The Washington PostDemocracy Dies in Darkness

Opinion Recession or jobs boom? It’s not so simple.

A parent shops for school supplies on July 27 in North Miami, Fla. (Marta Lavandier/AP)
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With news that the economy shrank for the second quarter in a row — an informal marker of a recession but not the official test — voters are hearing two competing views of the economy.

Republicans sound as if we’re back to the 1970s, when the so-called misery index (inflation plus unemployment) reached about 20 percent. (Today, it would be about 13 percent.) They point out that gas prices have gone through the roof, inflation is at a 40-year high, and wages have not kept pace. They argue that President Biden misjudged inflation (which the Federal Reserve and most economists did, too) and was slow to react. Now, we might be in a recession.

The White House view is that the economy is “softening” as expected but that unemployment remains historically low. “People who want a job can get a job,” Cecilia Rouse, chair of the Council of Economic Advisers, told me and a small group of reporters Thursday. Consumer spending is still increasing (albeit at a slower pace) and inventories have returned to normal levels. Rouse says while the administration knows the economy must “cool,” a record-low unemployment rate sure doesn’t seem like a recession. (Federal Reserve Chair Jerome H. Powell doesn’t think we are in a recession, either, although he acknowledged Wednesday that the path to avoid a recession has narrowed.)

Is the White House right or is the GOP? Yes. The economy is a mixed bag. If you have gotten back to work (maybe in a better-paying job) without a long commute, you might be doing better. If you kept your job during the pandemic, but your rent went up and you now pay a fortune in gas to get to work, you’ve lost ground in the past year or so.

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As for the cause of inflation, the administration resists the conclusion that the American Rescue Plan overheated the economy. Rouse points to the pandemic’s unprecedented stop and then restart of the economy as the major driver of inflation. In addition, Russia’s unprovoked war against Ukraine is “having big consequences,” she says, for food and energy prices.

When it comes to the impact of the American Rescue Plan, we should look at the “counterfactual,” Rouse says. After telling businesses to close and workers to go home, were we not supposed to help the families that were going hungry or keep businesses out of bankruptcy?

Republican critics, independent economists (with a few exceptions) and the administration all misjudged the risk of inflation because we had never before had a total shutdown and restart, followed by a war that has disrupted the supply of food and gas. It is frankly ridiculous to think the administration could have found exactly the right amount of stimulus (big enough to prevent suffering but not so big as to aggravate inflation). Instead, the administration erred on the side of supporting the people and businesses that were marooned by the pandemic.

Rouse has reason to feel optimistic after the Senate passed a much-needed semiconductor bill Wednesday, and Sen. Joe Manchin III (D-W.Va.) reached an apparent deal with Democratic leaders on what’s now known as the Inflation Reduction Act — a true surprise for the administration filled with the sorts of investments in the economy that will produce long-term growth. The reconciliation deal with Manchin is a gift to the administration — it contains record investment in clean energy, as well as a plan to cap and control drug prices and tax big corporations. (Biden should be particularly pleased with tax provisions such as a global minimum tax for corporations and the end of the carried-interest loophole that will generate more revenue to invest later and make the code fairer.)

Politicians will argue from here to the midterms and beyond about who is to blame for inflation. But if Biden gets the blame for inflation, he should also get credit for jobs and falling gas prices. Even so, he really doesn’t deserve all the credit or the blame for the economy. Both sides exaggerate the extent of Biden’s control over it. He can’t spin the dials to create the perfect balance between jobs and inflation — although lowering tariffs and increasing immigration would tamp down on inflation.

What Biden actually does deserve ample credit for is tackling the pandemic. He pushed out vaccines, treatments and testing kits, all which have allowed people (including him) to avoid serious illness and get back to work. Republicans fought him tooth and nail, resulting in lower vaccination rates and more hospitalizations and deaths per capita in red states.

Instead of deciding whom to blame for inflation, voters should consider how each party wants to address the prospect of a recession. Republicans still push supply-side tax cuts (and weirdly, tax hikes on poorer people). Democrats want tax credits and cuts for middle- and low-income workers, plus a minimum corporate tax and greater investment in clean energy, infrastructure and education to produce steady growth.

Whichever path you favor, keep in mind: No single president (or Congress) is solely responsible for good times or bad, let alone an economy that’s both good and bad.

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