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Underrated Historical Disasters


This is something that could well have been a critical inflection point in American history:

The upshot all of this was that America was nowhere near exhausting its productive capacity. If policy-makers allowed the demand for labor to rise — by keeping interest rates low and increasing fiscal stimulus — the supply of workers would rise to meet it. In a sufficiently tight labor market, employers would find ways to accommodate the special needs of disabled workers, enabling them to once again contribute to the economy. Meanwhile, firms would eventually be forced to increase compensation, and the promise of decent pay would lure millennial gamers out of their parents’ basements and onto the payrolls. America’s political economy would remain grotesquely unequal and in need of structural reform. But to make economic growth more robust and broadly shared, policy-makers only needed to refrain from deliberately “cooling” the economy out of a delusional fear that labor demand would soon outstrip supply and trigger runaway inflation.

But refrain they did not.

Instead, the Federal Reserve began raising interest rates in 2015, while most mainstream economists opposed proposals for additional fiscal stimulus on the grounds that America was already on the cusp of exhausting its labor supply in 2016.

Since then, the lonely voices appear to have been vindicated. Once Trump was in office, Republicans stopped caring about the debt and showered the economy in deficit-financed tax cuts and defense spending. Meanwhile, after much browbeating from the president, the Fed eventually backed off its rate hikes. Contrary to conventional wisdom, these moves have not sparked inflation. Instead, they ostensibly helped bring more Americans into the workforce and have sustained wage growth for those already in it. By the first quarter of this year, the prime-age participation rate hit 82.6 percent — nearly two percentage points higher than it had been in 2015, when many economists believed that the U.S. had little hope of significantly increasing that rate.

With Republican control of the House after 2010 additional fiscal stimulus was obviously out of the question. But the 2015 Fed Rate hike was based on false premises and had disastrous consequences, not only because of the direct infliction of unnecessary misery on many Americans, but because it may well have been responsible for both President Trump and the Republican retention of the Senate, with a large amount of resultant damage that will be difficult or impossible to reverse.

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