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    Biden's Spending Plans Could Start to Tackle Inequality

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    The Biden administration is relying on Congress instead of just the Fed to fix the economy. That mix could lead to a less wealth-unequal future.The coronavirus pandemic has threatened to rapidly expand yawning gaps between the rich and the poor, throwing lower-earning service workers out of jobs, costing them income, and limiting their ability to build wealth. But by betting on big government spending to pull the economy back from the brink, United States policymakers could limit that fallout.The $1.9 trillion economic aid package President Biden signed into law last month includes a wide range of programs with the potential to help poor and middle-class Americans to supplement lost income and save money. That includes monthly payments to parents, relief for renters and help with student loans.Now, the administration is rolling out additional plans that would go even further, including a $2.3 trillion infrastructure package and about $1.5 trillion in spending and tax credits to support the labor force by investing in child care, paid leave, universal prekindergarten and free community college. The measures are explicitly meant to help left-behind workers and communities of color who have faced systemic racism and entrenched disadvantages — and they would be funded, in part, by taxes on the rich.Forecasters predict that the government spending — even just what has been passed so far — will fuel what could be the fastest annual economic growth in a generation this year and next, as the country recovers and the economy reopens from the coronavirus pandemic. By jump-starting the economy from the bottom and middle, the response could make sure the pandemic rebound is more equitable than it would be without a proactive government response, analysts said.That is a big change from the wake of the 2007 to 2009 recession. Then, Congress and the White House passed an $800 billion stimulus bill, which many researchers have concluded did not do enough to fill the hole the recession left in economic activity. Lawmakers instead relied on the Federal Reserve’s cheap-money policies to coax the United States’ economy back from the brink. What ensued was a halting recovery marked by climbing wealth inequality as workers struggled to find jobs while the stock market soared.“Monetary policy is a very aggregated policy tool — it’s a very important economic policy tool, but it’s at a very aggregated level — whereas fiscal policy can be more targeted,” said Cecilia Rouse, who oversees the White House Council of Economic Advisers. In the pandemic crisis, which disproportionately hurt women of all races and men of color, she said, “If we tailor the relief to those who are most affected, we are going to be addressing racial and ethnic gaps.”From its first days, the pandemic set the stage for a K-shaped economy, one in which the rich worked from home without much income disruption as poorer people struggled. Workers in low-paying service jobs were far more likely to lose jobs, and among racial groups, Black people have experienced a much slower labor market rebound than their white counterparts. Globally, the downturn probably put 50 million people who otherwise would have qualified as middle class into lower income levels, based on one recent Pew Research analysis.But data suggest the U.S. policy response — including relief legislation that passed last year under the Trump administration — has helped mitigate the pain.“The CARES Act to the American Rescue Plan have helped to support more households than I would have imagined,” Charles Evans, the president of the Federal Reserve Bank of Chicago, told reporters this month during a call, referring to the pandemic relief packages passed in early 2020 and early 2021.Wealth has recovered nearly across the board after slumping early last year, foreclosures have remained low, and household consumption has been shored up by repeated stimulus checks.While the era has been fraught with uncertainty and people have slipped through the cracks, this downturn looks very different for poorer Americans than the post-financial crisis period. That recession ended in 2009, and America’s wealthiest households recovered precrisis wealth levels by 2012, while it took until 2017 for the poorest to do the same.At a food bank in Phoenix last month. The $1.9 trillion economic aid package signed into law includes a wide range of programs with the potential to help poor and middle-class Americans.Juan Arredondo for The New York TimesThe government’s policy response is driving the difference. In the 2010s, Republicans cited deficit worries and curtailed spending early, at a time when the economy remained far from healed after the worst downturn since the Great Depression. Interest rates were already near zero and not offering much of an economic lift, so the Fed engaged in several rounds of large-scale bond purchases to try to bolster the economy.The Fed policies did help. But low rates and huge bond-buying bolstered the economy slowly, and by first increasing prices on financial assets, which rich households are much more likely to own. As companies gain access to cheap capital to expand and hire, the workers who secure those new jobs have more money to spend, and a happy cycle unfolds.By 2019, that prosperous loop had kicked into gear and unemployment had dropped to half-century lows. Black and Hispanic as well as less-educated workers were working in greater numbers, and wages at the bottom of the income distribution had begun to steadily climb.Poverty fell, and there were reasons to hope that if that had continued, income inequality — the gap between how much the poor and the rich earn each year — might soon decline. Lower income inequality could, in theory, lead to lower wealth inequality over time, as households have the wherewithal to save more evenly.But getting there took nearly a decade and when the pandemic hit in 2020, it almost certainly disrupted the trend. The data are released on a lag.As those divergent trends between labor and capital played out, the rich rebuilt their savings — which are heavily invested in stocks and businesses — much faster. Poorer households eventually reaped benefits as the years wore on and people landed jobs. The bottom half of America’s wealth holders ended up better off than they had been before the crisis, but farther behind the rich.At the start of 2007, the bottom half of the wealth distribution held 2.1 percent of the nation’s riches, compared to 29.7 percent for the top 1 percent. By the start of 2020, the bottom half had 1.8 percent, while the top 1 percent held 31 percent.Researchers debate whether monetary policy actually worsens wealth divides in the long run — especially since there’s the hairy question of what would have happened had the Fed not acted — but monetary policymakers generally agree that their policies can’t stop a pre-existing trend toward ever-worse wealth inequality.By offering a more targeted boost from the very start of the recovery, fiscal policy can. Or, at a minimum, it can prevent wealth gaps from deepening so much.Monetary policy “is naturally trickle-down,” said Joseph Stiglitz, an economist at Columbia and Nobel laureate. “Fiscal policy can work from the bottom and middle up.”That’s what the Biden administration is gambling on. Paired with packages from December and last April, Congress’s recent package will bring the amount of economic relief that Congress has approved during the pandemic to more than $5 trillion. That dwarfs the amount spent in the last recovery.The legislation is a mosaic of tax credits, stimulus checks and small-business support that could leave families at the lower end of the income and savings distribution with more money in the bank and, if its provisions work as advertised, with a better chance of returning to work early in the recovery.There is no guarantee Mr. Biden’s broader economic proposals, totaling about $4 trillion, will clear a narrowly divided Congress. Republicans have balked at his plans and this week offered a counterproposal on infrastructure that is only a fraction the size of what Mr. Biden wants to spend. A bipartisan group of House moderates is pushing the president to finance infrastructure spending through an increased gas tax or something similar, which hits the poor harder than the rich.Still, the president’s new proposals could have long-term effects, working to retool workers’ skills and lift communities of color in hopes of putting the economy on more equal footing. The president is set to outline his so-called American Family Plan, which is focused on the work force, before his first address to a joint session of Congress next week.While details have yet to be finished, programs like universal prekindergarten, expanded subsidies for child care and a national paid leave program would be paid for partly by raising taxes on investors and rich Americans. That could also affect the wealth distribution, shuffling savings from the rich to the poor.The plan, which must win support in a Congress where Democrats have just a narrow margin, would raise the top marginal income tax rate to 39.6 percent from 37 percent, and raise taxes on capital gains — the proceeds of selling an asset, like a stock — for people making more than $1 million to 39.6 percent from 20 percent. Counting in an Obamacare-related tax, the taxes they pay on profits would rise above 43 percent.If the Biden package helps a wide swath of people to get back to earning and saving money faster this time, there’s hope that it might set the economy on a different trajectory.Jim Wilson/The New York TimesThe new policies will not necessarily cut wealth inequality, which has been on an inexorable upward march for decades, but they could keep poorer households from falling behind by as much as they would have otherwise.Betting big on fiscal policy to return the economy to strength is a gamble. If the economy overheats, as some prominent economists have warned it could, the Fed might have to rapidly lift interest rates to cool things down. Rapid adjustments have historically caused recessions, which consistently throw vulnerable groups out of jobs first.But administration officials have repeatedly said the bigger risk is underdoing it, leaving millions on the labor market’s sidelines to struggle through another tepid recovery. And they say the spending provisions in both the rescue package and the infrastructure could help to fix longstanding divides along racial and gender lines.“We think of investment in racial equity, and equity in general, as good policy, period, and integral to all the work we do,” Catherine Lhamon, a deputy director of the Domestic Policy Council, said in an interview. More

