By Gabriel Mathy, Skanda Amarnath and Alex Williams

Executive Summary

Whenever inflation becomes a part of political or economic discourse, policymakers and commentators instinctively reach for narratives and models drawn from the experience of the 1970s inflation. However, these models offer little explanation for even adjacent experiences of inflation. Case in point: the combination of macroeconomic data-points and policy responses observed in the 1950s would suggest — under models of the 1970s — that runaway inflation was imminent. Instead, inflationary pressures quickly resolved themselves as the economic situation changed and new capacity was built out.

The theoretical inadequacy that this fact demonstrates…


By Arnab Datta, Skanda Amarnath and Alex Williams

Executive Summary

In order for policy to operate on the scale necessary to fix our failing infrastructure and secure prosperity for American workers, we need to ask pointed questions about how best to finance these goals, given the present political and economic environment. Large conditional grants are subject to legal vulnerabilities and create unpalatable CBO scores. However, more creative approaches to financing investment in public assets and the private sector abound throughout American history. The New Deal, the CARES Act and other legislation have made use of government corporations, equity purchases and loan guarantees…


By Skanda Amarnath and Alex Williams

Executive Summary

The Implications of the Fed’s Framework Revisions For The Fed’s Communication of Maximum Employment:

Given the Fed’s recent framework revisions and forward guidance commitment to maintain current interest rates until “maximum employment” is achieved, the Fed’s communication with respect to its assessment of “maximum employment” is overdue for a clarification. The previous framework hardwired the Phillips Curve into the Fed’s approach to setting interest rates, with the belief that the unemployment rate had to always be landed on a pin, not too high, not too low, if inflation was to stay well-behaved around the 2% target. …


By Alex Williams
Many thanks to Hassan Khan for helping with this piece

Executive Summary

Throughout our series on semiconductors, we have used the semiconductor industry to explore big questions in economic theory and industrial policy. So far, we have refrained from giving specific policy recommendations, instead providing historical examples to illustrate prior policy successes and missteps. But with the looming threat of climate change, and its attendant supply chain disruptions, we can view the semiconductor industry as a sandbox for testing out the kind of large-scale industrial policy that will only become more necessary as time goes on. So today, we…


By Alex Williams and Hassan Khan

This post is the second in a series that uses the history and economics of the American semiconductor industry to ask big picture questions about the future of fiscal policy and industrial policy. As the pandemic ends, the US will have a historic opportunity to revamp its public and economic infrastructure. However, to ensure that industrial policy is effective, many older strategies need to be updated to ensure that they are consistent with the suite of macroeconomic policy settings that support tight labor markets. …


By Skanda Amarnath and Alex Williams
Many thanks to Hassan Khan for helping with this piece

Summary

This post is the first in a series that uses the history and economics of the American semiconductor industry to ask big picture questions about the future of fiscal policy and industrial policy. As the pandemic ends, the US will have a world-historical opportunity to revamp its public and economic infrastructure. However, to ensure that industrial policy is effective, many older strategies need to be updated to ensure that they are consistent with the suite of macroeconomic policy settings that support tight labor markets…


By Alex Williams

Summary

Commentary about the Biden administration’s proposed fiscal relief policies has relied heavily on estimates of the economy’s potential output. However, few commentators or policymakers look under the hood to check how these estimates are calculated. Oftentimes, estimates of potential output — the maximum inflation-adjusted dollar value that the economy can sustain without runaway inflation — are produced by simply fitting a trend to past values of real GDP. More complex models like those used by the Congressional Budget Office rely on statistical residuals like total factor productivity, and unsubstantiated assertions about the labor market. …


By Skanda Amarnath and Alex Williams

Summary

The Fed’s framework review and forward guidance from this past fall showed an encouraging willingness to center labor market outcomes over inflation in evaluating interest rate policy. However, the Fed has only partially clarified how they will evaluate real-time inflationary dynamics within their new flexible average inflation targeting regime. The end of the pandemic, alongside substantial stimulus spending, has created an environment where some commentators and policymakers are preemptively worried about inflation, much as they were in 2009 after the Great Financial Crisis. …


Alex Williams, Employ America

Executive Summary

Good policy proceeds equally from good politics and good policy analysis. While the Enhanced Unemployment Insurance provisions of the CARES Act were designed in part by the limitations of the existing UI system, they were extremely successful in supporting workers and driving down the poverty rate. As the pandemic continues, policymakers must learn from these successes regardless of their source and use them to improve future policy. Clear-eyed post facto policy evaluation is a critical aspect of this learning and improving process.

However, the nonpartisan Congressional Budget Office’s analysis of the macroeconomic impacts of the Enhanced…


By Alex Williams and Skanda Amarnath

There is a long tradition of describing recessions based on what letter their aggregate data looks most like when plotted against time. The only difference between a U-shaped recession and a V-shaped recession is how long the economy spends at the bottom, while in an L-shaped recession the economy hits bottom and doesn’t leave. If the economy recovers, but then slips into recession again, we call it a double-dip or W-shaped recession. However, the COVID recession was so unprecedented in its severity and aftermath that commentators are now calling it a “K-shaped recovery.”

The…

Employ America

We write, crunch #’s, and tweet about the labor market and economic policy.

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