America in recovery

Salvatore Iovino, Staff Writer

On April 19, U.S. President Joe Biden made the COVID-19 vaccine available to all Americans ages 16 and older. Since then, the percentage of vaccinated Americans continues to grow exponentially on a daily basis, slowly but surely allowing life to return to a certain degree of normalcy. Many offices, restaurants and even sporting venues are opening their doors for the first time in over a year, and with this has come the reignition of the US economy. Though this economic rebound is much needed and an objectively positive development both socially and fiscally for the country in the post COVID-19 world, a significant question for the Biden administration remains: what is the correct strategy for the U.S. government to rebuild the economy going forward?

That question has hovered over the Biden administration since the day the newly elected president took office, and so far no one answer has truly gained any consensus approval. Former Treasury Secretary Larry Summers came out recently with a criticism of the $2 trillion stimulus package released this past April, citing the potential of inflation in the future as a possibly dangerous result. The crux of Summers’ criticism of the stimulus packages revolve around policies enacted by U.S. President John F. Kennedy in the 1960s. Summers claims the current trend towards progressive economics will eventually lead to an aggressive increase in inflation as seen in the late 1960s, when U.S. President Lyndon B. Johnson continued effort to lower unemployment without raising inflation. This attempt eventually led to booming inflation, creating a roughly three percent rise by the end of the decade, and sending the U.S. economy into a downward spiral for much of the 1970s. While this is a valid example of how traditional economic theory works, it is largely irrelevant within the context of the current economic playing field. The U.S. economy is deeply woven into the global economy, and the policy and economic principles that applied for the greater part of the last half century no longer have the same implications that they once had.

The Federal Reserve has aimed to keep the inflation rate under two percent for the past decade. They’ve been successful in this endeavor, but not for the traditional reasons classical economists would point to. Lowering unemployment has historically been met with a rise in interest rates by the Fed, and a recession follows to reign in the “inflating” economy. In the past decade, however, unemployment rates had been pinned relatively low by historical standards, and the inflation rate had stayed the same. Before the pandemic, the unemployment rate within the United States had fallen to 3.5 percent, lower than the natural rate as defined by the national projection of 4.1 percent; however, inflation did not even reach two percent for any sustained period. This is a clear mathematical indication that the rules of modern economics have changed from those previously applied to the United States, even in the early part of the 21st century. Across the previous decade, it was found that the inflation rate was being held down by foreign competition as well as the slow recovery from the 2008 recession, two factors greatly impacted by the ever-increasing globalization of the economy. The success of the US economy has no longer become an issue of the top one percent  making the important financial impacts and running the country as a self correcting system, but an issue that transcends physical, social and class borders.

Progressive economics is the way forward for the U.S. economy. Decision making based upon dated economic principles cannot and will not work for the United States, and it will eventually lead to collapse faster than a rise in inflation ever could. Stimulus packages and increased funding into government programs have kept the U.S. economy alive during the COVID-19 pandemic, and provided a strong base for which the economy can grow upon. Creating economic opportunity for the middle class and low-income households is the only way the United States can retain its status as a global economic power, as the country will simply fold in on itself if the distribution of wealth does not begin to spread. Consumption spending is disproportionately generated by middle class and low-income households, however without any money for consumption, this facet of GDP has already been seen to struggle immensely. 

The fear of inflation is a valid concern, however, as stated by Mary Daly, president of the Federal Reserve Bank of San Francisco. “We should be less fearful about inflation around the corner and recognize that that fear (in regards to cautionary economic policy in 2008) costs millions of jobs — millions of livelihoods, millions of hopes and dreams,” Daly said. Once again, the critical issue of the United States economy remains; how is it possible to balance the concern for human beings and economic growth under the current system? In a short answer, it isn’t. The current system needs to change, and COVID-19 has provided the perfect opportunity to do so. It is time to leave the dated principles of classical and neoliberal economics behind, and enter an era of domestic economic policy that provides opportunities for economic success for all Americans, and in turn, ensures the health of the U.S. economy for decades to come.

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