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    The Biden Administration Is Quietly Keeping Tabs on Inflation

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    A monthslong effort to monitor and model economic trends inside the White House and the Treasury Department found little risk of prices spiraling upward faster than the Fed can manage.WASHINGTON — Even before President Biden took office, some of his closest aides were focused on a question that risked derailing his economic agenda: Would his plans for a $1.9 trillion economic rescue package and additional government spending overheat the economy and fuel runaway inflation?To find the answer, a close circle of advisers now working at the White House and the Treasury Department projected the behaviors of shoppers, employers, stock traders and others if Mr. Biden’s plans succeeded. Officials as senior as Janet L. Yellen, the Treasury secretary, pored over the analyses in video calls and in-person meetings, looking for any hint that Mr. Biden’s plans could generate sustained price increases that could hamstring family budgets. It never appeared.Those efforts convinced Mr. Biden’s team that there is little risk of inflation spiraling out of the Federal Reserve’s control — an outcome that Wall Street analysts, a few prominent Republicans and even liberal economists like Lawrence H. Summers, the former Treasury secretary, have said could flow from the trillions being pumped into the economy.Traditional readings of price increases are beginning to turn upward as the recovery accelerates. On Tuesday, the Consumer Price Index rose 0.6 percent, its fastest monthly increase in more than a decade, while a less volatile index excluding food and energy rose a more muted 0.3 percent.But Mr. Biden’s advisers believe any price spike is likely to be temporary and not harmful, essentially a one-time event stemming from the unique nature of a pandemic recession that ruptured supply chains and continues to depress activity in key economic sectors like restaurant dining and tourism.The administration’s view mirrors the posture of top officials at the Fed, including its chairman, Jerome H. Powell, whose mandate includes maintaining price stability in the economy. Mr. Powell has said that the Fed expects any short-term price pops to be temporary, not sustained, and not the type of uptick that would prompt the central bank to raise interest rates rapidly — or anytime soon.“What we see is relatively modest increases in inflation,” Mr. Powell said in March. “But those are not permanent things.”Armed with their internal data and conclusions, administration officials have begun to push back on warnings that a stimulus-fueled surge in consumer spending could revive a 1970s-style escalation in wages and prices that could cripple the economy in the years to come.Yet they remain wary of the inflation threat and have devised the next wave of Mr. Biden’s spending plans, a $2.3 trillion infrastructure package, to dispense money gradually enough not to stoke further price increases right away. Administration officials also continue to check on real-time measures of prices across the economy, multiple times a day.“We think the likeliest outlook over the next several months is for inflation to rise modestly,” two officials at Mr. Biden’s Council of Economic Advisers, Jared Bernstein and Ernie Tedeschi, wrote on Monday in a blog post outlining some of the administration’s thinking. “We will, however, carefully monitor both actual price changes and inflation expectations for any signs of unexpected price pressures that might arise as America leaves the pandemic behind and enters the next economic expansion.”Some Republicans call that posture dangerous. Senator Rick Scott of Florida, the chairman of his party’s campaign arm for the 2022 midterm elections, has called on Mr. Biden and Mr. Powell to present plans to fight inflation now.“The president’s refusal to address this critical issue has a direct negative effect on Floridians and families across our nation, and hurts low- and fixed-income Americans the most,” Mr. Scott said in a news release last week. “It’s time for Biden to wake up from his liberal dream and realize that reckless spending has consequences, inflation is real and America’s debt crisis is growing. Inflation is rising and Americans deserve answers from Biden now.”Economic teams in recent administrations spent little time worrying about inflation, because inflationary pressures have been tame for decades. It has fallen short of the Fed’s average target of 2 percent for 10 of the last 12 years, topping out at 2.5 percent in the midst of the longest economic expansion in history.Shortly before the pandemic recession hit the United States in 2020, President Donald J. Trump’s economic team wrote that “price inflation remains low and stable” even with unemployment below 4 percent. As the economy struggled to climb out from the 2008 financial crisis under President Barack Obama, White House aides feared that prices might fall, instead of rise.“Given the economic crisis, we worried about preventing deflation rather than inflation,” said Austan Goolsbee, a chairman of the Council of Economic Advisers during Mr. Obama’s first term.The conversation has changed given the large amounts of money that the federal government is channeling into the economy, first under Mr. Trump and now under Mr. Biden. Since the pandemic took hold, Congress has approved more than $5 trillion in spending, including direct checks to individuals.Mr. Biden’s aides are sufficiently worried about the risk of that spending fueling inflation that they shaped his infrastructure proposal, which has yet to be taken up by Congress, to funnel out $2.3 trillion over eight years, which is slower than traditional stimulus.An outdoor mall in Los Angeles. Critics have warned that that a stimulus-fueled surge in consumer spending could revive a 1970s-style escalation in wages and prices that could cripple the economy in the years to come.Philip Cheung for The New York TimesEven before Mr. Summers and others raised economic concerns about Mr. Biden’s $1.9 trillion relief bill, officials were wrestling with their own worries about its inflation risks. They had internally concluded, with direction from Mr. Biden, that the biggest risk to the economy was going “too small” on the aid package — not spending enough to help vulnerable Americans survive continued stints of joblessness or lost income. But they wanted to know the risks of going “too big.”They tested whether an uptick in inflation might cause people and financial markets to expect rapid price increases in the years to come, upending decades of what economists call “well anchored” expectations for prices and potentially creating a situation where higher expectations led to higher inflation. They estimated the odds that the Fed would react to such moves by quickly and steeply raising interest rates, potentially slamming the brakes on growth and causing another recession.The informal group that initially gathered to research those questions included Mr. Bernstein; David Kamin, a deputy director of the National Economic Council; Michael Pyle, Vice President Kamala Harris’s chief economic adviser; and two Treasury officials, Nellie Liang and Ben Harris. More members have joined over time, including Mr. Tedeschi.The group reports regularly to Ms. Yellen and other senior officials including Brian Deese, who heads the N.E.C., and Cecilia Rouse, who leads the C.E.A. Its work has informed economic briefings of Mr. Biden and Ms. Harris.“The president and the vice president, their job is to deliver good economic outcomes for the American people,” Mr. Pyle said in an interview. “Part of what delivering strong economic outcomes to the American people means is ensuring that their team is fully on top of both the tailwinds to the U.S. economy but also the risks that are out there. And this is one of them.”Mr. Pyle and his colleagues looked at financial market measures of inflation expectations, including one called the five-year, five-year forward, which currently shows investors expecting lower inflation levels over the next several years than they expected in 2018.At the same time, officials at the Treasury’s Office of Economic Policy conducted a series of modeling exercises to “stress test” the virus relief package and how it might change those price and expectation measures if put in place. They considered scenarios where consumers quickly spent their aid money, which included $1,400 checks, or where they did not spend much of it at all right away. They talked with large banks about trends in customers’ cash balances and how quickly people were returning to the work force. Ms. Yellen, a former Fed chair, helped adjust the models herself.The exercises produced a wide range of possibilities for inflation. But they never suggested it would rise so rapidly that the Fed could not easily handle it by adjusting interest rates or other monetary policy tools. They saw no risk of a sharp return to recession — and no reason to pull back from spending proposals that administration officials believe will help the economy heal faster and help historically disadvantaged groups, like Black and Hispanic workers, regain jobs and income.“We’re going to see some heat in this economy,” Mr. Pyle said. “That heat is going to be good and redound to the benefit of wages and labor market conditions overall and particularly for a number of communities that have been at the margins of the labor market for too long.”If the data proves that forecast wrong, officials say privately, they will be quick to adapt. But they will not say how. If inflation were to accelerate in a sustained and surprising way, some officials suggest, the administration would trust the Fed to step in to contain it.There is no plan, as of yet, for Mr. Biden to consider inflation-fighting actions of his own. More

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    Fear of Inflation Finds a Foothold in the Bond Market

