They came to a reunion of the Barack Obama alumni association and left as Joe Biden’s economic team. Many, including then-vice President Biden, proudly claim to have cut their teeth as recession fighters after the 2008 financial crisis. Never mind that the crisis of 2008 was a systemic collapse of the financial system, whereas the one that might soon be upon us is a response to the closing down of the economy in response to Covid-19 outbreak. Or that the post-2008 recovery was one of the draggiest in history.
The team has its marching orders. The President-elect wants them to reward work, not wealth; to create good union jobs of the sort that built the middle class family. Presumably the chosen economists won’t take that literally, since only 6.2% of toilers in the private sector have chosen to be represented by unions, and the poorest workers, both white and black, do not live in the traditional family structure in which Biden resides and which his father taught him is the backbone of the American economy and its associated society.
The chosen competed to tell their tales of early privation to make clear their identity with the down-trodden classes, summarized by The New York Times, its reporters converted from rottweilers in pursuit of Trump to poodles hoping for a tummy-scratch from Biden, as the Biden team’s “personal experiences with the plight of workers.”
In the near term, much will depend on the size and quality of any relief package that finally emerges from congress. But a relief package is (or should be) just that – provision of cash to get those workers and small businesses hit hardest by the economic shutterings. Yes, a sensible package can affect the longer-term jobs picture in two ways: by enabling some, mostly small businesses to survive to rehire their workers, and by encouraging the unemployed to remain in the work force rather than join the large number of prime-age workers who are dropping out completely, perhaps never to return from their parents’ basements to the jobs market.
But relief is not the same thing as Building Back Better, Biden’s goal. He wants his team to develop programs that produce permanent, good-paying jobs. That will be done against the macroeconomic background of a slowdown through perhaps the first quarter or 2021, exacerbated by the new virulent outbreak of Covid-19. This past Friday jobs report, based on surveys taken before the latest outbreak, is a mixed bag. Job growth in November slowed to 245,000 from 610,000 in October, the unemployment rate dropped but remains elevated, the number of unemployed fell substantially but remains 4.9 million higher than last year. In short: improvement, at a slower rate, to an unacceptable level.
But by April-May of next year, “100% of Americans that want the vaccine will have the vaccine”, according to Lieutenant General Paul Ostrowski, the man in charge of its production and distribution. GDP growth in 2021 should hit an annual rate of 5.3%, to use the Goldman Sachs forecast, probably but not certainly accompanied by accelerated job growth.
The vaccines will release from confinement a public that has increased its savings rate from 7.6% last year to 13.6% in October (latest data), Spending spree to follow. Yellen and her Keynesian colleagues know how to cope with inadequate demand and so-called secular stagnation, or think they do, but the permanent shrinkage of entire segments of the economy despite the existence of adequate total demand – Zoomers don’t need flight attendants – might turn out to be the larger problem. As might, only might, Biden’s plan to raise corporate and personal tax rates. In any event, a surge in total job creation will leave two Biden goals in the to-do column: reduce inequality and green the economy.
To reduce inequality, Yellen and her economists must figure out how to increase jobs available to other-than well paid, skilled workers. No easy job. A new study by the Brookings Institution’s Marcia Escobari and colleagues concludes that “few unemployed workers have the time or resources to reskill and find work on their own….” Because consumer preferences are shifting to digital services, “many low-wage workers [earning less than $18,000 per year] may see less demand for their labor.” Since staff that clean hotel rooms cannot be expected to build cars and planes, and since the total labor force seems to be shrinking, we might be left with a combination of large numbers of unemployed, unskilled workers, and a shortage of workers with the skills needed to staff the growing manufacturing and high tech sectors.
That, of course, is not certainly the case. We just don’t know enough to predict the employment opportunities created by the shift to a digital-dominated economy. Some indication of the job-creating power of the shift from office to home, from in-person to internet shopping might be provided by Amazon’s experience. Between January and October, Amazon added 427,300 to its global work force, which now totals 1.2 million, 50% higher than only one year ago reports Karen Weise in The New York Times. Since July it has hired 2,800 workers every day, many laid off by hotels and airlines. The new hires include warehouse workers, software engineers, and hardware specialists. These numbers do not include 100,000 temporary workers taken on to cope with holiday ordering, or 500,000 delivery drivers who are independent contractors and therefore not on the company’s payroll. Frontline workers earn a minimum of $15 per hour, about $5 higher than the average in-person retail sales worker.
The President-elect’s economists also must satisfy the two Bidens, the Biden who professes himself a “union guy”, and the green Biden who believes that climate change is the number one threat to our prosperity and security. An infrastructure programme that satisfies both Richard Trumka, President of the 12.5 million-member AFL-CIO, and union-guy Biden must include jobs filling potholes, repairing and building bridges and airports, all the things that make driving and flying more pleasant, and also increase emissions. Those are exactly the jobs that green Biden and his left have pledged to eliminate.
All of this means Biden’s team must learn to deal with unemployment that, unlike earlier bouts of joblessness, does not result from a breakdown of the financial system or a lack of demand, problems with which they have had some experience. It must figure out how to support subsidies to high-tech, high-paying industries to meet threats from China, while workers laid off in low-paying industries destroyed by that same country cannot argue that national security demands similar treatment. It must develop programs that enable the under-skilled, often from dysfunctional families, get a foot on the ladder that leads upward into the middle class. It must figure out how to satisfy Democratic desire to rein in such as Amazon without slowing the company’s hiring surge. And it must figure out whether some portion of income inequality results from social trends such as entry into the work force by, on the one hand, highly educated, high- earning women married to similarly situated husbands, and on the other hand entry by lower-income single moms. That “may have led to a polarization of income at the top and at the bottom of the income distribution,” conclude Diana Furchtgott-Roth and Beila Leboeuf. That cultural source of widening inequality might be beyond the ability of economists, even economists as talented as Yellen and the others appointed by Biden, to affect, short of applying a politically unacceptable transformation of the tax structure.
Trump willed his successor vaccines and a solid economy, but not an untroubled one. Biden’s economists have a lot of work to do. And Biden has a lot of thinking to do. He must resolve the excruciatingly difficult trade-offs between his conflicting goals, rather than deny their existence. That done, he could deploy his long experience in cutting deals and turning ideology into legislation to Build America Back Better.