Brad DeLong pointed out some time ago that the most successful social program is often a "high pressure economy" --meaning an economy close to full employment. That makes the labor market more competitive, encouraging people to enter the labor force and raising wages. Not saying this is the only social program we need, but it is fundamental. A low unemployment rate makes other social programs cheaper and more effective.
> If you can reach the 29 percent of the population that’s over 55, you eliminate about 88 percent of the death risk. This is true for many countries, and Harry Lambert, a British journalist, demonstrated it for the UK in the New Statesman.
> That means restrictions on activities will start to be lifted well before herd immunity, and senior citizens will simultaneously start greatly increasing the pace at which they go do things.
I'm not sure this is true - vaccinating the elderly reduces the death rate dramatically, but doesn't reduce the hospitalization rate nearly as significantly, which is the key for a "flatten the curve" hospital capacity strategy.
And obviously if you open everything back up too quickly the death rate will spike even amongst young people in the scenario of completely overcrowded hospitals unable to provide basic things like oxygen treatment - so you need to reopen slowly enough to keep transmission at stable levels.
Too lazy this morning to do my own back-of-the-napkin math on this though.
In pure economic terms, I agree with much of what you've shared. The purpose of your piece is to examine macroeconomic factors that could ultimately make our economy (look) stronger (on paper). It's an economic piece that works in a realm where we assume actors are rational and free from long-term harm.
"Well, the one surviving coffee shop (a great local business that I wholeheartedly endorse btw) ought to experience a windfall of increased demand and muted competition."
I agree with the upside here for this coffee shop and all employed there, but I am concerned about the former owners and employee of the other three shops. The impact of unemployment can be extremely detrimental to mental and physical health (APA Article below). Moreover, I believe a sudden shock like the one experienced by millions earlier this year will have an even greater impact. The bottom truly fell out without warning - a fear that I believe underlies the collective psyche in a society where most couldn't handle an unexpected expense of a couple hundred dollars.
My concern is what this collective fear, mostly of the working poor and others making under $20/hour, portends for our future. The impact of the pandemic ended for the rich long ago but most Americans are still in the throes of it and will be for some time. What kind of impact will this collective fear drive? In my opinion, the abysmal government response will only fester existing skepticism of government for those greatly impacted for the rest of their lives. It is not a hot take to say that the pandemic exacerbated existing faults in our social safety net. But it also highlighted that above that net most are walking a tightrope and while the wealthy stroll across a reinforced bridge.
I am concerned this collective fear will grip multiple generations of Americans. Fear breeds our worse tendencies: resentment, discontent, intolerance, xenophobia. We've already seen how some folks who have paid off their student debt are up in arms that others might have a measly portion of their own forgiven. It is not hard to imagine in the next national/global challenge that Americans impacted by this crisis will be against stimulus because they only got $1,800 the last time.
I agree that, on paper, the economy will likely bounce back faster in 2021. I am also fortunate enough to be in a position where I will benefit from that. But I am concerned about the impact five and ten years down the road. When we will tell a story that we've moved forward from this crisis, a giant portion of our population will still live in the 2020. What will the impact of being left behind be? Raising Trump is starting to feel like Reductio ad Hitlerum. But with multiple generations of permanently impacted: it is easy to see how this crisis could lead toward similar political choices in the future.
By the measure of this piece, I am concerned that the scarring left by this crisis could lead millions of individuals to make collective choices or to be permanently left behind in a way that drags on some of the assertions of macroeconomic growth to come.
More importantly, I am scared for the millions of Americans who had their worst fear - the bottom actually falling out - realized this past spring and how that will impact them for the rest of their lives.
My biggest concern is that the economic recovery depends on the health care system being able to actually get vaccines into arms. Right now if the pace of vaccine administration is far too slow. The U.S. has "allocated" over 11M doses and as far as I know shipped at least half of that total but only administered about 600K as of this morning. Now this may be a data reporting delay but everything that I have seen locally here in Northern California is that the health officials have no sense of urgency and are taking days and weeks to administer the doses they have received. As an example Santa Clara county has received and set-aside 6,000 doses for nursing home staff. They have also set-up a drive through vaccine administration site to give out those shots but the site is only serving about ~200 people a day! No one in authority seems to know or care to ask why they can't serve ~1000 or more of this ultra-high priority group a day. Even spacing out shots to account for shift work, workers out a day or two for side effects, etc., it seems like a reasonable pace here would be a week to 10 days to complete this group and instead they are planning to take over a month. My prediction is that the big story/scandal in early to mid-January will be that hospitals and health departments are sitting on millions of doses with no plan to administer them in a timely matter.
