November 16, 2021

Today, President Joe Biden hit the road to sell the benefits of the $1.2 trillion bipartisan infrastructure bill he signed into law yesterday. In Woodstock, New Hampshire, today, standing at a bridge deemed structurally unsafe—one of the 215 unsafe bridges in New Hampshire—Biden said "Clean water, access to the internet, rebuilding bridges—everything in this bill matters to the individual lives of real people. This is not something abstract.”

The popularity of the new law was evident today when Republicans began to tout its benefits for their districts, despite their votes against it. Representative Gary Palmer (R-AL), for example, told his constituents: “Funding the Northern Beltline has consistently been one of my top priorities.” He added, “Birmingham is currently one of the largest metropolitan areas in the country without a complete beltline around it. Completing the Northern Beltline will benefit the entire region and enhance economic development and employment opportunities.” Completion of the road will create more than $2 billion in 10 years, he noted, and could create 14,000 jobs.

And yet, Palmer voted against the bill. When it passed, he tweeted: "The Democrats' recklessly expensive infrastructure bill finally passed tonight after weeks of disarray among their caucus."

Since Biden took office, the Democrats have used the government to help ordinary Americans. In the wake of the 2008 crash, the government badly underinvested in the economy, leaving consumers unable to recharge it. After a terribly slow recovery, the economy stabilized and then, once again, crashed during the pandemic. In spring 2020, millions of people lost their jobs, incomes plummeted, and spending fell off a cliff.

Worried we would make the same mistake twice, leaving the country to limp along, lawmakers pushed money into the economy. In spring 2020, Congress passed the $2.2 trillion bipartisan CARES Act, then in December 2020, the $900 billion bipartisan aid package. Then, in March 2021, the Democrats passed the $1.9 trillion American Rescue Plan.

These put more than $3 trillion into the economy, raising incomes and enabling individuals to put money into savings. Yesterday, the government sent out its fifth monthly payment to the families of around 61 million eligible children under the child tax credit that Democrats expanded under the American Rescue Plan. Yesterday’s payments were around $15 billion. So far, the program has delivered about $77 billion to families across the country which, in turn, enables them to buy household goods that pump money into the economy.

By protecting individuals’ incomes, the government also protected income tax revenues, enabling state and local governments to continue to function, while the money in people’s pockets has also meant they continued to buy goods, keeping sales taxes producing money. Far from collapsing, as it looked like they might in the early days of the pandemic, state and local governments are currently strong financially.

Other economic news is also good. Today, news broke that the government has badly underestimated job growth. Between June and September, the Bureau of Labor Statistics underestimated job growth by 626,000 jobs. The pandemic meant that businesses were slow to fill out paperwork, and this, in turn, meant numbers were underreported.

Goldman Sachs says that by the end of 2022, the nation’s unemployment rate will be at a 50-year low. Unemployment is currently at 4.6% and is expected to be at 3.5% by the end of the year, a rate that will match that of 2019, which was the lowest in 50 years.

Retail sales are also higher than expected. They are 16% higher now than they were a year ago, during the height of the pandemic. They jumped 1.7% in October, with Americans spending about $638.2 billion in that month. The National Retail Federation expects strong holiday retail sales. J.P. Morgan has upgraded its growth expectations for gross domestic product in the fourth quarter from 4% to 5%.

Products are also refilling shelves. Walmart today reported that it will have full shelves for the holiday season.

On all of this news, the stock market rose again.

All of these indicators are excellent, and they reflect the government’s protection of the demand side of the economy to prevent a situation in which the economy can’t recover from a recession because not enough people have enough money to get things moving again.

But now we are looking at a very different problem. The pandemic crashed supply chains across the world, creating a supply shortage (someone described this as the parking lot after a concert, when everyone is trying to leave at once, and as someone who once spent 4.5 hours trying to get out of a parking lot after a U2 concert, I love this comparison). Prices are rising as people who have money, thanks to lawmakers’ efforts to guarantee that we didn’t prolong a recession because of a demand problem, are trying to get scarce goods.

