“How Full Employment Became Washington’S Creed”

Smialek, Jeanna. “How Full Employment Became Washington’S Creed”. Nytimes.Com, 2021, www.nytimes.com/2021/01/18/business/economy/full-unemployment-fiscal-policy.html

The article discusses the Federal Reserve’s aim to restore the job market’s status to where it was before the COVID-19 pandemic smash. More than a year ago, the economy had 3.5% unemployment, steady or increasing labor force involvement, and stable growing wages (Smialek n.p). These situations created economic openings for marginalized groups and reduced poverty levels. Additionally, price gains stayed at controllable rates. The pandemic disoriented everything, causing joblessness to rise steeply to degrees not observed since the Great Depression. As a result, the central aim is for the policymakers to see a return to the previous performing job market to help shape the economic recovery. While this remains the focus, in the past, Fed executives and lawmakers often supported a commitment to full employment, which entails the lowest jobless level a country can maintain without fueling high inflation or other uncertainties while pulling back monetary and fiscal support (Smialek n.p). Even the Fed supports the job market restoration move, having a history of increasing interest rates as unemployment declines and Congress spends more than it obtains from taxes.
Prompt intervention would minimize damage in the job market because with these types of crises, particularly with low-interest rates, immediate action irrespective of deficit finance would create short-term and long-term economic improvement. The pandemic has initiated a phase for a macroeconomic experiment that tests whether big government expenditure packages and growth-friendly central bank policies can merge to enhance a fast recovery that encompasses a larger portion of Americans without inviting damaging side effects. During the pandemic, the government has spent willingly to reinforce the economy, with reports indicating an ambitious $1.9 trillion spending bundle (Smialek n.p). The expenditure would reduce the unemployment rate to 4.5% by December 2021, compared to 6.7% in December 2020 (Smialek n.p). The interest rates are likely to stay close to zero for years.
The article identifies macroeconomic issues associated with the U.S. economy during the COVID-19 pandemic. The matters discussed are macroeconomic since they present firms, the government, and consumers’ collective economic choices within a particular region (the United States), as the class notes explain. Another related concept is the interest rate. The proposed policy to boost the economy by restoring the labor force will most likely cause the interest rate to remain zero. This interest rate represents the real rate adjusted for inflation or real borrowing cost.
Additionally, the federal policy is expected to boost household savings as they get economic spurs. This idea is related to the saving and wealth concept discussed in class. As household savings expand, the national savings also do so as the income not spent on consumption adds to national savings. Similarly, households will accumulate more human capital and intangible assets, which are wealth measures. Another idea in the article is the labor market. This concept relates to the class discussions on how the labor market can be measured. Accordingly, restoring the labor market involves identifying equilibrium levels of wages and employment. Saving and consumption are closely related. As both the article and class notes explain, the amount of consumption is influenced by fiscal policy, wealth, real interest rates, current income, and institutional factors (Smialek n.p). Another idea suggested in the article is the Great Depression. This concept relates to the business cycle, notably, the economic recession of 2008 and 2009, when the economy is described by reducing GDP, high unemployment, weak consumption, falling investments, imports, exports, and high budget deficits. This period was also experienced in March 2020.
Business Implications
The move to restore the labor market by reducing the current unemployment rate implied that the government had to increase economic incentives for households to boost their spending, wealth, and savings. The move also suggests implementing more aggressive monetary and fiscal support policies to rectify economic deficits (Smialek n.p). Economic development and reduced unemployment mean sustaining low interest rates for years, purchasing vast amounts of government-backed bonds, stimulating demand by increasing government spending (through Fed support), and massive investments- for example, in real estate due to low interest rates. However, other policy implications could be harmful to the economy in general. For instance, the labor market rebound and increased government expenditure could cause runaway inflation, a harmful debt outcropping, or financial market risk-taking (Smialek n.p). Furthermore, prematurely stopping a labor market expansion can leave laborers who would have received a boost from a robust job market on the margins.
Areas of Disagreement

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