"Lack of labour"

 Once again it's "good news is bad news" week on Wall Street. First, there was the news at the top of the week that consumer prices fell slightly less than expected last month, due to continued strong demand and a great job market. Then, there was the announcement that retail sales were way up last month, as Americans continue to be gainfully employed, jobless rates are at historic lows, and people feel the confidence in their financial wellbeing to spend, which in turn is the main driver of growth in the U.S. economy. (Oh no! Not a strong economy and labor market!) Finally, there was similar data at the end of the week about producer prices failing to fall at rates economists were expecting. 

With each burst of good news about the rosy state of the American worker, the gloomy headlines followed: "Stocks waver on news of strong labor market"; "Stocks tumble on news of strong retail sales in the first month of 2023"; "investors anxious..." etc. 

Obviously, there's something highly distasteful, at least at the level of optics, about wealthy investors and fund managers reacting negatively each time there's a ray of hope for ordinary working families. But, it has to be admitted, the investors' anxiety makes theoretical sense, so far as it goes. Their fear is of course that the longer high labor demand continues, the more the Fed will need to keep raising interest rates to bring down inflation. I wish, though, that our policymakers outside the Fed would realize that there is more than one way to fight inflation. 

What appears to be happening, after all, is that the U.S. economy is like an energetic puppy who has just spotted a butterfly and is straining at the end of its leash. It is just so full of energy! It wants to get up and run. At the first sign of optimism, therefore—at the first slackening of the monetary chains—it starts charging forward. If inflation inches down, it bounds ahead: consumers start spending again, labor demand picks back up, and investors pile back into equities. This growth, in turn, powers inflation (or at least, fear of inflation from monetary policy makers), and thereby leads them to contemplate steps to further restrain that growth. In other words, they start pulling in the leash. 

Now, the Fed can only react in this way; they have no alternative. They have only a single tool to lower inflation: the policy rate. When inflation is at recent historic highs, of course they are going to raise rates. What choice do they have? The Fed, however, is not the only relevant policymaker in the U.S. economy. Fiscal policymakers in Congress also have a role to play. And what's more, they have a much wider array of policy tools at their disposal!

What should they do? Well, let's think about it: the problem, according to the Fed, is that the labor market is too tight. In other words, the demand for labor is outstripping supply. This could be addressed in either of two ways: 1) We could reduce demand. This is what the Fed is trying to do: slow growth, rein in the puppy by tightening its hold on the leash. But there's also option number 2: increase supply. But where are all these workers to be found, when U.S. birth rates are at an ebb? 

Well, it just so happens that there are thousands upon thousands of people at the U.S. border right now, desperate to come in. They are almost exclusively working age adults, due to the mechanisms of migration. They are asking for nothing more than to work here, pay taxes, and contribute to our nearly-insolvent social security trust fund while being ineligible themselves for public benefits for the first many years of their presence, if ever. Yet, instead of welcoming these immigrants and asylum-seekers as our saviors, we are turning them away! We are enforcing policies to exclude them, even in violation of our own asylum laws and international treaty commitments. 

This is policy perversity at its worst. If the problem with our current labor market is that it is producing more demand for workers than there are workers in the economy, the obvious thing to do is to recruit more workers! And the beauty of it is, they don't even need to be recruited. They're already right here! We just need to stop actively preventing them from contributing to the U.S. economy. The result of doing so would be that the U.S. economy could grow at the rate it appears to want to—it could live up to the productive capacity that it clearly has, but which is right now being artificially restrained by the hands of monetary policy. We could have more prosperity for U.S. citizens and newly-arriving immigrants too!

In other words, instead of solving our energetic puppy problem by reining in the leash, we could give it more slack. Let the puppy run free!

It is almost mind-boggling how rarely one sees any policymakers propose this immensely obvious solution to our nation's economic woes. A big part of the reason no doubt is Democrats' terror of the immigration issue. They want to ignore it and talk about it as infrequently as possible, not elevate it to a central position in their policy plan. Plus, as a solution, it conflicts with the mood of the times: the self-defeating economic nationalism and beggar-thy-neighborism that both major parties have embraced. Whatever its roots though, this unwillingness to even consider immigration as a solution to high inflation and a stressed labor market seems like a baffling kind of deliberate and cultivated blindness. 

I was reading in Ezra Pound's Cantos the other day when a verse on this very topic caught my eye. Now, Pound's epic work is not without its detractors. It is barely comprehensible in large stretches, for one thing—reading in many parts as a near-random collage of Pound's idiosyncratic obsessions: his crankish theories on money and interest, Major Douglas, Leo Frobenius, Confucius, Ernest Fenollosa, the Adams-Jefferson correspondence, Provençal troubadours—it's all there. It is also rancid with its author's disgraceful anti-Semitism. (Robert Lowell was perhaps being overly forgiving when he portrayed a rueful post-war Pound wishing he could take back all he'd said on the subject.) 

But I find the text invaluable nonetheless as a sleep aid. For occupying that one hour after midnight, when one is too tired for coherent narrative reading but too awake still for sleep, and one knows that turning on a screen would be the death of one's capacity to ever sleep that night, there is nothing like the drift of inscrutable modernist poetry—with its flashes of insight and beauty amidst its long stretches of frank weirdness and incomprehensibility. And one of these flashes of brilliance, as I was browsing through the poem in the wee hours of the morning in search of a cure to my insomnia, especially caught my notice, in this "good news is bad news" week of economic commentary. 

In one of the early Cantos, Pound suddenly introduces an economist who is asked for advice on how to solve the inflation problem. The tunnel vision of his reply can only remind one of the curious willful blindness of our present-day economic policymakers, pundits, and soothsayers. "What is the cause of the H.C.L.?" [That's High Cost of Living, I take it.] someone asks of this man, in Pound's rendition (the questioner might be one of Pound's favorites, Major Douglas, the propounder of the crankish theory of "social credit" which Pound so adored; I'm not sure). "The economist consulted of nations, said: [in reply to this question] / 'Lack of labour.'/ And there were two millions of men out of work." 

So it is with us! Our economists and policymakers cry lack of labor! And maybe they are right. But if lack there is, behold the millions of people out of work, waiting patiently at our border, desperate for a chance to put food on the table, just asking for an opportunity to work. Let them in, for all our sakes—just let them in!