It’s become more and more common to see banks forecast 6 percent or higher economic growth this year, even adjusted for inflation, along with some pretty rosy predictions about employment. If you assume full employment means a jobless rate of less than 4 percent, then the U.S. could be back to full employment by 2023, if not sooner. A restored job market in just three years or so after a historic economic shock is pretty impressive. It took a decade for that after the 2007-2009 financial crisis. But faster growth driven by a spending splurge isn’t necessarily better if it spurs pre-emptive action by the Fed. The post-crisis jobs recovery was slow, but it just kept going and going. By the end, low-wage workers were receiving the biggest pay gains.
Like I said, this is an experiment. We just don’t know how the economy is going to react exactly. It’s worth noting that one reason Democrats have been so relaxed about rising deficits and debt is that the government bond market has seemed unconcerned about all the spending — and the massive borrowing that will finance it. Maybe too relaxed. Long-term interest rates have jumped in recent weeks. Now that’s most likely because the economy is strengthening. But whether it becomes more than that is worth watching.
Whatever the results of this experiment, Americans shouldn’t learn the lesson that spending is a risk-free proposition.
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