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Liz Weston: 5 divorce mistakes that can cost you

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Their view: World poverty on the decline

<p>U.S. politics is currently dominated by efforts to exact vengeance on behalf of working-class Americans. On the right, the target is rising globalism. On the left, it is wealth itself.</p><p>Both approaches have their appeal &#8212; and both are doomed. The Trump administration&#8217;s plan to isolate America (raise tariffs and close the border) has created chaos in both politics and markets. And higher taxes on the wealthy, favored by an increasing number of well-meaning Democrats, will make the U.S. economy less dynamic.</p><p>And yet the question remains of what can be done for the working class. Is there another solution to the stagnating wages and declining hopes of American workers? There is. And it comes in the form of monetary policy.</p><p>Since 1980, there has been a sustained increase in real median weekly earnings only twice: once in the late 1990s, and now. What these periods have in common is the willingness of the Federal Reserve to tolerate a prolonged period of low unemployment.</p><p>For almost four decades, the Fed&#8217;s No. 1 mission has been to keep inflation low and stable. This means a monetary policy that avoids excessively low unemployment, and the wage increases that go along with it. <ins>(The theory is that higher wages lead to higher costs for businesses, higher prices for consumers and, eventually, higher inflation.)</ins> So when the Fed is worried that unemployment is so low it could bring about a rise in inflation, its response has been straightforward: Raise interest rates to slow down the economy and let unemployment rise.</p><p>The Fed&#8217;s deviations from this policy are instructive. In the late 1990s, as unemployment began to drift below what the Fed determined to be a safe level, there were concerns that a rise in inflation was imminent. So Fed economists recommended an increase in interest rates.</p><p>But Alan Greenspan, then Fed chairman, believed that new technologies would provide enough productivity growth to pay for rising wages. As it turned out, he was correct. <ins>Throughout the economy, technology enabled new efficiencies &#8212; in fields as diverse as retail and (of course) IT. </ins></p><p>What&#8217;s more, the late &#8217;90s showed how a willingness to let unemployment fall to very low levels can be good for productivity. Low unemployment pushes up the cost of labor, but it also pressures businesses to use labor more efficiently.</p><p><ins>Think about it: A manager who is constantly worried about rising costs will naturally turn her creative thoughts to keeping them low. By contrast, a manager who is dogged by low sales will be more interested in retaining customers and keeping them satisfied. A world with chronically low demand, therefore, will result in fewer cost-reducing innovations. </ins></p><p>Today the economy is benefiting from another deviation in Fed policy, for a different reason. After the Great Recession a decade ago, millions of Americans gave up looking for work. Many economists concluded that they were lost from the workforce forever. At the same time &#8212; as early as 2014, when unemployment was at 6 percent &#8212; there were fears that the economy would soon begin experiencing a dangerous increase in inflation. Some Fed officials recommended raising rates to stave off this possibility.</p><p>Once again, the impulse was resisted. The worry was that slowing the economy too soon could spark a renewed financial crisis that would prove nearly impossible to escape. So rates remained low though 2017, when they began their gradual increase.</p><p>Just as the late &#8217;90s showed that low inflation could coexist with low unemployment, so did the early teens. <ins>In fact, employment growth has been better than expected. Workers who had been written off are beginning to return to the workforce. This overall increase in economic growth has sustained corporate profits even as wages have begun to increase. </ins></p><p>To date, a spiral of rising wages leading to rising prices has failed to set in. Yes, some industries have reported worker shortages <ins>&#8212; but this has led to pulling workers off the sidelines and an increased interest in </ins><ins>innovation</ins>. <ins>Restaurants have begun experimenting with kiosks and digital menus. The trucking industry is pushing hard for autonomous vehicles. </ins></p><p>These developments were already happening; a tightening labor market simply identified where they were most needed. That is likely to speed further development and increase productivity growth, just as it did in the late &#8217;90s. The wage gains that workers have experienced are more likely to last.</p><p>The poor prospects that workers have faced over the last 40 years have been caused by a monetary policy that tolerates more unemployment than is necessary and spurs less innovation than is possible. Putting an end to policies that intentionally slow down the economy when unemployment gets &#8220;too low&#8221; is essential to any effort to improve those prospects.</p><style>
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<div class="metaInfo"><bylineMeta><p>Karl W. Smith</p><p>Guest Columnist</p></bylineMeta></div><div class="metaInfo"><shirttailMeta><p>Karl W. Smith is a senior fellow at the Niskanen Center and founder of the blog Modeled Behavior.</p></shirttailMeta></div>

The best economic policy for the working class