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    There is little evidence for a big jump in prices, but some economists and bond investors fear President Biden’s policies could lead to inflation.The so-called bond vigilantes may be back, 30 years after they led a sell-off in Treasury securities over the prospect of higher government spending by a new Democratic administration.The Federal Reserve has downplayed the risk of inflation, and many experts discount the danger of a sustained rise in prices. But there is an intense debate underway on Wall Street about the prospects for higher inflation and rising interest rates.Yields on 10-year Treasury notes have risen sharply in recent weeks, a sign that traders are taking the inflation threat more seriously. If the trend continues, it will put bond investors on a collision course with the Biden administration, which recently won passage of a $1.9 trillion stimulus bill and wants to spend trillions more on infrastructure, education and other programs.The potential confrontation made some market veterans recall the 1990s, when yields on Treasury securities lurched higher as the Clinton administration considered plans to increase spending. As a result, officials soon turned to deficit reduction as a priority.Ed Yardeni, an independent economist, coined the term bond vigilante in the 1980s to describe investors who sell bonds amid signs that fiscal deficits are getting out of hand, especially if central bankers and others don’t act as a counterweight.As bond prices fall and yields rise, borrowing becomes more expensive, which can force lawmakers to spend less.“They seem to mount up and form a posse every time inflation is making a comeback,” Mr. Yardeni said. “Clearly, they’re back in the U.S. So while it’s fine for the Fed to argue inflation will be transitory, the bond vigilantes won’t believe it till they see it.”Yields on the 10-year Treasury note hit 1.75 percent last week before falling back this week, a sharp rise from less than 1 percent at the start of the year.Not all the sellers necessarily oppose more government spending — some are simply acting on a belief that yields will move higher as economic activity picks up, or jumping on a popular trade. But the effect is the same, pushing yields higher as prices for bonds fall.Yields remain incredibly low by historical standards and even recent trading. Two years ago, the 10-year Treasury paid 2.5 percent — many bond investors would happily welcome a return to those yields given that a government note bought today pays a relative pittance in interest. And during the Clinton administration, yields on 10-year Treasurys rose to 8 percent, from 5.2 percent between October 1993 and November 1994.Still, Mr. Yardeni believes the bond market is saying something policymakers today ought to pay attention to.“The ultimate goal of the bond vigilante is to be heard, and they are blowing the whistle,” he said. “It could come back to bite Biden’s plans.”Yet evidence of inflation remains elusive. Consumer prices, excluding the volatile food and energy sectors, have been tame, as have wages. And even before the pandemic, unemployment plumbed lows not seen in decades without stoking inflation.Indeed, the bond vigilantes remain outliers. Even many economists at financial firms who expect faster growth as a result of the stimulus package are not ready to predict inflation’s return.“The inflation dynamic is not the same as it was in the past,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “Globalization, technology and e-commerce all make it harder for firms to increase prices.”What’s more, with more than nine million jobs lost in the past year and an unemployment rate of 6.2 percent, it would seem there is plenty of slack in the economy.That’s how Alan S. Blinder, a Princeton economist who was an economic adviser to President Bill Clinton and is a former top Fed official, sees it. Even if inflation goes up slightly, Mr. Blinder believes the Fed’s target for inflation, set at 2 percent, is appropriate.“Bond traders are an excitable lot, and they go to extremes,” he said. “If they are true to form, they will overreact.”Indeed, there have been rumors of the bond vigilantes’ return before, like in 2009 as the economy began to creep out of the deep hole of the last recession and rates inched higher. But in the ensuing decade, both yields and inflation remained muted. If anything, deflation was a greater concern than rising prices.It is not just bond traders who are concerned. Some of Mr. Blinder’s colleagues from the Clinton administration are warning that the conventional economic wisdom hasn’t fully accepted the possibility of higher rates or an uptick in prices..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Robert E. Rubin, Mr. Clinton’s second Treasury secretary, echoed that concern but took pains to support the stimulus package.“There is a deep uncertainty,” Mr. Rubin said in an interview. “We needed this relief bill, and it served a lot of useful purposes. But we now have an enormous amount of stimulus, and the risks of inflation have increased materially.”Mr. Rubin acknowledged that predicting inflation was very difficult, but he said policymakers ought to be ready to fight it. “If inflationary pressures do take off, it’s important to get ahead of them quickly before they take on a life of their own.”The Federal Reserve has plenty of options. Not only is it buying up debt, which keeps yields down, but the Fed chair, Jerome H. Powell, has called for keeping monetary policy relatively loose for the foreseeable future. If higher prices do materialize, the Fed could halt asset purchases and raise rates sooner.“We’re committed to giving the economy the support that it needs to return as quickly as possible to a state of maximum employment and price stability,” Mr. Powell said at a news conference last week. That help will continue “for as long as it takes.”While most policymakers expect faster growth, falling unemployment and a rise in inflation to above 2 percent, they nonetheless expect short-term rates to stay near zero through 2023.But the Fed’s ability to control longer-term rates is more limited, said Steven Rattner, a veteran Wall Street banker and former New York Times reporter who served in the Obama administration.“At some point, if this economy takes off bigger than any one of us expect, the Fed will have to raise rates, but it’s not this year’s issue and probably not next year’s issue,” he said. “But we are in uncharted waters, and we are to some extent playing with fire.”The concerns about inflation expressed by Mr. Rattner, Mr. Rubin and others has at least a little to do with a generational angst, Mr. Rattner, 68, points out. They all vividly remember the soaring inflation of the 1970s and early 1980s that prompted the Fed to raise rates into the double digits under the leadership of Paul Volcker.The tightening brought inflation under control but caused a deep economic downturn.“People my age remember well the late 1970s and 1980s,” Mr. Rattner said. “I was there, I covered it for The Times, and lived through it. Younger people treat it like it was the Civil War.”Some younger economists, like Gregory Daco of Oxford Economics, who is 36, think these veterans of past inflation scares are indeed fighting old wars. Any rise in inflation above 2 percent is likely to be transitory, Mr. Daco said. Bond yields are up, but they are only returning to normal after the distortions caused by the pandemic.“If you have memories of high inflation and low growth in the 1970s, you may be more concerned with it popping up now,” he said. “But these are very different circumstances today.” More

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    How 10 Economists Think About the Economy Potentially Overheating

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    Some notable participants in the debate over the Biden stimulus tell us, in their words, what a too-hot economy would look like.What would it really mean for the economy to overheat? How would we know if the ominous warnings by several prominent economists were coming true?We asked 10 economists who have offered commentary from either side of the debate to lay out their arguments more precisely. The question we asked: What rate of inflation, using what measure, over what period of time — or other developments, such as swings in bond or currency markets — would indicate problematic overheating was underway?Their answers are below, lightly edited for clarity and length.To explain some terms that appear frequently in these responses: “P.C.E. inflation” is a measure of inflation based on personal consumption expenditures; it is the preferred inflation measure of the Federal Reserve. “Break-evens” refers to the level of future inflation priced into the Treasury bond market, based on the price of inflation-protected securities. The “five-year, five-year” forward rate is the annual inflation priced into bonds for the five-year period starting five years in the future — that is, the period between five and 10 years from now. “Core” inflation, whether using P.C.E. or other measures, excludes volatile food and energy prices.Ángel Franco/The New York TimesOlivier Blanchard, senior fellow at the Peterson Institute for International Economics and former chief economist of the International Monetary FundI shall plead Knightian uncertainty. I have no clue as to what happens to inflation and rates, because it is in a part of the space we have not been in for a very long time. Uncertainty about multipliers, uncertainty about the Phillips curve, uncertainty about the dovishness of the Fed, uncertainty about how much of the $1.9 trillion package will turn out to be permanent, uncertainty about the size and the financing of the infrastructure plan. All I know is that any of these pieces could go wrong.Julia Coronado, president of MacroPolicy Perspectives and former Fed economistWe would have to see the Fed’s preferred gauge of core P.C.E. inflation sustained at a rate above 3 percent for several years and importantly matched by wage growth with measures of inflation expectations rising before I worry about the Fed losing its grip on its stable price mandate. Bond yields would need to be sustained well north of 4 percent in this scenario. It is strange to me that for years economists pined for a better mix of monetary and fiscal policy and now we have it and there is a narrative among some that it has to end in disaster. I am more optimistic about the macro outlook than I have been in a long time and am far more focused on how quickly the labor market returns to health than any threat from inflation.Brad DeLong, economist, University of California, BerkeleyThe Federal Reserve’s inflation target has been that inflation should average — not ceiling, but average — 2 percent per year using the P.C.E., 2.5 percent per year using the core C.P.I. Had inflation in fact matched that average since the beginning of the Great Recession, the core C.P.I. would now be 296 on a 1982-84=100 basis. It is actually 270.If the Fed had hit its inflation target, the price level now would be 9.6 percent higher than it is. When the cumulative excess of C.P.I. core inflation over 2.5 percent per year reaches +9.6 percent, come and ask me again whether Federal Reserve policy is excessively inflationary. Until then, we certainly have other much more important economic problems to worry about than the risks of excessive and damaging inflation.Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, former chief economist of the Congressional Budget OfficeI think there is a fair amount of consensus that the economy will grow strongly beginning in the fourth quarter of 2021 and that inflation will rise. I also believe, although there is less consensus here, that the level of economic activity will temporarily rise above its sustainable level for a time and inflation will rise above the Fed’s target. If you want to call that overheating, I think that isn’t in and of itself problematic. In fact, I think making up for some lost economic activity is beneficial. And, the Fed has said it welcomes a rebound in inflation.So where would I be concerned? Is this just a matter of degrees? In isolation, there isn’t a credible prediction of temporary overheating or inflationary pressure that worries me. For example, I think we can increase labor force participation well above its sustainable level for several quarters. Same with capacity utilization. I don’t think anyone will be too surprised to see massive airfare inflation. Instead, I worry if we start to see signs that people, businesses and financial markets are responding to the level of overheating as if it were permanent. On one dimension, that could suggest a harder landing. For example — I would worry about a significant jump in the quit rate.I would worry about a housing construction boom or a commercial real estate boom. I would worry about a significant increase in leverage across the economy. That all suggests pain for people when the economy cools. On another dimension, if financial markets start to view the overheating as being too permanent, we could see inflation expectation rise to worrying levels — well above the Fed’s target. For example, I think we need to keep a close eye on the five-year, five-year forward inflation expectation rate. The Cleveland Fed has a nice roundup of inflation expectation measures.I would worry about the Fed’s credibility if longer-term expectations remained stubbornly above where they were in 2019 by, say, one-half percentage point. Which is to say, the economy has benefited from the Fed being credible about its policy direction. If it’s lost, regaining that credibility would exact a toll. Still, everything I see in terms of underlying economic strength, households’ resources, and the fiscal support in train points to a several-quarter-long surge in the economy. We — policymakers, households, businesses — need to appreciate its temporary nature and adjust accordingly.Austan Goolsbee, economist, University of Chicago Booth School of Business and former chairman of the White House Council of Economic AdvisersThe most obvious indicator is that they predict sustained and rising inflation from an overheated economy. You should see prices rising rapidly, and it’s not called a NAIRU for nothing — it should start accelerating. It should be in wages and prices, and it shouldn’t be temporary. It should be 3, then 4, then 5 percent and so on. Basically they are predicting a 1970s repeat, so just go look at how inflation accelerated in the 1970s.So B, this means more than just what is the inflation rate one year from now. Up and then back down is perfectly consistent with the Yellen/Powell view. If you are impatient to get an idea before having to wait four years, you would expect this to show up in the TIPS implied inflation expectations. Compare the five-year TIPS to the 10-year TIPS, and it will tell you whether they expect a heavy, sustained inflation. Right now the five-year is 2.5 percent, and the 10-year is 2.3 percent, so they don’t expect high inflation and they don’t expect rising, sustained inflation. It’s as simple as that.C, the implicit implication of their view is that the labor market in particular will overheat. For that to happen, we should see a big rise in the labor force participation rate back to recent normal levels, at the least, and the unemployment rate down below the 3.5 percent range it got to under Trump (without inflation).But D, it should count somewhat in their favor if the Fed had to jack up rates so quickly/stiffly that it created a tough recession without a soft landing. That might prevent actual inflation from happening and negate their hypothesis in the technical sense, but they would still be right in spirit even without the actual inflation. Caveat to D, if we have a bubble going on and the bubble pops and that causes a recession, that has nothing to do with their theory and they should not get credit for that. It’s basically just the 2001, 2008 style recession again.Jason Furman, Harvard economist and former chairman of the White House Council of Economic AdvisersUltimately we’re worried about an outcome in the real economy, which is rapid growth in 2021 followed by a significant reversal in 2022 or 2023 with anything like a recession, negative growth or a sizable increase in the unemployment rate. Much of what we call “overheating” is mostly a concern insofar as it triggers that outcome. But some more proximate measures:Inflation in the second half of 2021 or the four quarters of 2022 at an annual rate of 2 to 2.5 percent would be desirable; 2.5 to 3.5 percent would cause more worries than it objectively should, but those worries could create self-fulfilling problems; and above 3.5 percent would create a substantial risk of macroeconomic reactions that create genuine instability and problems in the economy.The 10-year nominal interest rate going above 3 percent in 2021 should give us some pause, and going above 4 percent should raise the possibility of a meaningful course correction for fiscal policy. Finally, not a proximate measure, but a fear (and this is not my central guess), is that overheating could happen without a large decline in the unemployment rate. If, for example, people don’t return quickly to the labor force and it takes a while for the unemployed to find jobs, then you could have overheating even with an unemployment rate of 4.5 or 5 percent. That would be the worst scenario because it would really discourage policy activism for some time to come. Not my main prediction and maybe a risk worth taking, but is the gnawing fear that keeps me up at night.N. Gregory Mankiw, Harvard economist and former chairman of the White House Council of Economic AdvisersI would say the economy is overheated if G.D.P. rises above potential G.D.P. (as estimated by, say, C.B.O.), and core inflation (P.C.E. price index excluding food and energy) rises above 3 percent over a 12-month period. (Inflation has not broken that threshold anytime during the past quarter century.)Such an overheating could be temporary. I would say we have an ongoing overheating problem if, in addition, five-year break-even inflation — a gauge of inflation expectations — rises above 3 percent.Claudia Sahm, senior fellow, Jain Family Institute and former Fed economistTo have overheating you need to start getting a spiral. There’s not a magical number. It’s not that if you’ve gone over 5 percent inflation you’re overheating. To me, overheating is inflation starts picking up, and it keeps going. Inflation is a slow-moving dynamic, especially in core. You see it’s up a couple of tenths of a percent, then another couple of tenths, then starting to move up half a percent if things really start to get out of control. When it keeps going and keeps getting worse, you’re overheating.It would speed up. It would have to be persistent. If by the end of next year we were looking at consistent prints of 3 percent, and it had started — we’re at 1.5 now — if it had climbed to 2.6 by the end of the year, then kept going up next year and was heading toward 3 by the end of 2022, with the unemployment rate completely recovered, OK, maybe we’re pushing the economy too hard. It’s time to ease up on the accelerator and tap the brakes.It’s the spiral that matters. It could happen, but it would take a while and not only do we know how to disrupt a wage-price spiral — we know what it looks like.Lawrence H. Summers, Harvard economist and former Treasury secretaryI think there’s a one-third chance that inflation expectations meaningfully above the Fed’s 2 percent target will become entrenched, a one-third chance that the Fed will bring about substantial financial instability or recession in order to contain inflation, and a one-third chance that this will work out as policymakers hope.In the first scenario, we have a Vietnam-like experience where inflation expectations ratchet upwards due to macroeconomic policies, and inflation expectations, broadly defined, become unanchored.In the second scenario, we have an experience like most of the recessions prior to 1990, when expansions were murdered by the Fed with inflation control as the motive. This was the case three times in the 1950s, at the beginning of the 1970s, in 1975, 1980 and 1982. In the past it has proven impossible to generate a soft landing. I can’t think of a time when we have experienced a big downshift without having a recession.In the successful scenario that is the aspiration of policymakers, we would enjoy a period of very rapid growth, followed by a downshift to moderate growth, with inflation expectations remaining anchored in the 2 percent range.Michael Strain, director of economic policy, the American Enterprise InstituteI have a separate view on what would be good for the economy and on what the Fed might be able to tolerate.Trend inflation (measured by some sort of a moving average, let’s say — but that does not include March and April due to base effects) of 2.5-3 percent would be a policy victory. By “inflation” I mean the year-over-year change in the monthly core P.C.E. Aberrant, transitory months spikes are nothing to worry about from an economic perspective. But if that average starts to creep above 3 percent, then I would start to worry, regardless of the behavior of market-based inflation expectations.If market-based inflation expectations on the five-year break-even go above 3 percent and expectations using five-year, five-year forward go above 2.5 percent, then I would start to worry, regardless of the behavior of actual price inflation, as measured in the previous paragraph.My big concern is that the Fed won’t be able to hold firm in the environment I characterize in my first paragraph, especially if you add evidence of financial market bubbles into the mix. So in that sense, I am more worried about a policy mistake than I am worried about a de-anchoring of expectations. More

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    If the Economy Overheats, How Will We Know?