IMHO the aspiration of "full employment" is an outdated myth. Not meaning to disrespect the human suffering linked to unemployment, but I think one of the core problems we face is technological and sociological, and has been lurking for more than 50 years: With the introduction of agriculture, it became obvious that people had to work to eat, despite their wishes to the contrary. Over the past 10,000 years, culture has developed and internalized intense pressures to maintain this need for labor. Unfortunately, the technical reality of the present no longer corresponds to this myth, and what we need to do now (over the next 100 years, anyway) is to readjust goals and expectations so that we can be happy and fulfilled without work.
It is indicative of the Fed's inadequate macroeconomic policy that banks do not have so much low yielding liquidity that they are pushing money onto mortgage holders of the landlords of Matt's coffee shops that they would be happy to give rent forbearance so the coffee shops would NOT be closed permanently.
Also note that Matt's scenario for recovery depends on inflation being temporarily higher, which is consistent with what the Fed says its target is, but which markets do not believe.
Matt, how dare you provide economic analysis without the piled higher and deeper Union card. This will infuriate my professional colleague's, particularly since you do better than much of the drivel PhD economists produce. I'm a very inflation dovish economist myself. I'd be well content of the Fed committed to maintain measured inflation in a corridor between 2 and 4 percent. I stress measured inflation because inflation measurement is very imperfect science. As you point out, recovery after the plague will cause rising prices in some sectors. The Fed's preferred personal consumption index measure of inflation will spike significantly. The correct response is, so what? As you point out, this is just the price system doing it's job.
Good piece, and to the extent that I understand macro issues, I agree with you.
You are calling for a plan that would not only flatten the curve for unemployment, but stomp it into the ground.
I'm afraid that the decision-makers will screw this up as badly as they did on the pandemic -- too little, too late, declaring premature victories and then surrendering when it gets tough, etc.
So, keep banging the drum. Neither of us works in Treasury, the Fed, or OMB, so making noise is all we can do.
Are the sectors where supply constraints are likely in the early part of the recovery really big enough to drive up headline inflation numbers in the way you suggest? Really we are talking about restaurants, travel, and live entertainment - which will have positive wage dynamics for people who work in those industries but not drive a lot of inflation through the supply chain.
I believe the biggest threat to our economy comes from the "financilization" of our economy and some violent reversion to the mean in financial markets. And since the current state of the markets is based on psychology, I'm not sure there is anything we can do about it.
Matt, of all people, is no stranger to the shortage of housing in the US. As a serious concern, this reared it's head post-crisis (although it's always been a problem in some areas NYC, SF, ...).
I am worried we could be looking at a similar over-correction here. Fewer people will want to open restaurants, be in the hospitality industry, or make investments in the category of 'crowded meat-space.'
If this happens, the inflationary pressure will be overestimated (or correct, but for unfortunate reasons). On top of that, these are industries that tend to employ the lowest wage workers. This could grow the chasm in pandemic outcomes, one that is already very likely to be bad.
There is only so much the fed can do if the national mood has turned in the wrong direction.
This has been one of my favorite posts so far. Partially because I agree with so much of it (and the macro framework underlying it) but more importantly because it highlights the importance of macro and especially monetary policy which I still think is vastly under appreciated (and often ignored) in most political discussions.
Different Fed policy during the great recession would have led to a very different economic situation in the last decade which wouldn't have just spared millions of people needless economic hardship but would've also changed the narrative around inequality, losers from trade, etc. and potentially the political fallout from that.
I have to admit not to know much about Jerome Powell outside of his work as Fed chairman (and have not thought of him as a partisan figure) but have been extremely impressed with everything he's done so far so I'm hoping that he'll continue to do so under a Biden administration.
You want growth and inflation? Me too, let's include a chart of money velocity and do more than handwave how it will rise enough to counteract long-term decline.
If you're not going to do that, can you at least share the prewrite blaming Republicans for low growth?
"The problem is three of these four coffee shops have closed entirely."
<throws computer across room>
*This* is just don't get. I don't get how this isn't a bigger deal. To me this is catastrophic.
