Quick Programming Note: I find myself writing longer and longer pieces these days, so I’m going to start breaking them apart. Let’s see how this works!
I can’t be the first person to bring up this topic, so please don’t mistake the headline for me columbusing it. That said, I can’t remember the last time anyone bothered to bring it up! And given the current swelling of the Delta Wave, it’s warranted.
One thing that’s too often taken for granted in macroeconomic discussions is the role of real-life events in shaping outcomes. Abstract models can tell us some things, but not everything. So, let’s start by looking into the factors that will shape the Long Pandemic Economy (LPE).
Vaccination Uptake and Mutations. I mean, duh. Vaccination primarily helps drive ongoing case loads - as we see, 80% of current cases are among the non-vaccinated - but by maintaining a large reservoir, it’s also incubating variant strains like Delta. Since the pandemic hit, we’ve had 4 major strains pop up globally. Vaccination rates in the US vary from 40-76% by state, and while some countries are certainly doing better, overall global distribution and uptake are not nearly doing enough to slow mutations.
Periodic and/or Regional Outbreaks. If the virus can be gotten to a low enough case rate that the strictest quarantine measures are lifted, we’re still left with the risk of outbreaks. These would mostly happen in places with low vaccine uptake; they’ll explode, get contained, and then burn out relatively quickly.
Seasonality and Regular Waves. The more realistic scenario is that enough cases stick around, that the virus doesn’t disappear in most places. As a result, we get regular waves, mostly driven by factors we’ve already seen: seasonal travel, new strains, and quarantine policy ebb-and-flow. Each of these has had a major wave, but I think the last one is the most notable, because it’s so utterly predictable: policy responses lag the case rate, which drops due to policy responses, which are then relaxed and allow the case rate to rise again. All three of these cyclical drivers don’t seem like they’ll die down until.
Quarantine Fatigue. The policy ebb-and-flow was a stronger driver earlier on, when it was fluctuating more wildly, but has now weakened due to overall fatigue. While this seems quite obvious to state, I think it’s rather trenchant as an overall prediction: Whether through reduced case loads, or the constant policy reactions to waves and spikes, most societies - and especially Americans - will see their commitments to collective action gradually slide into individualism.
Stimulus Fatigue and Fiscal Exhaustion. There’s only so much money governments can spend until they start to run up against some real, hard limits. The problem is, no one knows where those limits are! But what we do know is that in real world history, even if we are reluctant to ever say that “outside of several dozen cases of clearly-not-relevant hyperinflation, we can’t attribute the normal business cycle to government running up against its spending/borrowing limits”, what we can at least see is that most normal business cycle crashes have definitely happened because of private bubbles fueled by poor regulation, not because we printed or spent too much money.
K-Shaped Demand. Broadly speaking, the two demand trends we saw in the pandemic economy were an uptick in durable goods (furniture, appliances), and a downturn in sit-down dining at bars and restaurants. Of course, this all makes perfect sense - white-collar workers working from home were bored and had money to burn on furniture to make those homes more comfortable, and they ate out less as well due to shutdown orders, even accounting for increased reliance on takeout and delivery.
Most State Policy Didn’t Affect Pandemic GDP. To be clear, I’m not talking about case rates - those most certainly were affected strongly by variations in state public health policies. But lockdown policies didn’t actually affect consumer spending:
I can’t find the link right now, but state-by-state GDP basically didn’t see much difference, either. It’s of course true that we’ve seen wild GDP variations by country, but national policy and COVID impact also varied a lot more by country. The upshot for America is that most state-level policies didn’t make much difference in economic outcomes, they just made their own case rates higher/lower and pandered to make their own citizens feel better about those case rates. However, it’s also eminently possible that the states were simply insulated from their own good or poor choices by federal stimulus.
Structural Adaptation. Look at that chart again. Even as consumer spending resisted direct policy impacts, it also resisted a permanent slump. Restaurants and gig-economy apps offered more carryout and delivery options. Business and government figured out how to keep the planes flying, trains running, and food growing. A year-plus on now, we’ve gotten most of the low-hanging fruit, so what remains are mostly more stubborn problems that will haunt us through the Long Pandemic Economy.
That’s it for now. Feel free to add anything in the comments!