In the past three years, technological advances have delivered about one percentage point of growth in the guaranteed real wage in the United States each year — only half the rate of earlier times, indeed, but at least something is something. However, real wages are currently 4% below their guaranteed value if we add the underlying fundamental productivity trend to the level of the Pre-pandemic Employment Cost Index (ECI) of the real wage. Does this sound like a “high pressure” job market to you?

Those who believe that the US labor market shows some signs of “rigidity” point out that the ECI rose 3.7% year-on-year last September – well above its annual growth rate of 3% in the years before the coronavirus. from the administration of former President Donald Trump. But, as consumer prices in the United States have increased by 5.4% in the last year, the real wage based on the ECI has fallen by 1.7% in that period. In a high pressure economy with a rigid labor market, workers would have enough bargaining power to obtain increases in real wages.

Very short-term forecasting is extremely difficult, and dangerous. But the “very short term” that I see today is what I predicted two or three quarters ago. True, the recovering American economy, like a driver suddenly accelerating, is leaving inflationary tire marks on the asphalt. But, as I argued in May, they shouldn’t worry us, because “burning a tire to get back on the highway is not the same as overheating the engine.”

The United States is not currently in a situation where too much money is looking for too few products, resulting in excess demand for labor and likely unleashing an inflationary spiral. This is despite the fact that the ongoing pandemic and its associated disruptions continue to cause substantial labor supply shortages.

Today, the employment-to-population ratio of the US economy is three percentage points below what we used to consider its level of full employment. The ratios for women, African Americans, and workers without a college degree are, respectively, 5, 4.5, and 4 percentage points below this level.

However, economists whom I respect speak as if the economy is going through a serious inflationary problem. Jason Furman, former chairman of President Barack Obama’s Council of Economic Advisers, thinks that “the original sin was an oversized American Rescue Plan,” that is, the $ 1.9 trillion recovery package that President Joe Biden turned into law in March. In Furman’s view, it would have been better to have less aggressive policies and thus a slower recovery in employment and growth this year, because Biden’s plan “contributed to higher production, but also higher prices.” And according to recently published The New York Times, Former US Treasury Secretary Larry Summers thinks that “inflation now threatens to spiral out of control.”

Those concerned about inflation argue that the COVID-19 crisis has permanently damaged the supply side of the economy by causing many early retirements, as well as a lasting disruption of the efficient supply chains on which it had largely depended. productivity and prosperity. Maybe. But similar arguments in the early 2010s, after the global financial crisis of 2008, attempted to justify policies that did not fully hit the gas and were quick to re-employ so-called “zero marginal product” workers. One consequence of this shyness was the election of Trump, whose rise was fueled by the fury of those who thought that “elites” cared more about immigrants and minorities than workers whose economic opportunities had never returned to pre-2008 levels. .

Finally, some say that regardless of whether the labor market is tight or not, inflation – whether driven by supply-side or demand-side factors – is so high and prominent that firms and companies Homes will slowly incorporate it into their expectations. Consequently, the inflationary snake has to be struck down now, while it is small, before it grows and devours everything of value.

But so far, rising inflation has not been incorporated into any of the “sticky” prices in the economy, as measured by the Atlanta Federal Reserve. It is true, the current 30-year implicit inflation rate in the financial market, at 2.35%, is more than one percentage point higher than the level at which it was in the second half of the last decade. But today’s rate is similar to that of the first half of that decade, and is slightly below the level that would be consistent with the Federal Reserve’s 2% annual inflation target.

It is highly likely that America’s current spike in inflation is simply a tire mark on the road, a result of the post-pandemic recovery. There is no sign that inflation expectations have disengaged from targets. The labor market remains so weak that workers cannot demand substantial increases in real wages. Financial markets are indifferent to the possibility of rising inflation. And a substantial fiscal contraction is already underway.

In the face of these facts, why would anyone say that the “original sin” was the “Oversized American Rescue Plan” and that adjusting monetary policy from now on is the appropriate way to atone for it? I personally don’t understand that logic.

J. Bradford DeLong He is a former Deputy Under Secretary of the United States Treasury, Professor of Economics at the University of California, Berkeley, and a Research Fellow at the National Bureau of Economic Research. © Project Syndicate 1995–2021