Federal intervention grew the economy

Federal intervention grew the economy

Despite two new variants of Covid, numerous natural disasters and huge disruptions to businesses and families, 2021 saw the U.S. economy grow at 5.9% – the fastest rate since 1984. But the economic picture isn’t bright everywhere. Rachel Siegel and Andrew Van Dam explain in the Washington Post:

In a powerful rebound from 2020, when the economy contracted by 3.4 percent — its worst result since 1946 — 2021′s strong growth created a record 6.4 million jobs. But it also brought a host of complications, helping fuel the highest inflation in 40 years and creating supply chain snarls as consumers hungry for products overwhelmed the global delivery system. To beat back rising prices, the Federal Reserve is now shifting its strategy and preparing for interest rate hikes this year, convinced it has given enough support to help the labor market and now must keep the economy from overheating further.

Unfortunately, many of the federal interventions made by Congress – such as the advance Child Tax Credit – and by the Federal Reserve have ended or will end soon, which will likely slow the momentum.

“While we have reached the end of pandemic era fiscal and monetary policy the pandemic is not yet over,” Joe Brusuelas, chief economist at RSM, wrote in an analyst note Thursday morning. “The rate hikes that are now clearly in play will show up in the final quarter of the year slowing growth. The U.S. consumer and investment in the housing sector will continue to be the primary engine of growth as the economy transitions away from pandemic era fiscal and monetary support.”

This could be a problem, as the U.S. economy hasn’t actually fully recovered in many important ways, writes Talmon Joseph Smith for the New York Times:

Real disposable personal income decreased by 5.8 percent in the fourth quarter, and the personal saving rate — the percentage of overall disposable income that goes into savings each month — dropped to 7.4 percent from 9.5 percent in the third quarter. That could be a worrying sign of financial precarity for families with lower incomes, since many have been relying on cash reserves built up during the pandemic to cushion them against price spikes.

Investing in early childhood education
Gov. John Bel Edwards is proposing $93 million in new state spending to support early care and education programs, including pre-kindergarten – a major increase for an industry that has experienced major turmoil since the start of the pandemic. The Advocate’s Will Sentell reports that the announcement comes as the state Board of Elementary and Secondary Education expanded eligibility for the Child Care Assistance Program, which subsidizes the cost of child care for parents with low incomes. Advocates for early education cheered the moves: 

“We commend the governor for this down payment on investing in our young children in the state of Louisiana,” Libbie Sonnier, executive director of the Louisiana Policy Institute for Children, said Thursday. “It is a commitment from two different bodies of government that young children in Louisiana are a priority,” Sonnier said. … Edwards proposed boosting state aid for CCAP $11 million to $36.2 million, which officials said would open 1,670 slots for children from birth to age 3 and help pay for the higher subsidies that BESE approved.

A possible boost for adult learners
While there will be significant debate at the Capitol over spending priorities this spring, an emerging area of agreement is the need to invest more money in career training. That is good news for the M.J. Foster Promise Program, which was created last year and is poised for a funding increase starting in July.  The program supports people 21 and older who enroll in Louisiana Community and Technical College System (LCTCS) programs for five growing industry sectors — construction, health care, information technology, manufacturing and transportation and logistics. Greg Hilburn of USA Today spoke to LCTCS President Monty Sullivan about what this would mean for Louisiana workers: 

[Sullivan] describes the program as “TOPS for grown folks,” referring to the state’s popular university tuition scholarship program. … Sullivan said the maximum $6,400 award will cover all of the eligible training and degree programs “without having to come out of their pocket,” calling it a transformational opportunity for 1.1 million Louisiana adults without training beyond high school. He said the system will begin marketing the program and how to access it this spring. “This will not only transform the lives of these adults and their families, but the communities in which they live,” Sullivan said. “Imagine having more nurses during a pandemic and having a work force to attract new business and industry.”

No shortage of need in Louisiana’s water infrastructure
In a typical year, Louisiana communities issue somewhere between 1,600 to 1,700 boil water advisories. Fortunately, state and local funds from the American Rescue Plan Act (ARPA) can be used to repair, improve, or build water and sewage infrastructure. Louisiana devoted $300 million for that purpose last year. This year, as those funds are distributed to 100 projects across Louisiana, legislators seem likely to dedicate an additional $550 million in ARPA funds to improving the state’s decrepit water systems. But as Julie O’Donoghue writes for the Louisiana Illuminator, even that will not be sufficient: 

Even if Louisiana puts an extra $850 million into water and sewer projects over the next two years, it won’t be enough money to fix all the failing systems across the state. Louisiana’s drinking water infrastructure is expected to need $7 billion worth of investment over the next 20 years… “There are simply too many projects and not enough dollars,” said Commissioner of Administration Jay Dardenne, who oversees state government spending for Edwards.

The first 100 projects were selected by Gov. John Bel Edwards’ administration and legislators from approximately 500 applications based on severity of need and willingness of local governments to provide a local match. 

Number of the Day
5.7% – Economic growth for the United States in 2021, the fastest year of economic growth since 1984. 2020 was the worst year for the economy since 1946, with the economy shrinking by 3.4% (Source: Bureau of Economic Analysis via Washington Post)