Demonstrators call for immigration reform near the White House in Washington, DC on February 14, 2022.
Nicholas Kamm | AFP | Getty Images
In 1968, Jerry Lewis starred in a movie called “Don’t Raise the Bridge, Lower the River.”
The title keeps coming to mind when I think about how Federal Reserve policy relates to two vexing problems facing today’s economy.
First, and perhaps most importantly, a labor shortage that drives up wages.
Second, the housing shortage, which until recently drove up housing prices at a rate not seen in recent memory.
In both cases, the fundamental problem behind these issues is the lack of available supply, not the price of money.
In no way does the Fed’s current policy prescription of raising official interest rates to 5% or more help solve the underlying problems.
They lower the river instead of raising the bridge.
The problem of people
I submit that it is a political prescription wrongly advocated by some very prominent people.
The thinking, promoted by former Treasury Secretary Larry Summers among others, is that by raising the unemployment rate back toward 5% for five years, the U.S. can avoid the kind of entrenched wage-price spiral that plagued the economy through much of the 1970s and early eighties of the last century.
But there is a serious flaw in this logic.
First, the wage gains we’ve seen recently, which rose at a 5.1 percent annual rate as of the last November jobs report, are allowing regular workers to merely catch up as wages have largely stagnated for decades.
Second, the more damning implicit logic is that by being pushed out of their current jobs, people will lose their current bargaining power and, after a period of unemployment, will return to the workforce and accept more moderate wages.
How does this help the economy?
The US, like many other advanced countries, has a demographic problem, a birthrate problem, an immigration problem – basically a people problem.
A number of analysts and economists have estimated that the US has a shortfall of between 1.2 million and 4 million workers, noting that the number of available jobs exceeds the number of unemployed workers by about the latter amount.
The labor force rate remains 1.2 percentage points below the level of the economy before the pandemic.
The reasons appear to be that three million people took early retirement during and after the pandemic hit, while others simply chose to leave a job market that no longer met either their personal or professional needs.
The effects of “long Covid” on prime-age workers also appear to be a problem.
An estimated 2 to 4 million Americans are dealing with long-term covid, which is affecting their ability to work full-time or part-time.
In addition to these Covid-related issues, US population growth in 2021 was the slowest in US history, while the birth rate also fell and life expectancy fell for two years in a row.
These are not the things a great workforce is made of. Nor are they getting away with raising the unemployment rate to create “spare” labor and thus reduce wage inflation.
The need for immigration reform
The real issue here is that the US simply needs a larger and faster growing workforce at all skill levels.
It’s simple math.
On the show Thursday, CNBC’s Sara Eisen asked Commerce Secretary Gina Raimondo how the U.S. will fill all the jobs created by the CHIPS Act, as more computer chip companies have been incentivized and committed to building many new manufacturing facilities in the U.S.
Raimondo optimistically suggested that the U.S. focus on reskilling the workforce and work with colleges and universities to attract people.
That’s fine, accept that the numbers just aren’t there.
All the business people I talk to are calling for comprehensive immigration reform to help repopulate America.
Unlike many other countries with similar or worse demographic profiles, the US has always solved its population and consequent workforce problems by importing people.
The Fed can’t print them, so we have to import them.
The hallmark of US economic growth has been that all immigrant workers, with varying degrees of acceptance throughout our history, have helped build and rebuild our nation.
Let’s not lower the river, raise the bridge and raise the nation’s standard of living rather than accept a decline in our workforce that will lead us to permanently fall short of our enormous potential.