For years, economic thinkers on the left pushed for more government spending and urged the Federal Reserve to be less paranoid about inflation, with the goal of driving down unemployment as low as possible.
Their logic: Workers would have more leverage to demand higher wages, as employers competed for employees. With higher incomes, people would be able to spend more, which would fuel the economy by creating demand for goods and services. It could also yield higher productivity, as companies invested in technology to better meet demand.
There’s a chance we’re headed down that exact path, and yet, Americans don’t seem very enthused.
Because they really hate inflation.
For the coalition that has supported this agenda — Democrats to the left of Larry Summers, along with economists representing a range of ideologies — the economy today is a policy success more than a decade in the making. And the fact that it hasn’t yet translated into political success is a worrying challenge for them and President Joe Biden.
Rather than enjoying a victory lap, the people who oversaw this recovery — in the administration, the Fed, Congress and the worlds of academia and economic think tanks — are being asked to explain the disconnect between the economic data and the polling.
“There’s a healthy amount of fear and introspection happening among the architects of these efforts that folks aren’t necessarily buying what we’re selling,” one prominent progressive policy advocate told me. “And folks are under some pressure about it, too.”
“What are we doing here if we’re not building an economy that people like?”
When the coronavirus pandemic struck, officials were determined not to repeat the slow recovery after the 2008 financial crisis. Congress — first on a bipartisan basis, then along party lines — went big to keep people afloat, then made long-term investments in infrastructure and green energy.
Employment quickly recovered from the Covid recession, and joblessness has been below 4 percent for two years. We saw similar numbers under former President Donald Trump, but it took nine years of economic expansion to reach that point after the last recession. (And before that, the last time unemployment had dropped that low was in the 1960s.)
The Fed also might pull off a nearly unheard of feat: bringing down inflation without pushing the U.S. into recession, as economic resilience has allowed the economy to withstand aggressive interest rate hikes.
These dynamics are at the crux of every piece you read about why consumer sentiment isn’t higher, or why people don’t recognize this is a good economy.
Privately, some administration officials worry that it’s not just reelection that’s at stake, but also the possibility that policymakers won’t be as forceful whenever the next recession comes, for fear of stoking prices. That’s even as officials have become more confident that their approach was the right one.
“There’s a lot of concern that we are overlearning the lessons of the fiscal and monetary policy of this recession,” one official told me.
And Americans’ skepticism about the economy is reasonable. Rent and grocery prices are both up roughly 20 percent in the last three years. Electricity is up more than 25 percent. While wage hikes have been outpacing cost increases for the past year and a half, they still fall short over the course of Biden’s presidency. And the lack of affordable housing in particular looms as a painful reality for millions of Americans — something the White House has acknowledged.
“I don’t think the story here is that the economy is all perfect,” Rep. Andy Barr (R-Ky.) told me. “The overspending that has created the inflation crisis has raised prices for the American people, and the cost of credit is historically high.”
So while inflation has cooled markedly, “the toothpaste is out of the tube.”
Still, surveys of economic sentiment show optimism has been rising and may continue to do so. So, as the election looms in November, the Biden administration and its allies hope that
people get used to the new higher price levels and that positive economic trends, like wages growing faster than prices, last long enough to win over voters.
The conversation inevitably dovetails with unsettled debates around how much blame different factors should get for causing inflation: government spending, messed up supply chains, disruptions to the oil market from Russia’s war in Ukraine, general weirdness as the economy reopened from Covid.
Democrats were willing to tolerate some inflation when they passed the American Rescue Plan in 2021 — perhaps underestimating or forgetting how much people hate rising prices — but they also argue that this particular bout was mostly caused by production and shipping delays, as well as unpredictable shifts in what people were spending money on.
The administration has also put blame on companies for taking advantage of the moment. White House economic adviser Lael Brainard told reporters Thursday that consumer brands and grocery store chains need to bring down their pricing from pandemic-era levels.
Then there are those close to the White House who challenge the basic premise of all this political angst.
Bharat Ramamurti, who served as a top economic aide in the White House until September, disagreed strongly that consumer sentiment should be taken as a referendum on Biden’s economic policies. He pointed to surveys showing that Republicans report feeling worse about the economy than Democrats do, which he chalked up to unavoidable partisanship. (He was far from the only person to make this point.) He also said leaders around the world have had their popularity dinged by high inflation.
Ramamurti firmly believes that the Biden administration — and the larger progressive economic agenda — deserves considerable bragging rights and flatly rejected my assessment.
“In the U.S., the fact that we took a more aggressive approach that led to a faster recovery … has put the president in much stronger standing than a lot of people internationally,” he said. “The idea that, ‘Oh, Democrats instituted a set of policies that they always wanted that ended up producing an extraordinarily fast and highly equitable recovery, and that’s why people are unhappy’ — I don’t think that’s a good reading of the evidence.”
If the government hadn’t stepped in the same way with checks, the expanded child tax credit and more, he said, “we still would’ve had historically high inflation, and everyone would be even more miserable.”
One of the people who has worked the longest in pushing this progressive vision of the economy is Dean Baker, an economist who co-founded the Center for Economic and Policy Research. When I spoke to him this week, he had a frustration of his own: that the left won’t treat a victory as a victory.
“There’s a lot of resistance because people say, ‘We should be pushing further.’ I’m fine with that,” he said. “But if you don’t recognize when you’ve made progress, you’re never going to get anywhere.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