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    We asked some prominent participants in the Great Overheating Debate of 2021 to explain what inflationary trends they’re afraid of (or not, as the case may be).“It is strange to me that for years economists pined for a better mix of monetary and fiscal policy, and now we have it and there is a narrative among some that it has to end in disaster,” one economist said.Olivier Douliery/Agence France-Presse — Getty ImagesSome big-name economists argue that the economy will soon overheat because of the Biden administration’s $1.9 trillion pandemic relief and other spending measures.They worry that the economy is being flooded with too much money, a fear only heightened by news that the administration will seek $3 trillion more to build infrastructure, cut carbon emissions and reduce inequality.But in this debate, what overheating would mean — exactly how much inflation, with what kinds of side effects for the economy — has often been vague. So The New York Times asked some prominent participants in the Great Overheating Debate of 2021 to lay out in more detail what they are afraid of, and how we will know if their fears have been realized. See their full answers here.It turns out that the two sides — the overheating worriers and those who think those concerns are misplaced — agree on many points. They have common ground on what a bad outcome might look like, and agree that it will take some time to know whether a problematic form of inflation is really taking root. The differences are in how likely they consider it to happen.The core dispute, one with big consequences for the future of the economy and for the Biden administration, is over the nature of the inflation that is to come.As the economy reopens and Americans spend their stimulus checks and the money they saved during the pandemic, demand for certain goods and services will outstrip supply, driving up prices. That is now pretty much an inevitability.The Biden administration and its allies are betting this will be a one-time event: that prices will recalibrate, industries will adjust and unemployment will fall. By next year they expect a booming economy with inflation back at low, stable levels.The overheating worriers, who include prominent Clinton-era policymakers and many conservatives, believe there is a more substantial chance that one of two more pessimistic scenarios will come true. As vast federal spending keeps coursing through the economy, they fear that high inflation will come to be seen as the new normal and that behavior will adjust accordingly.If people believe we are entering a more inflationary era — after more than a decade when inflation has been persistently low — they could alter their behavior in self-fulfilling ways. Businesses would be quicker to raise prices and workers to demand raises. The purchasing power of a dollar would fall, and the bond investors who lend to the government would demand higher interest rates, making financing the budget deficit trickier.“I don’t think anyone will be too surprised to see massive airfare inflation” in the short term, for example, as the economy reopens, said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution. “Instead, I worry if we start to see signs that people, businesses and financial markets are responding to the level of overheating as if it were permanent.”That situation would leave policymakers, especially at the Federal Reserve, faced with two bad choices: Allow inflation to take off in an upward spiral, or stop it by raising interest rates and quite possibly causing a recession.“Ultimately we’re worried about an outcome in the real economy, which is rapid growth in 2021 followed by a significant reversal in 2022 or 2023 with anything like a recession, negative growth or a sizable increase in the unemployment rate,” said Jason Furman, a former Obama administration economic adviser. “Much of what we call ‘overheating’ is mostly a concern insofar as it triggers that outcome.”Mr. Furman says annual inflation rates of 3.5 percent or higher in late 2021 or 2022 would “create a substantial risk of macroeconomic reactions that create genuine instability and problems in the economy,” and that even a notch lower than that, 2.5 percent to 3.5 percent, could create some problems.Julia Coronado, president of MacroPolicy Perspectives, by contrast, argues that it would take several years of inflation at 3 percent or higher — not just a bump in 2021 or 2022 — before she would worry that inflation expectations could become unmoored, leading to either an inflation-tamping recession or a 1970s-style vicious cycle of ever-higher prices.“It is strange to me that for years economists pined for a better mix of monetary and fiscal policy, and now we have it and there is a narrative among some that it has to end in disaster,” Ms. Coronado said. “I am more optimistic about the macro outlook than I have been in a long time and am far more focused on how quickly the labor market returns to health than any threat from inflation.”As economists view it, inflation — at least the kind worth worrying about — isn’t a one-time event so much as a process.When demand for goods and services expands faster than the supply of them, consumers simply bid up the price of finite goods, and businesses bid up wages to try to keep up. This begins a cycle of higher wages fueling higher prices, which in turn fuels higher wages.Such a process began in the mid-1960s and culminated in double-digit inflation in the 1970s. But there are important differences between then and now. For one thing, unions then were more powerful and demanded steep wage increases. For another, a series of one-off events made inflation worse, including the breakdown of the Bretton Woods international currency arrangements and oil embargoes that sent fuel prices soaring.Those were also years when the Fed responded inadequately to rising inflation pressures — it was a series of errors the central bank made, not just one. That experience would suggest that the Fed, having learned the lessons of that era, could nip any new inflationary outburst in the bud..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Larry Summers, Treasury secretary to President Clinton and a top adviser to President Obama, kicked off the overheating debate with an op-ed in The Washington Post. He says an effort by the Fed to rein in overheating would be unlikely to be painless.“We have an experience like most of the recessions prior to 1990, when expansions were murdered by the Fed with inflation control as the motive,” he said, adding: “In the past it has proven impossible to generate a soft landing. I can’t think of a time when we have experienced a big downshift without having a recession.”He now assigns roughly equal odds to three possibilities: that everything goes according to plan, with inflation returning to normal after a one-time surge; that a cycle of ever-rising inflation develops; or that the Fed ultimately causes a steep downturn to prevent that inflationary cycle.So given that the real risk is not so much inflation in 2021, but what happens beyond the immediate future, how would we know it?Greg Mankiw, a Harvard economist who has warned of overheating, said there would be an “ongoing overheating problem” only if consumer prices were rising by more than 3 percent a year and bond prices were to shift in ways that suggested investors expected 3 percent or higher annual inflation for the next five years.Michael Strain of the American Enterprise Institute also emphasized these inflation “break-evens,” which capture bond investors’ views of future inflation based on the gap between inflation-protected and regular securities. Like Mr. Mankiw, he said that break-evens suggesting 3 percent or higher annual inflation over the next five years would be worrying, as would 2.5 percent or higher inflation expected for the period five to 10 years from now.Another place to look for evidence of overheating will be whether inflation merely rises or keeps accelerating.If the overheating warnings are correct, “it should start accelerating,” said Austan Goolsbee, an economist at the University of Chicago who has been sharply critical of the overheating thesis. “It should be 3, then 4, then 5 percent and so on. Basically they are predicting a 1970s repeat, so just go look at how inflation accelerated in the 1970s.”How will Americans interpret price rises during the post-pandemic boom? Might it jolt them out of the low-inflation psychology that has prevailed for nearly four decades, making businesses more confident about raising prices and workers faster to demand raises?The answer will determine whether the years ahead represent a pleasant warming trend or a red-hot caldron that leaves everybody burned. More

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    How the U.S. Got It (Mostly) Right in the Economy’s Rescue

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    #masthead-section-label, #masthead-bar-one { display: none }Biden’s Stimulus PlanBiden’s AddressWhat to Know About the BillAnalysis: Economic RescueBenefits for Middle ClassShoppers at a mall in Los Angeles. Consumer spending is nearly back to its prepandemic level.Credit…Mark Abramson for The New York TimesAnalysisHow the U.S. Got It (Mostly) Right in the Economy’s RescueThough the recession has been painful, policymakers cushioned the pandemic’s blow and opened the way to recovery.Shoppers at a mall in Los Angeles. Consumer spending is nearly back to its prepandemic level.Credit…Mark Abramson for The New York TimesSupported byContinue reading the main storyMarch 15, 2021Updated 2:31 p.m. ETWhen the coronavirus pandemic ripped a hole in the economy a year ago, many feared that the United States would repeat the experience of the last recession, when a timid and short-lived government response, in the view of many experts, led to years of high unemployment and anemic wage growth.Instead, the federal government responded with remarkable force and speed. Within weeks after the virus hit American shores, Congress had launched a multitrillion-dollar barrage of programs to expand unemployment benefits, rescue small businesses and send checks to most American households. And this time, unlike a decade ago, Washington is keeping the aid flowing even as the crisis begins to ease: On Thursday, President Biden signed a $1.9 trillion aid bill that will pump still more cash into households, businesses, and state and local governments.The Federal Reserve, too, acted swiftly, deploying emergency tools developed in the financial crisis a decade earlier. Those efforts helped safeguard the financial system — and the central bank has pledged to remain vigilant.The result is an economy far stronger than most forecasters expected last spring, even as the pandemic proved much worse than feared. The unemployment rate has fallen to 6.2 percent, from nearly 15 percent in April. Consumer spending is nearly back to its prepandemic level. Households are sitting on trillions of dollars in savings that could fuel an epic rebound as the health crisis eases.Yet not everyone made it into the lifeboats unscathed, if at all. Millions of laid-off workers waited weeks or months to begin receiving help, often with lasting financial consequences. Aid to hundreds of thousands of small businesses dried up long before they could welcome back customers; many will never reopen. Long lines at food banks and desperate pleas for help on social media reflected the number of people who slipped through the cracks.