Brad DeLong pointed out some time ago that the most successful social program is often a "high pressure economy" --meaning an economy close to full employment. That makes the labor market more competitive, encouraging people to enter the labor force and raising wages. Not saying this is the only social program we need, but it is fundamental. A low unemployment rate makes other social programs cheaper and more effective.
> If you can reach the 29 percent of the population that’s over 55, you eliminate about 88 percent of the death risk. This is true for many countries, and Harry Lambert, a British journalist, demonstrated it for the UK in the New Statesman.
> That means restrictions on activities will start to be lifted well before herd immunity, and senior citizens will simultaneously start greatly increasing the pace at which they go do things.
I'm not sure this is true - vaccinating the elderly reduces the death rate dramatically, but doesn't reduce the hospitalization rate nearly as significantly, which is the key for a "flatten the curve" hospital capacity strategy.
And obviously if you open everything back up too quickly the death rate will spike even amongst young people in the scenario of completely overcrowded hospitals unable to provide basic things like oxygen treatment - so you need to reopen slowly enough to keep transmission at stable levels.
Too lazy this morning to do my own back-of-the-napkin math on this though.
In pure economic terms, I agree with much of what you've shared. The purpose of your piece is to examine macroeconomic factors that could ultimately make our economy (look) stronger (on paper). It's an economic piece that works in a realm where we assume actors are rational and free from long-term harm.
"Well, the one surviving coffee shop (a great local business that I wholeheartedly endorse btw) ought to experience a windfall of increased demand and muted competition."
I agree with the upside here for this coffee shop and all employed there, but I am concerned about the former owners and employee of the other three shops. The impact of unemployment can be extremely detrimental to mental and physical health (APA Article below). Moreover, I believe a sudden shock like the one experienced by millions earlier this year will have an even greater impact. The bottom truly fell out without warning - a fear that I believe underlies the collective psyche in a society where most couldn't handle an unexpected expense of a couple hundred dollars.
My concern is what this collective fear, mostly of the working poor and others making under $20/hour, portends for our future. The impact of the pandemic ended for the rich long ago but most Americans are still in the throes of it and will be for some time. What kind of impact will this collective fear drive? In my opinion, the abysmal government response will only fester existing skepticism of government for those greatly impacted for the rest of their lives. It is not a hot take to say that the pandemic exacerbated existing faults in our social safety net. But it also highlighted that above that net most are walking a tightrope and while the wealthy stroll across a reinforced bridge.
I am concerned this collective fear will grip multiple generations of Americans. Fear breeds our worse tendencies: resentment, discontent, intolerance, xenophobia. We've already seen how some folks who have paid off their student debt are up in arms that others might have a measly portion of their own forgiven. It is not hard to imagine in the next national/global challenge that Americans impacted by this crisis will be against stimulus because they only got $1,800 the last time.
I agree that, on paper, the economy will likely bounce back faster in 2021. I am also fortunate enough to be in a position where I will benefit from that. But I am concerned about the impact five and ten years down the road. When we will tell a story that we've moved forward from this crisis, a giant portion of our population will still live in the 2020. What will the impact of being left behind be? Raising Trump is starting to feel like Reductio ad Hitlerum. But with multiple generations of permanently impacted: it is easy to see how this crisis could lead toward similar political choices in the future.
By the measure of this piece, I am concerned that the scarring left by this crisis could lead millions of individuals to make collective choices or to be permanently left behind in a way that drags on some of the assertions of macroeconomic growth to come.
More importantly, I am scared for the millions of Americans who had their worst fear - the bottom actually falling out - realized this past spring and how that will impact them for the rest of their lives.
APA article: https://www.apa.org/monitor/2020/10/toll-job-loss#:~:text=The%20mental%20health%20impacts%20of,satisfaction%2C%20among%20other%20negative%20outcomes.
My biggest concern is that the economic recovery depends on the health care system being able to actually get vaccines into arms. Right now if the pace of vaccine administration is far too slow. The U.S. has "allocated" over 11M doses and as far as I know shipped at least half of that total but only administered about 600K as of this morning. Now this may be a data reporting delay but everything that I have seen locally here in Northern California is that the health officials have no sense of urgency and are taking days and weeks to administer the doses they have received. As an example Santa Clara county has received and set-aside 6,000 doses for nursing home staff. They have also set-up a drive through vaccine administration site to give out those shots but the site is only serving about ~200 people a day! No one in authority seems to know or care to ask why they can't serve ~1000 or more of this ultra-high priority group a day. Even spacing out shots to account for shift work, workers out a day or two for side effects, etc., it seems like a reasonable pace here would be a week to 10 days to complete this group and instead they are planning to take over a month. My prediction is that the big story/scandal in early to mid-January will be that hospitals and health departments are sitting on millions of doses with no plan to administer them in a timely matter.
