The poor have been the main beneficiaries of the government’s pandemic support, with far fewer suffering precipitous drops in incomes than would have otherwise been the case
has served up a reminder, as if any were needed, of how deeply unequal America is. Billionaires have seen their wealth explode over the past year and a half thanks to a huge stockmarket rally, especially in the tech sector. At the opposite end of the spectrum, millions of mostly low-wage workers have lost their jobs, while also facing a higher risk of death from covid-19.
What explains the shift in fortunes? Some of the credit goes to policymakers’ willingness to run a hot economy in the years prior to the pandemic. Traditionally, economists have worried that if growth booms, unemployment may dip too low, pushing up wages and, by extension, inflation. But the pre-pandemic evidence is that the “too low” level of unemployment may be considerably lower than previously assumed. Even with jobless rates below 4%, inflation remained subdued.
The onset of the pandemic led, almost overnight, to a low-pressure economy. Unemployment soared, which would normally be expected to depress wage growth. And without any help from the government, that is exactly what would have happened. But thanks to an expansion of unemployment insurance as well as a series of stimulus cheques, the reality was very different.
This good news should not be exaggerated. A few years of stronger earnings growth for poor Americans barely begins to narrow the chasm between them and their rich fellow citizens. Nevertheless, it is proof that ever-widening inequality is not an immutable law of a modern economy.
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