This has created 6.2% inflation in consumer prices, 4 points above the 2% inflation for which government officials aim, and a 30-year high. (Interestingly, gasoline prices, to which people look as a sign of inflation and which have risen about $1.50 a gallon from their low during the pandemic when no one was buying gas, are a reflection of global oil prices and have little to do with U.S. policies.)

Treasury Secretary Janet Yellen says that the smoothing out of supply chains and the end of the pandemic—if we can finally manage the pandemic—will bring prices back to expected levels, and Biden’s work with ports and shippers to expand their operations in order to clear bottlenecks appears to be having an effect. Bloomberg reports that the number of containers sitting on docks at the port of Los Angeles had declined 29% from its high. Still, the Federal Reserve has begun to scale back its support for the economy to try to cool the market.

Mike Pyle, chief economic adviser to the vice president, told Catherine Lucey and Alex Leary of the Wall Street Journal, “We continue to bet that as the economy recovers, as the pandemic abates, as a lot of the work that we’re doing to unclog supply chains and make them higher velocity and more fluid, as those things happen these pressures are going to abate.”

But concerns about inflation are affecting the Democrats’ plans for the larger Build Back Better infrastructure plan. Republicans insist that more investment will raise prices further, and conservative Democrat Joe Manchin (D-WV) has expressed his own concerns. Administration officials counter that the Build Back Better plan will lower key costs for families, especially childcare and medical expenses, and that since it is a long-term investment to be disbursed over ten years it will not have any immediate inflationary tendencies, while it will build long-term wealth for ordinary people.

With the economy so strong, so far only about 5% of Americans say that inflation is the most important issue facing the country. But painful memories of the crippling stagflation of the 1970s, when rising prices, rising energy costs, and the end of price controls instituted under President Richard Nixon sent inflation briefly over 12%, linger.

Republicans are hammering on this fear. Senator Rick Scott (R-FL), the chair of the National Republican Senatorial Committee, the fundraising arm of the Senate Republicans, said recently: “You can see what’s going to happen next. We’re going to continue to have inflation, and then interest rates will go up…. This is a gold mine for us.”

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Notes:

https://www.washingtonpost.com/business/2021/11/16/government-underestimated-job-growth/

https://www.cnn.com/2021/11/15/economy/unemployment-rate-goldman-sachs/index.html

https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/16/statement-by-director-of-the-national-economic-council-brian-deese-on-increasing-retail-sales/

https://www.washingtonpost.com/business/2021/11/16/retail-sales-october/

Carl Quintanilla @carlquintanilla

(Bloomberg) - The number of containers sitting on docks at the port of Los Angeles has declined 29%, CEO Gene Seroka says. (via @business @conorsen)

https://www.wsj.com/articles/us-economy-october-2021-retail-sales-11637009365?mod=hp_lead_pos1

https://www.npr.org/2021/11/16/1056268965/biden-picks-a-rickety-new-hampshire-bridge-as-a-scene-to-sell-his-infrastructure

https://palmer.house.gov/media-center/press-releases/palmer-new-funding-birminghams-northern-beltline

https://americanindependent.com/republican-house-infrastructure-bill-voting-alabama-gary-palmer/

https://home.treasury.gov/news/press-releases/jy0482

https://www.nytimes.com/2021/11/15/upshot/pandemic-economic-response.html

https://www.nytimes.com/2021/11/16/opinion/gas-prices-economy.html

​​https://www.nber.org/system/files/chapters/c11462/c11462.pdf

https://www.reuters.com/business/finance/fed-officials-say-high-inflation-weighing-consumers-needs-be-controlled-2021-11-16/

https://www.wsj.com/articles/biden-inflation-economy-spending-11636845241

https://www.wsj.com/articles/why-biden-isnt-benefiting-from-a-strong-economy-11636548983