IMHO the aspiration of "full employment" is an outdated myth. Not meaning to disrespect the human suffering linked to unemployment, but I think one of the core problems we face is technological and sociological, and has been lurking for more than 50 years: With the introduction of agriculture, it became obvious that people had to work to eat, despite their wishes to the contrary. Over the past 10,000 years, culture has developed and internalized intense pressures to maintain this need for labor. Unfortunately, the technical reality of the present no longer corresponds to this myth, and what we need to do now (over the next 100 years, anyway) is to readjust goals and expectations so that we can be happy and fulfilled without work.
It is indicative of the Fed's inadequate macroeconomic policy that banks do not have so much low yielding liquidity that they are pushing money onto mortgage holders of the landlords of Matt's coffee shops that they would be happy to give rent forbearance so the coffee shops would NOT be closed permanently.
Also note that Matt's scenario for recovery depends on inflation being temporarily higher, which is consistent with what the Fed says its target is, but which markets do not believe.
Matt, how dare you provide economic analysis without the piled higher and deeper Union card. This will infuriate my professional colleague's, particularly since you do better than much of the drivel PhD economists produce. I'm a very inflation dovish economist myself. I'd be well content of the Fed committed to maintain measured inflation in a corridor between 2 and 4 percent. I stress measured inflation because inflation measurement is very imperfect science. As you point out, recovery after the plague will cause rising prices in some sectors. The Fed's preferred personal consumption index measure of inflation will spike significantly. The correct response is, so what? As you point out, this is just the price system doing it's job.
Good piece, and to the extent that I understand macro issues, I agree with you.
You are calling for a plan that would not only flatten the curve for unemployment, but stomp it into the ground.
I'm afraid that the decision-makers will screw this up as badly as they did on the pandemic -- too little, too late, declaring premature victories and then surrendering when it gets tough, etc.
So, keep banging the drum. Neither of us works in Treasury, the Fed, or OMB, so making noise is all we can do.
What happens if we also get a minimum wage hike at the same time? Not likely, but not impossible.
Could add inflationary pressure.
Housing prices in some places are sky high compared to local median income. (Welcome to Boise)
Will those small businesses come back, or is Amazon going to run the world?
Are the sectors where supply constraints are likely in the early part of the recovery really big enough to drive up headline inflation numbers in the way you suggest? Really we are talking about restaurants, travel, and live entertainment - which will have positive wage dynamics for people who work in those industries but not drive a lot of inflation through the supply chain.
I believe the biggest threat to our economy comes from the "financilization" of our economy and some violent reversion to the mean in financial markets. And since the current state of the markets is based on psychology, I'm not sure there is anything we can do about it.
Matt, of all people, is no stranger to the shortage of housing in the US. As a serious concern, this reared it's head post-crisis (although it's always been a problem in some areas NYC, SF, ...).
I am worried we could be looking at a similar over-correction here. Fewer people will want to open restaurants, be in the hospitality industry, or make investments in the category of 'crowded meat-space.'
If this happens, the inflationary pressure will be overestimated (or correct, but for unfortunate reasons). On top of that, these are industries that tend to employ the lowest wage workers. This could grow the chasm in pandemic outcomes, one that is already very likely to be bad.
There is only so much the fed can do if the national mood has turned in the wrong direction.
This has been one of my favorite posts so far. Partially because I agree with so much of it (and the macro framework underlying it) but more importantly because it highlights the importance of macro and especially monetary policy which I still think is vastly under appreciated (and often ignored) in most political discussions.
Different Fed policy during the great recession would have led to a very different economic situation in the last decade which wouldn't have just spared millions of people needless economic hardship but would've also changed the narrative around inequality, losers from trade, etc. and potentially the political fallout from that.
I have to admit not to know much about Jerome Powell outside of his work as Fed chairman (and have not thought of him as a partisan figure) but have been extremely impressed with everything he's done so far so I'm hoping that he'll continue to do so under a Biden administration.
You want growth and inflation? Me too, let's include a chart of money velocity and do more than handwave how it will rise enough to counteract long-term decline.
If you're not going to do that, can you at least share the prewrite blaming Republicans for low growth?
Thanks for making this post public!