August 10, 2021

The shocking revelations from former acting attorney general Jeffrey A. Rosen about former president Trump’s direct efforts to use the Department of Justice to overturn the 2020 election, along with the horrors of spiking Covid among the unvaccinated, drove out of the news cycle a revelatory piece of news.

Last Friday, the Bureau of Labor Statistics in the Department of Labor released the jobs report for August 2021. It was stronger than economists had predicted, and even stronger than the administration had hoped.

In July, employers added 943,000 jobs, and unemployment fell to 5.4%. Average hourly wages increased, as well. They are 4% higher than they were a year ago.

Harvard Professor Jason Furman, former chair of President Barack Obama’s Council of Economic Advisors, tweeted: “I have yet to find a blemish in this jobs report. I've never before seen such a wonderful set of economic data.” He noted the report showed “Job gains in most sectors... Big decline in unemployment rate, even bigger for Black & Hispanic/Latino… Red[uctio]n in long-term unemp[loyment]... Solid (nominal) wage gains.”

“Still a long way to go,” he wrote. “[W]e're about 7.5 million jobs short of where we should have been right now absent the pandemic. But we've made a lot of progress.”

Michael Gapen, chief U.S. economist at Barclays, told New York Times reporter Nelson D. Schwartz: “It’s an unambiguously positive report…. Labor market conditions are strong. Unemployment benefits, infection risks and child care constraints are not preventing robust hiring.”

The jobs report is an important political marker because it appears to validate the Democrats’ approach to the economy, the system the president calls the “Biden Plan.” That plan started in January, as soon as Biden took office, using the federal government to combat the coronavirus pandemic as aggressively as the administration could and, at the same time, using federal support to restart the economy.

In March 2021, the Democrats passed the American Rescue Plan, a $1.9 trillion economic stimulus package. In addition to strengthening healthcare systems to combat the coronavirus, it provides economic relief primarily to low- and middle-income Americans by extending unemployment benefits and the child tax credit; funding schools, housing, and local governments; providing help for small businesses; and so on.

Polls indicated that the measure was enormously popular. A Morning Consult poll from February showed that 3 out of 4 voters liked it, and local governments and state governors, including a number of Republicans, backed the bill.

But every single Republican lawmaker in the House of Representatives voted against the measure, saying it was too expensive and that it was unnecessary.

Since 1980, Republican lawmakers have opposed government intervention to stimulate the economy, insisting that private investment is more efficient. Rather than use the government as presidents of both parties from Franklin Delano Roosevelt through Jimmy Carter did to keep the playing field level and promote growth, modern-day Republicans have argued that the government should simply cut taxes in order to free up capital for wealthier Americans to invest. This, they said, would create enough growth to make up for lost tax revenues.

President Ronald Reagan began this trend with major tax cuts in 1981 and 1986. President George H.W. Bush promised not to raise taxes—remember “Read my lips: No new taxes”—but found he had to increase revenues to address the skyrocketing deficits the Reagan cuts created. When he did agree to higher taxes, his own party leaders turned against him. Then President George W. Bush cut taxes again in 2001 and 2003, despite the wars in Afghanistan and Iraq, and in 2017, Republicans under President Donald Trump cut taxes still further.

In 2017, Trump claimed the cut would be “rocket fuel for the economy.” Then–Treasury Secretary Steven Mnuchin echoed almost 40 years of Republican ideology when he said: "The tax plan will pay for itself with economic growth." And then–Senate Majority Leader Mitch McConnell said: "After eight straight years of slow growth and underperformance, America is ready to take off.” (In fact, while Trump’s tax cuts meant tax revenues dropped 31%, they yielded only 2.9% growth, the exact same as the economy enjoyed in 2015, before the cuts.)

Laws like the American Rescue Plan should, in the Republicans’ view, destroy the economy. But Friday’s booming jobs report, along with the reality that the Biden administration has created an average of 832,000 new jobs per month, knocks a serious hole in that argument.

It may be that the pendulum is swinging away from the Republican conviction that tax cuts and private investment are the only key to economic growth.

Today, the Senate passed a $1 trillion bipartisan infrastructure bill by a vote of 69 to 30. The bill repairs roads and bridges, invests in transit and railroads, replaces lead pipes, and provides broadband across the country, among other things. In the next ten years, it is expected to create nearly 3 million jobs.

Nineteen Republicans voted in favor of the bill. There were many reasons to do so. The measure is popular with voters, and Republicans were embarrassed by their unanimous opposition to the American Rescue Plan. Indicating a willingness to work with Democrats might also undercut the Republicans’ image as obstructionists and help to protect the filibuster (a factor I’m guessing was behind McConnell’s yes vote).

But that Republicans felt they needed to abandon their position and vote yes for any reason is a big deal. "For the Republicans who supported this bill, you showed a lot of courage,” Biden told them. “And I want to personally thank you for that."

The bill now goes to the House, which will take it up after the Senate passes a $3.5 trillion infrastructure measure through the reconciliation process, which Democrats can do with a simple majority and without Republican support. The larger package addresses climate change, child care, elder care, housing, and so on. Moody Analytics, which provides economic research and modeling, says that, if it is combined with the bipartisan bill, it will add close to 2 million jobs a year over the next ten years.

Yet, Republicans say it is a “reckless tax and spending spree.”

In contrast, Treasury Secretary Janet Yellen said: “My largest concern is not: What are the risks if we make these big investments? It is: What is the cost if we don’t?”

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Notes:

https://www.bls.gov/bls/history/home.htm

https://www.washingtonpost.com/business/explainer-5-key-takeaways-from-the-july-jobs-report/2021/08/06/97dff92a-f6f3-11eb-a636-18cac59a98dc_story.html

https://morningconsult.com/2021/02/24/covid-stimulus-support-poll/

https://www.nytimes.com/2021/08/06/business/economy/july-2021-jobs-report.html

https://www.cbpp.org/research/federal-tax/the-legacy-of-the-2001-and-2003-bush-tax-cuts

https://www.npr.org/2019/12/20/789540931/2-years-later-trump-tax-cuts-have-failed-to-deliver-on-gops-promises

https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/08/06/remarks-by-president-biden-on-the-july-jobs-report/

https://www.npr.org/2021/08/10/1026081880/senate-passes-bipartisan-infrastructure-bill

https://www.politico.com/news/2021/08/10/senate-passes-bipartisan-infrastructure-bill-503265

https://www.cnn.com/2021/07/28/politics/infrastructure-bill-explained/index.html

https://www.moodysanalytics.com/-/media/article/2021/macroeconomic-consequences-infrastructure.pdf

https://www.usatoday.com/story/opinion/2021/08/10/senate-passes-infrastructure-bill-bipartisan-support/5539281001/

https://www.cnbc.com/2021/08/04/yellen-says-enacting-bidens-agenda-key-to-keeping-america-as-worlds-pre-eminent-economic-power.html

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