“The damage that has been done has occurred in a disparate fashion,” said Michelle Holder, a John Jay College economist who has studied the pandemic’s impact. “It’s occurred among low-income families. It’s occurred among Black and brown families. It’s certainly occurred among families that did not have a lot of resources to fall back on.”For many white-collar workers, Dr. Holder said, the pandemic recession may one day look like a mere “bump in the road.” But not for those hit hardest.“It wasn’t just a bump in the road if you were a low-wage worker, if you were a low-income family,” she said. “Their ability to recover is just not the same as ours.”Jesus Quinonez lost his job as a manager at a warehouse in the San Diego area early in the pandemic. He quickly found another job — with a company that shut down before he could begin work. He hasn’t worked since.It took Mr. Quinonez, 62, three months to fight his way through California’s overwhelmed unemployment insurance system and begin receiving benefits. Less than two months later, a $600-a-week unemployment supplement from the federal government expired, leaving Mr. Quinonez, his wife and his four children trying to subsist on a few hundred dollars a week in regular unemployment benefits.By January, Mr. Quinonez was four months behind on rent on the one-bedroom trailer he shares with his family. He had raided his 401(k) account, leaving no savings a few years before his intended retirement. Government nutrition assistance kept his family fed, but it didn’t help with the car payment, or pay for toilet paper.“I started falling behind on my bills, plain and simple,” he said.A closed storefront in Newark. Not everyone made it into the lifeboats unscathed.Credit…Bryan Anselm for The New York TimesFor hundreds of thousands of small businesses, government aid dried up long before they could welcome back customers. Many will never reopen.Credit…Bryan Anselm for The New York TimesBut in December, Congress passed a $900 billion aid package, which included a second round of direct checks to households and revived the expanded unemployment programs. By January, Mr. Quinonez was able to pay off at least part of his debt, enough to hold on to the trailer and his car. The next round of aid should carry Mr. Quinonez until he can work again.“As soon as they lift the restrictions and more people get vaccinated, I see things coming back good,” he said. “I expect to get a job, and I expect to continue working until I retire.”Whether Mr. Quinonez’s story — and millions more like it — should count as a success or failure for public policy is partly a matter of perspective. Mr. Quinonez himself is unimpressed: He worked and paid taxes for decades, then found himself subject to a decrepit state computer system and a divided Congress.“Now that we need them, there’s no freaking help,” he said.Research from Eliza Forsythe, an economist at the University of Illinois, found that from June until Feb. 17, only 41 percent of unemployed workers had access to benefits. Some of the rest were unaware of their eligibility or couldn’t navigate the thicket of rules in their states. Others simply weren’t eligible. Asian workers, Black workers and those with less education were disproportionately represented among the nonrecipients.The gaps and delays in the system had consequences.“The impact of that is folks’ having to move out of their apartments because they have this money that’s supposed to be coming but they just haven’t received it,” said Rebecca Dixon, executive director of the National Employment Law Project, a worker advocacy group. Others kept their homes because of eviction bans, but had their utilities shut off, Ms. Dixon added, or turned to food banks to avoid going hungry — measures of food insecurity surged in the pandemic.Still, the federal government did far more for unemployed workers than in any previous recession. Congress expanded the safety net to cover millions of workers — freelancers, part-time workers, the self-employed — who are left out in normal times. At the peak last summer, the state and federal unemployment systems were paying $5 billion a day in benefits — money that helped workers avoid evictions and hunger and that flowed through the economy, preventing an even worse outcome.The record of other federal responses is similarly mixed. The Paycheck Protection Program helped hundreds of thousands of small businesses but was plagued by administrative hiccups and, at least according to some estimates, saved relatively few jobs. Direct checks to households similarly helped keep families afloat, but sent billions of dollars to households that were already financially stable, while failing to reach some of those who needed the help the most — in some cases because they had not filed tax returns or did not have bank accounts.Beyond the successes and failures of specific programs, any evaluation of the broader economy needs to start with a question: Compared with what?Relative to a world without Covid-19, the economy remains deeply troubled. The United States had 9.5 million fewer jobs in February than a year earlier, a hole deeper than in the worst of the last recession. Gross domestic product fell 3.5 percent in 2020, making it among the worst years on record.Relative to the rosy predictions early in the pandemic — when economists hoped a brief shutdown would let the country beat the virus, then get quickly back to work — the downturn has been long and damaging. But those hopes were dashed not by a failure of economic policy but by the virus itself, and the failure to contain it.“If you want to think back on what we got wrong, really the fundamental errors were about the spread of the virus,” said Karen Dynan, a Harvard economist and Treasury Department official during the Obama administration. But relative to the outcome that forecasters feared in the worst moments last spring, the rebound has been remarkably strong. In May, economists at Goldman Sachs predicted that the unemployment rate would be 12 percent at the end of 2020 and wouldn’t fall below 6 percent until 2024. The same team now expects the rate to fall to 4 percent by the end of this year. Other forecasters have similarly upgraded their projections..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.The recovery proved so strong in part because businesses were able to adapt better — and Americans, for better or worse, were willing to take more risks — than many people expected, allowing a faster rebound in activity over the summer. But the biggest factor was that Congress responded more quickly and forcefully than in any past crisis — a particularly remarkable outcome given that both the White House and Senate were controlled by Republicans, a party traditionally skeptical of programs like unemployment insurance.Millions of laid-off workers waited weeks or months to begin receiving help, a lag that often left financial consequences.Credit…Bryan Woolston/ReutersLong lines at food banks provided a hint of the number of people who slipped through the cracks.Credit…Tamir Kalifa for The New York Times“The dominant narrative about Washington and about legislating and public policy is one of dysfunction, one of not being able to rise to meet challenges, one of not being able to get it together to address glaring problems, and I think it’s a well-earned narrative,” said Michael R. Strain, an economist at the American Enterprise Institute. “But when I look back over the last year, that is just not what I see.”Congress didn’t prevent a recession. But its intervention, along with aggressive action from the Federal Reserve, may have prevented something much worse.“We could have experienced another Great Depression-like event that took years and years to recover from, and we didn’t,” Dr. Strain said.Washington’s moment of unity didn’t last. Democrats pushed for another multitrillion-dollar dose of aid. Republicans, convinced that the economy would rebound largely on its own once the pandemic eased, wanted a much smaller package. The stalemate lasted months, allowing aid to households and businesses to lapse. Economists are still debating the long-term impact of that delay, but there is little doubt it resulted in thousands of business failures.“We had this grand success that policymakers acted so quickly in passing two significant pieces of legislation early in the pandemic, and then they flailed through the whole fall in just the most frustrating of ways,” said Wendy Edelberg, director of the Hamilton Project, an economic-policy arm of the Brookings Institution. “That was just such an unforced error and created confusion and needless panic.”But unlike in 2009, when Republican opposition prevented any significant economic aid after President Barack Obama’s first few months in office, Congress did eventually provide more help. The $900 billion in aid passed in late December prevented millions of people from losing unemployment benefits, and helped sustain the recovery at a moment when it looked like it was faltering.The $1.9 trillion plan that Democrats pushed through Congress this month could help the United States achieve something it failed to do after the last recession: ensure a robust recovery.If that happens, it could fundamentally shift the narrative around the pandemic recession. The damage was deeply unequal, and the economic response, though it helped many families weather the storm, didn’t come close to overcoming that inequity. But a recovery that restores jobs quickly could help workers like Mr. Quinonez get back on track.“It’s just a bad year, and you just close the page and move on and try to make the best of the new days and new years,” he said. “Things are going to get better.”AdvertisementContinue reading the main story More

