree that the administration really has made an intellectual break with the past (including past Democratic administrations), it’s a welcome and necessary break. This is especially true regarding Summers’s claim that the pre-Trump approach to trade policy is a model that should be restored.
New data show that state and local governments still have not spent a majority of American Rescue Plan funds: Important opportunities remain to invest in public services
The U.S. Department of the Treasury has released new data on how state and local governments are spending the $350 billion of State and Local Fiscal Recovery Funds (SLFRF) allocated by the American Rescue Plan Act (ARPA), covering expenditures through March 31, 2023. Less than half of the money has been spent: States have spent 45% of the $195 billion they were allocated and local governments have spent 38%, both slight increases from the previous quarter. However, these data do not include most spending decisions made during spring state legislative sessions, which may change the situation somewhat.
Fiscal recovery funds can be used for myriad purposes related to the COVID-19 pandemic and its economic impacts. While the official pandemic state of emergency has come to a close, the economy and public services are still dealing with the negative economic impacts, including a loss of public-sector jobs. We find that the 10 states that have spent the least amount of their fiscal recovery funds have state job vacancies twice as high as the 10 states that have spent the most.
Governments should prioritize rebuilding public services and filling state and local government job vacancies with their remaining funds. Fiscal recovery funds must be obligated (designated for specific uses) by December 31, 2024, and must be spent by December 31, 2026.