In an effort to boost aggregate demand to offset the effects of the pandemic, policymakers pushed through an unprecedented $5 trillion of fiscal stimulus, including several rounds of economic impact payments and an expanded child tax credit, which far overshot the loss of earnings, leading to excess demand and inflation. The return of high inflation after 40 years should cause policymakers to rethink their approach. Inflation has been particularly hard on low-income households, as they spend a disproportionate share of their earnings on necessities such as food, energy, and housing, which have experienced relatively high rates of inflation. Another symptom is inflation, which as of the latest reading hit 7.5 percent-the highest rate in 40 years-causing real (inflation-adjusted) earnings to fall 3.1 percent over the last year. The increasingly tight labor market and extraordinary imbalance, however, are symptomatic of a more general mismatch in the economy in which demand (e.g., employer demand for labor and consumer demand for goods and services) far outstrips supply. Since May of 2021, job openings have exceeded unemployment, an imbalance that continues to grow in favor of workers-currently about 1.7 job openings exist for every person unemployed, the highest on record. Increased geographic mobility combined with the “Great Resignation,” in which millions of workers are pausing to reevaluate their careers, means for many Americans, opportunities are already on the rise. As the American people step into a new economic landscape, policymakers must keep up, or they risk jeopardizing the growth and opportunity our changing economy can bring. Coming out of the pandemic, we envision an economy brimming with innovation, dynamism, plentiful jobs, and economic and social mobility, all of which will foster greater financial security for American families. The desire, coupled with major shifts in working and living arrangements, new technologies, and new policies, presents exciting opportunities-and serious challenges-for American families and businesses. After more than two years of a global pandemic, people are eager to not just get back to normal, but to thrive.
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