- The economic recovery is weird but can teach us about things like inflation, wages, and inequality.
- But to learn those lessons, and make good policy around them, legislators have to acknowledge them.
- Republicans have demonstrated that they have zero interest in any of that.
- This is an opinion column. The thoughts expressed are those of the author.
You have to feel a little bit sorry for Federal Reserve Chair Jerome Powell.
On Tuesday, he testified before the House Select Subcommittee on the Coronavirus Crisis, and it was a waste of his time. Both Democrats and Republicans failed to ask productive questions about how the Federal Reserve was responding to the weird economic dislocations caused by the pandemic — inflation being foremost among them. Most lawmakers were just trying to make a political point.
But Republican House members — especially Minority Whip Steve Scalise — were most responsible for turning the hearing into a worthless mess. Instead of asking questions about Federal Reserve policy or even the economy generally, GOP members pitched fits about government spending, lockdowns (which are ending in even the most cautious states), and the theory about a Wuhan, China, lab leak.
Yes, we know Powell has literally nothing to do with investigating the origins of the pandemic. But I guess someone should tell House Republicans.
It's too bad we didn't get to hear Powell's thoughts because the bizarre economy has lessons for us — about worker behavior, supply chains, the housing market, and the future of work. But Republicans aren't interested in learning them.
GOP economic orthodoxy does not leave room to adapt to extraordinary situations, not even a once-a-century pandemic recovery. Right now, this is in large part because this economy — one hot enough for workers to have options and get higher wages — is happening under a Democratic president, instead of under Donald Trump.
You can take the GOP to Congress, but you can't make it think
Let me say this again: Neither party, Republicans nor Democrats, had great questions at the Powell hearing. But while Democrats were trying to draw Powell into saying he supported Biden's infrastructure plan — which any Fed chair would avoid, so as not to seem partisan — at least they were trying to make a case for doing something to sustain our economy. Their comments were not useful, but they were relevant.
The Republican performance was abysmal because none of them were engaging with the strangeness or the opportunity of our economic reality. Scalise spent half his questioning time patting the Trump administration on the back for its handling of the economy and complaining about how lockdowns ruined that run — as if the lockdowns were for funsies and not a consequence of a devastating virus spreading everywhere. When he talked about inflation, it was only to berate Powell and argue against government spending. There were no questions.
The other half of the time, Scalise just pontificated about the role of government benefits in holding back the labor market, a constant GOP complaint that has been solidly debunked. When Powell tried to explain how quickly the labor market would come back — "I strongly suspect labor supply and job creation will be moving up well over this year," he said — Scalise ignored him. Scalise, after all, was not looking for knowledge.
Powell mentioned that workers were hesitant to go back to the labor market for a variety of factors, including a lack of childcare and fear of the virus. See, we're learning from this economy: It's pretty clear that widespread childcare programs could help people out of work get back to it faster. But the GOP hates any government program — even ones that could help parents get back to work — so they just ignore the entire lesson.
Funky economy
For the first time since the 2008 financial crisis, we're seeing inflation all around us. Houses are so expensive that experts fear those higher prices are going to creep into the rental market, even in small American cities. World trade is just coming back after factories were forced to shut down for months, so key goods like semiconductors and cars are in short supply. Low-wage workers are demanding higher wages because the labor market has tightened as jobs open faster than employers can fill them.
Yet in the face of all this inflation, interest rates remain low. The bond market is telling us — at least so far — that this wonky economy will return to normal. But there's no denying that things are deeply weird. Powell keeps saying in interviews and hearings: "We have to be humble about our ability to understand the data."
This is a time watch closely and learn.
Consider the psychology of this moment. Workers — who've lived through a horror show of a year — are deciding not to return to jobs that made them unhappy. After a decade of low wage growth and dissatisfied workers, quit rates are hitting historic highs. You might think the precariousness of the pandemic would make people crave any kind of stability now that life is normalizing, but that's not what's happening. Instead, Americans are taking risks and trying to find better jobs. Honestly, you have to hand it to us. It takes guts.
It is critical to find out how to sustain a strong economy, make sure workers are supported, and possibly start to reverse decades of inequality without causing runaway inflation or an economic disaster. The way Powell is thinking about balancing those issues is extremely important.
We know that there are millions of vacant jobs, and millions of workers to fill them, but does the Fed think that this YOLO attitude workers have is going to slow that process down? Does that mean wages will creep up higher for longer? Is there a point at which the Fed is worried about wage growth because of its influence on prices?
It would be good to know how Powell is thinking about all these funky things the economy is doing right now. Maybe we could even apply the lessons we learn about rising wages to the fight inequality. Who knows?
Either way, no matter what the answers are to these questions, Republicans aren't listening. It's impossible for lawmakers to make good economic policy if they do not learn from the data, and they have already decided to waste this crisis.