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    Here Are 17 Reasons to Let The Economic Optimism Begin

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    #masthead-section-label, #masthead-bar-one { display: none }Biden’s Stimulus PlanBiden’s AddressWhat to Know About the BillBenefits for Middle ClassChild Tax CreditAdvertisementContinue reading the main storyUpshotSupported byContinue reading the main story17 Reasons to Let the Economic Optimism BeginA reporter who has tracked decades of gloomy trends sees things lining up for roaring growth.March 13, 2021, 5:00 a.m. ETCredit…Jordy van den NieuwendijkThe 21st-century economy has been a two-decade series of punches in the gut.The century began in economic triumphalism in the United States, with a sense that business cycles had been vanquished and prosperity secured for a blindingly bright future. Instead, a mild recession was followed by a weak recovery followed by a financial crisis followed by another weak recovery followed by a pandemic-induced collapse. A couple of good years right before the pandemic aside, it has been two decades of overwhelming inequality and underwhelming growth — an economy in which a persistently weak job market has left vast human potential untapped, helping fuel social and political dysfunction.Those two decades coincide almost precisely with my career as an economics writer. It is the reason, among my colleagues, I have a reputation for writing stories that run the gamut from ominous to gloomy to terrifying.But strange as it may seem in this time of pandemic, I’m starting to get optimistic. It’s an odd feeling, because so many people are suffering — and because for so much of my career, a gloomy outlook has been the correct one.Predictions are a hard business, of course, and much could go wrong that makes the decades ahead as bad as, or worse than, the recent past. But this optimism is not just about the details of the new pandemic relief legislation or the politics of the moment. Rather, it stems from a diagnosis of three problematic mega-trends, all related.There has been a dearth of economy-altering innovation, the kind that fuels rapid growth in the economy’s productive potential. There has been a global glut of labor because of a period of rapid globalization and technological change that reduced workers’ bargaining power in rich countries. And there has been persistently inadequate demand for goods and services that government policy has unable to fix.There is not one reason, however, to think that these negative trends have run their course. There are 17.Credit…Jordy van den Nieuwendijk1. The ketchup might be ready to flowIn 1987, the economist Robert Solow said, “You can see the computer age everywhere but in the productivity statistics.” Companies were making great use of rapid improvements in computing power, but the overall economy wasn’t really becoming more productive.This analysis was right until it was wrong. Starting around the mid-1990s, technological innovations in supply chain management and factory production enabled companies to squeeze more economic output out of every hour of work and dollar of capital spending. This was an important reason for the economic boom of the late 1990s.The Solow paradox, as the idea underlying his quote would later be called, reflected an insight: An innovation, no matter how revolutionary, will often have little effect on the larger economy immediately after it is invented. It often takes many years before businesses figure out exactly what they have and how it can be used, and years more to work out kinks and bring costs down.In the beginning, it may even lower productivity! In the 1980s, companies that tried out new computing technology often needed to employ new armies of programmers as well as others to maintain old, redundant systems.But once such hurdles are cleared, the innovation can spread with dizzying speed.It’s like the old ditty: “Shake and shake the ketchup bottle. First none will come and then a lot’ll.”Or, in a more formal sense, the economists Erik Brynjolfsson, Daniel Rock and Chad Syverson call this the “productivity J-curve,” in which an important new general-purpose technology — they use artificial intelligence as a contemporary example — initially depresses apparent productivity, but over time unleashes much stronger growth in economic potential. It looks as if companies have been putting in a lot of work for no return, but once those returns start to flow, they come faster than once seemed imaginable.There are several areas where innovation seems to be at just such a point, and not just artificial intelligence.2. 2020s battery technology looks kind of like 1990s microprocessorsRemember Moore’s Law? It was the idea that the number of transistors that could be put on an integrated circuit would double every two years as manufacturing technology improved. That is the reason you may well be wearing a watch with more computer processing power than the devices that sent people into outer space in the 1960s.Battery technology isn’t improving at quite that pace, but it’s not far behind it. The price of lithium-ion battery packs has fallen 89 percent in inflation-adjusted terms since 2010, according to BloombergNEF, and is poised for further declines. There have been similar advances in solar cells, raising the prospect of more widespread inexpensive clean energy.Another similarity: Microprocessors and batteries are not ends unto themselves, but rather technologies that enable lots of other innovation. Fast, cheap computer chips led to software that revolutionized the modern economy; cheap batteries and solar cells could lead to a wave of innovation around how energy is generated and used. We’re only at the early stages of that process.3. Emerging innovations can combine in unexpected waysIn the early part of the 20th century, indoor plumbing was sweeping the nation. So was home electricity. But the people installing those pipes and those power lines presumably had no idea that by the 1920s, the widespread availability of electricity and free-flowing water in homes would enable the adoption of the home washing machine, a device that saved Americans vast amounts of time and backbreaking labor.It required not just electricity and running water, but also revolutions in manufacturing techniques, production and distribution. All those innovations combined to make domestic life much easier.Could a combination of technologies now maturing create more improvement in living standards than any of them could in isolation?Consider driverless cars and trucks. They will rely on long-building research in artificial intelligence software, sensors and batteries. After years of hype, billions of dollars in investment, and millions of miles of test drives, the possibilities are starting to come into view.Waymo, a sister company of Google, has opened a driverless taxi service to the public in the Phoenix suburbs. Major companies including General Motors, Tesla and Apple are in the hunt as well, along with many smaller competitors.Apply the same logic to health care, to warehousing and heavy industry, and countless other fields. Inventions maturing now could be combined in new ways we can’t yet imagine.4. The pandemic has taught us how to work remotelyBeing cooped up at home may pay some surprising economic dividends. As companies and workers have learned how to operate remotely, it could allow more people in places that are less expensive and that have fewer high-paying jobs to be more productive. It could enable companies to operate with less office space per employee, which in economic terms means less capital needed to generate the same output. And it could mean a reduction in commuting time.Even after the pandemic recedes, if only 10 percent of office workers took advantage of more remote work, that would have big implications for the United States’ economic future — bad news if you are a landlord in an expensive downtown, but good news for overall growth prospects.5. Even Robert Gordon is (a little) more optimistic!Mr. Gordon wrote the book on America’s shortfall in innovation and productivity in recent decades — a 784-page book in 2016, to be precise. Now Mr. Gordon, a Northwestern University economist, is kind of, sort of, moderately optimistic. “I would fully expect growth in the decade of the 2020s to be higher than it was in the 2010s, but not as fast as it was between 1995 and 2005,” he said recently.Credit…Jordy van den Nieuwendijk6. Crises spur innovationThe mobilization to fight World War II was a remarkable feat. Business and government worked together to drastically increase the productive capacity of the economy, put millions to work, and advance countless innovations like synthetic rubber and the mass production of aircraft.Similarly, the Cold War generated a wave of public investment and innovation, such as satellites (a byproduct of the space race) and the internet (originally intended to provide decentralized communication in the event of a nuclear attack).Could our current crises spur similar ambition? Already the Covid-19 pandemic has accelerated the usage of mRNA technology for creating new vaccines, which could have far-reaching consequences for preventing disease.And as the 2020s progress, the deepening sense of urgency to reduce carbon emissions and cope with the fallout of climate change is the sort of all-encompassing challenge that could prove as galvanizing as those experiences — with similar implications for investment and innovation.7. Tight labor markets spur innovation, tooWhy did the Industrial Revolution begin in Britain instead of somewhere else? One theory is that relatively high wages there (a result of international trade) created an urgency for firms to substitute machinery for human labor. Over time, finding ways to do more with fewer workers generated higher incomes and living standards.But why might the labor market of the 2020s be a tight one? It boils down to two big ideas: shifts in the global economy and demographics that make workers scarcer in the coming decade than in recent ones; and a newfound and bipartisan determination on the part of policymakers in Washington to achieve full employment.8. There’s only one ChinaImagine an isolated farm town with 100 people.Five of the 100 own the farms. An additional 10 act as managers on behalf of the owners. And there are five intellectuals who sit around thinking big thoughts. The other 80 people are laborers.What would happen if suddenly another 80 laborers showed