All happy economies are alike; each unhappy economy is unhappy in its own way.
In the aftermath of the 2008 financial crisis, the economy's problems were all about inadequate demand. The housing boom had gone bust; consumers weren't spending enough to fill the gap; the Obama stimulus, designed to boost demand, was too small and short-lived.
In 2021, by contrast, many of our problems seem to be about inadequate supply. Goods can't reach consumers because ports are clogged; a shortage of semiconductor chips has crimped auto production; many employers report that they're having a hard time finding workers.
Much of this is probably transitory, although supply-chain disruptions will clearly last for a while. But something more fundamental and lasting may be happening in the labor market. Long-suffering American workers, who have been underpaid and overworked for years, may have hit their breaking point.
About those supply-chain issues: It's important to realize that more goods are reaching Americans than ever before. The problem is that despite increased deliveries, the system isn't managing to keep up with extraordinary demand.
Earlier in the pandemic, people compensated for the loss of many services by buying stuff instead. People who couldn't eat out remodeled their kitchens. People who couldn't go to gyms bought home exercise equipment.
The labor situation, by contrast, looks like a genuine reduction in supply. Total employment is still 5 million below its pre-pandemic peak. Employment in the leisure and hospitality sector is still down more than 9%. Yet everything we see suggests a very tight labor market.
It seems quite possible that the pandemic, by upending many Americans' lives, also caused some of them to reconsider their life choices. Not everyone can afford to quit a hated job, but a significant number of workers seem ready to accept the risk of trying something different — retiring earlier despite the monetary cost, looking for a less unpleasant job in a different industry, and so on.
And although this new choosiness by workers who feel empowered is making consumers' and business owners' lives more difficult, let's be clear: Overall, it's a good thing. American workers are insisting on a better deal, and it's in the nation's interest that they get it.
Most Democratic elected officials have embraced this new thinking, and it permeates the Biden domestic agenda. But a handful of Democrats are unpersuaded, holding to a view that was more widespread in the early Obama years, focusing on the risks of debt and spending.
That tension, and how it resolves itself — or doesn't — will be central to the evolution of the Biden presidency and U.S. economic policy for years to come. On the surface, there is a clash between lawmakers with different political instincts. But there is also a clash over whether a more traditional view will prevail over a newer approach that has become mainstream among economists — especially those who lean left, but with some acceptance among center-right thinkers.
In the older view, it is irresponsible to increase long-term budget deficits because it will curtail private investment and risk a fiscal crisis. Social policies should be seen as a zero-sum trade-off between alleviating poverty and encouraging work. And any major new spending should be coupled with enough revenue-raising measures that the number-crunchers at the Congressional Budget Office conclude the numbers will balance over the next 10 years.
But since those days, the intellectual ground has shifted in important ways.
For one, long-term interest rates have fallen precipitously, even as very large budget deficits have become the norm. That implies the United States can maintain higher public debt than once seemed possible without excessively constraining private investment or facing excessive interest costs.
"The long-term downward move in interest rates is the most important macroeconomic development that has occurred over the last couple of decades," said Karen Dynan, a former official at the Federal Reserve and at the Obama Treasury Department who now teaches at Harvard.
"Lower rates make deficit-financed spending less costly in budget terms and lowers the economic cost, because you can think of lower rates as a signal that the private sector has less demand for that money," Dynan said.