It wasn’t just the demand side at fault, labor supply was misbehaving as well. Put aside the Twitter one-liners about video games, the evidence is now overwhelming, as I argue in my latest Bloomberg column. Here is one excerpt:
Fast forward to the pandemic and early 2021. It was the conventional wisdom that inflation would be very difficult to create, because demand is usually deficient and supply can respond to any surge in spending, thereby offsetting inflationary pressures. That was the consensus formed after the Great Recession, and it turned out to be spectacularly wrong. Now the US is living with its consequences, namely high inflation with a possible recession to follow.
The evidence is piling up that the US has been suffering from a deficit of human capital. For instance, a recent report showed that US life expectancy first stalled and then has been falling. In other words, current Americans — or at least some subset of them — are having trouble just staying alive.
Another trend is that many people are marrying later in life, or not marrying at all, especially in the lower socioeconomic strata. That’s not necessarily bad. Still, an era characterized by fussiness in marriage may also be characterized by fussiness in choice of job. And marriage itself may be a spur for getting a job, especially for men. Again, individual choices — and not just insufficient demand — seem to have been a significant reason that labor markets were so slow to recover in the aftermath of the Great Recession.
It is also instructive to look at what is called “quiet quitting.” The US economy is close to full employment, in part due to an extreme overstimulation of demand. Even so, the human capital problems and labor market malfunctions haven’t gone away — they’ve just been pushed into other facets of the workplace experience. According to a recent Gallup poll, at least 50% of the US workforce are “quiet quitters.” Meanwhile, labor productivity is down dramatically, and though the measure is imprecise, it is hardly a good sign.
Many commentators are quite willing to entertain the hypothesis that there are significant problems with human capital in the US. But when discussion turns to the slow labor-market recovery following the Great Recession, all the blame is put on a weak monetary and fiscal response.