up, people who were used to lower living standards?The intellectuals might tell a complex story about how the influx of labor would eventually make everyone better off, as more land was cultivated and workers could specialize more. The owners and their managers would be happy because they would be instantly richer (they could pay people less to plow the fields).But the existing 80 laborers — competing for their jobs with an influx of lower-paid people — would see only immediate pain. The long-term argument that everybody gets richer in the end wouldn’t carry much weight.That’s essentially what has happened in the last few decades as China has gone from being isolated to being deeply integrated in the world economy. When the country joined the World Trade Organization in 2001, its population of 1.28 billion was bigger than that of the combined 34 advanced countries that make up the Organization for Economic Cooperation and Development (1.16 billion).But that was a one-time adjustment, and wages are rising rapidly in China as it moves beyond low-end manufacturing and toward more sophisticated goods. India, the only other country with comparable population, is already well integrated into the world economy. To the degree globalization continues, it should be a more gradual process.9. There’s only one MexicoFor years, American workers were also coming into competition with lower-earning Mexicans after enactment of the North American Free Trade Agreement in 1994. As with China, the new dynamic improved the long-term economic prospects for the United States, but in the short run it was bad for many American factory workers.But it too was a one-time adjustment. Even before President Trump, trade agreements under negotiation were for the most part no longer focused on making it easier to import from low- labor-cost countries. The main aim was to improve trade rules for American companies doing business in other rich countries.10. The offshoring revolution is mostly played outOnce upon a time, if you were an American company that needed to operate a customer service call center or carry out some labor-intensive information technology work, you had no real choice but to hire a bunch of Americans to do it. The emergence of inexpensive, instant global telecommunication changed that, allowing you to put work wherever costs were the lowest.In the first decade of the 2000s, American companies did just that on mass scale, locating work in countries like India and the Philippines. It’s a slightly different version of the earlier analogy involving the farm; a customer service operator in Kansas was suddenly in competition with millions of lower-earning Indians for a job.But it’s not as if the internet can be invented a second time.Sensing a theme here? In the early years of the 21st century, a combination of globalization and technological advancements put American workers in competition with billions of workers around the world.It created a dynamic in which workers had less bargaining power, and companies could achieve cost savings not by creating more innovative ways of doing things but exploiting a form of labor cost arbitrage. That may not be the case in the 2020s.Credit…Jordy van den Nieuwendijk11. Baby boomers can’t work foreverThe surge of births that took place in the two decades after World War II created a huge generation with long-reaching consequences for the economy. Now, their ages ranging from 57 to 76, the baby boomers are retiring, and that means opportunity for the generations that came behind them..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.As the boomers seek to continue consuming — spending their amassed savings, pensions and Social Security benefits — there will be relatively stable demand for goods and services and a relatively smaller pool of workers to produce them.According to the Social Security Administration’s projections of the so-called “dependency ratio,” in 2030 for every 100 people in their prime working years of 20 to 64, there will be 81 people outside that age range. In 2020 that number was 73.That is bad news for public finances and for the headline rate of G.D.P. growth, but good news for those in the work force. It should give workers more leverage to demand raises and give employers incentives to invest in productivity-enhancing software or machinery.12. The millennials are entering their primeSpending has a life cycle. Young adults don’t make much money. As they age, they start to earn more. Many start families and begin spending a lot more, buying houses and cars and everything else it takes to raise children. Then they tend to cut back on spending as the kids move out of the house.That, anyway, is what the data says takes place on average. The rate of consumption spending soars for Americans in their 20s and 30s, and peaks sometime in their late 40s. It’s probably not a coincidence that some of the best years for the American economy in recent generations were from 1983 to 2000, when the ultra-large baby boom generation was in that crucial high-spending period.Guess what generation is in that life phase in the 2020s? The millennials, an even larger generation than the boomers.They’ve had a rough young adulthood, starting their careers in the shadow of the Great Recession. But all that adult-ing they’re starting to do could have big, positive economic consequences for the decade ahead.13. Everybody likes it hotTwelve years ago, a Democratic president took office at a time of economic crisis. He succeeded at ending the crisis, but the expansion that followed was a disappointment, with years of slow growth at a time millions were either unemployed or out of the work force entirely.The overwhelming tone of the economic policy discussion during those years, however, was different. President Obama spoke of his plans to reduce the budget deficit. Republicans in Congress demanded even more fiscal restraint. Top Federal Reserve officials fretted about inflation risks, even when unemployment was high and inflation persistently low.The Trump presidency changed that discussion. Even as tax cuts widened the budget deficit, interest rates stayed low. Even as the jobless rate fell to levels not seen in nearly five decades, inflation stayed low. It was evident, based on how the economy performed in 2018 and 2019, and up until the pandemic began, that the U.S. economy could run hotter than the Obama-era consensus seemed to allow. That insight has powerful implications for the 2020s.14. Joe Biden wants to let it ripPresident Biden and congressional Democrats were determined to learn the lessons of the Obama era. Mr. Biden was deeply involved in that stimulus plan, which proved inadequate to the task of creating and sustaining a robust recovery.The lesson that Mr. Biden and the Democratic Party took from 2009 was straightforward: Do whatever it takes to get the economy humming, and the politics will work in your favor.That thinking helped lead to the $1.9 trillion relief bill signed on Thursday.15. Jay Powell wants to let it rip“To call something hot, you need to see heat,” Federal Reserve Chair Jerome Powell said in 2019. That’s as good a summary of the Fed’s approach to the economy as any.In more formal terms, the Fed has a new framework for policy called “Flexible Average Inflation Targeting.” It is in effect a repudiation of past Fed strategies of pre-emptively slowing the economy to prevent an outbreak of inflation predicted by economic models.Now, the Fed says it will raise interest rates in response to actual inflation in the economy, not just forecasts, and will not act simply because the unemployment rate is lower than models say it can sustainably get.Nearly every time he speaks, Mr. Powell sounds like a true believer in the church of full employment.16. Republicans are getting away from austerity politicsConsider an event that took place less than three months ago (that may feel like three years ago): Overwhelming bipartisan majorities in Congress passed a $900 billion pandemic relief bill. Then a Republican president threatened to veto it, not because it was too generous, but because it was too stingy.President Trump didn’t get his way on increasing $600 payments to most Americans to $2,000 payments, and he signed the legislation anyway, grudgingly. But the episode reflects a shift away from the focus on fiscal austerity that prevailed in the Obama era.With the current stimulus bill, opposition in conservative talk radio was relatively muted. Republicans voted against it, but there hasn’t been quite the fire-and-brimstone sense of opposition evident toward the Obama stimulus a dozen years ago.As the party becomes more focused on the kinds of culture-war battles that Mr. Trump made his signature, and its base shifts away from business elites, it wouldn’t be surprising if we saw the end of an era in which cutting government spending was its animating idea. This would imply a U.S. government that aims to keep flooding the economy with cash no matter who wins the next few elections.17. The post-pandemic era could start with a bangThe last year has been terrible on nearly every level. But it’s easy to see the potential for the economy to burst out of the starting gate like an Olympic sprinter.That could have consequences beyond 2021. A rapid start to the post-pandemic economy could create a virtuous cycle in which consumers spend; companies hire and invest to fulfill that demand; and workers wind up having more money in their pockets to consume even more.Americans have saved an extra $1.8 trillion during the pandemic, reflecting government help and lower spending. That is money that people can spend in the months ahead, or it could give them a comfort level that they have adequate savings and can spend more of their earnings.Things are also primed for a boom time in the executive suite. C.E.O. confidence is at a 17-year high, and near-record stock market valuations imply that companies have access to very cheap capital. There is no reason corporate America can’t hire, invest and expand to take advantage of the post-pandemic surge in activity.And on a psychological level, doesn’t everybody desperately want to return to feeling a sense of joy, of exuberance? That is an emotion that could prove the most powerful economic force of them all.Economics may be a dismal science, and those of us who write about it are consigned to see what is broken in the world. But sometimes, things align in surprising ways, and the result is a period in which things really do get better. This is starting to look like one of those times.AdvertisementContinue reading the main story More