This year -just like the year before, and the year before, and the year before- we’re hearing a lot of talk about how labor markets are as healed as they’re going to get. People said this back when the Trump tax cuts passed, and they’re still saying it to this day. While I disagree with these pessimists on the facts, I also think they are setting Trump up for a win by declaring full employment too soon.
Wages aren’t growing that fast, nor have they been for most of the recovery, which has lead to a litany of theories as to why labor markets are structurally and permanently broken. We previously heard a lot of theories about why unemployment was structurally and permanently high, but with the unemployment rate now below 4% we don’t hear that so much any more. More of the focus now is on wage growth. Of course if you look at the wider labor market slack, wage growth is exactly where you’d expect and has been for the entire recovery.
But of course this is nothing new from me, that’s not what this post is about. It’s about what happens if I’m right. Economists and other pundits should assess the economy as honestly and un-strategically as they can, but I do want to point out the risk that the pessimists are making.
If I am right, and labor markets aren’t structurally broken, wage growth will continue to accelerate and the labor market will grow stronger and stronger. Now if everyone agreed with me that labor markets were slowly healing and were going to heal, then this wouldn’t give Trump any ammunition. Everyone could just point to the well-known fact that the recovery wasn’t over, and there’s nothing for Trump to take credit for.
However, with everyone out there saying labor markets are structurally broken, when we do end up with very strong labor markets that will give Trump grounds to take credit for it. Monopsony power is why wages are growing slow? Great, then when wages are growing fast I guess Trump can say he fixed that. Low productivity growth has nothing to do with the business cycle? Great, then when it picks back up Trump can say he fixed that. Labor markets already operating at full potential? Great, then I guess when they get better Trump can say be brought people back to work who wouldn’t otherwise be working.
Again, I’m not saying anyone should lie about their assessment of the economy just to avoid giving Trump points. If you think we’re at full employment, please say so. I am certainly not making a strategic assessment, just calling it like I see it. Just understand that a pessimistic assessments today runs the risk of giving Trump and his tax cuts ammunition in the future when things get better. It’s really just one reason to really, really take your economic analysis seriously and don’t simply be pessimistic because it feels good to say the economy is bad under Trump right now.
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