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The economy is normal again

A Jon Camp story in the Wall Street Journal that ran on Christmas Day carried the thesis “that low unemployment has its downsides” because now “Maine can’t find enough snowplow drivers.”

As the labor market has improved there have been a bunch of “labor shortage” stories. I think this was in some ways the best one I’ve read because it properly focused on the public sector, where “just raise wages” isn’t a no-brainer answer. At a minimum, middle managers in the state government who are responsible for getting the road clear probably don’t have the authority to unilaterally change pay rates.

More broadly, though the state legislature obviously can (and probably should) appropriate more money for snow plowing, now that the state has less idle labor, this money still comes from somewhere. Either Mainers will need to pay higher taxes or get by with reductions in other services in order to keep their roads plowed. And that’s not so much a downside to low unemployment as it is simply a signpost that after a long 10 years of recession and slow recovery, the American economy is returning to normal.

One thing a normal economy means is there’s no longer a public sector free lunch where hiring is costless and stimulative. Instead, labor is a finite resource the same as anything else, and allocating it well is important. In the depths of a recession, even a “bridge to nowhere” can be worth building just for the stimulus. But in normal times it’s a disaster to have people building a low-value bridge when workers are needed to keep the roads clear of snow. And, of course, the private sector needs workers too!

Part of the economy being normal is we are reminded that productivity (“robots”) is the root of prosperity.

If someone developed a fleet of autonomous snow plowing vehicles, that would be great news for states where it snows frequently. Roads could get plowed faster and cheaper, making life more convenient for everyone but also letting the state get by with lower taxes or more state workers spending their time on non-snow projects. But the productivity advance doesn’t need to be snow-specific. If automated checkout kiosks let Maine supermarkets get by with fewer cashiers, that might make more people available to plow snow. Either way, it’s a win. With better technology, Mainers can collectively get more stuff done and enjoy higher living standards.

Of course that's not automatic. Policymakers can, if they want to, take action to ensure that the gains of economic growth are concentrated in the hands of a tiny number of people. That's how Reaganomics worked, and that's how the recent GOP tax bill works too. But productivity expands the set of options available to you, including the option to actually make people's lives better.

This is an abbreviated web version of The Weeds newsletter, a limited-run policy newsletter from Vox’s Matt Yglesias. Sign up to get the full Weeds newsletter in your inbox, plus more charts, tweets, and email-only content.