DRAFT: Þe Plague Years Have Made Me More Optimistic About þe Future of þe Global Economy
Remembering last year [CORRECTED] at Jackson Lake Lodge: Global worthies’ longing to pull þe austerity-leash choke-chain appears curbed; & þe plague years have shifted þe balance of human activities in þe direction of more high social-return investments…
Two things worth remembering from the papers and drafts prepared for last year’s Federal Reserve Bank of Kansas City’s Jackson Hole symposium <kansascityfed.org/research/jackson-hole…>:
John Fernald & Huiyu Li: The Impact of COVID on Productivity and Potential Output <kansascityfed.org/Jackson%20Hole/docume…>: ‘The pandemic has left its mark… potential output fell 1.5 to 2%-points… mainly through reduced labor supply. This level effect should… unwind…. Reasons why pandemic disruptions… boosted or harmed productivity…. largely balanced out…. But… both the positive and the negative effects are large…. WFH [industries] have grown somewhat faster…. Hard to… WFH [industries] have performed extremely poorly…. The beneficial level effects are likely to remain. We are hopeful that some of the pandemic disruptions… in goods-producing and high-contact industries will ease over time…
Gita Gopinath: kansascityfed.org/Jackson%20Hole/docume…: ‘[On r] it seems either unlikely that the pandemic will have much of a quantitative effect on… key determinants… or the effects are simply uncertain…. The pandemic has clearly spawned rapid technological progress in areas such as online retail, but may have also increased… concentration… restrain[ing] future technological advances…. Aging demographics and rising inequality… are likely to keep r low… [with] high uncertainty.… There is good reason for concern… [about] an era in which supply shocks are larger, and in which inflation expectations may be less well-anchored…. Accordingly, central banks must act decisively today to ensure that inflation expectations are anchored…
Those are the two pieces up on the FRBKC website from which I learned a lot, about the economic effects of the plague years from the first, and about how global worthies view the situation from the second. Global worthies seem very aware of and wary of a return to the unfortunate zero-lower-bound days of secular stagnation, and that makes them much more wary of pulling on the austerity leash choke-chain than they were fifteen years ago. And the growth-accounting and industry-level data we are seeing about the effects of the economic reaction to the plague see a fall in productivity in rival physical-commodity and a rise in productivity in nonrival information-commodity production—and as time passes the plusses from the second seem to me likely to overwhelm the first.
Thus these two pieces have reinforced my increasingly optimistic view of the likely long-term consequences of the plague.
True, the plague was a deadly and devastating shock to humanity and to humanity’s economy, bringing, primarily, megadeaths, while also causing unprecedented disruptions, losses, and uncertainties. Yet the plague years also focused humanity. I suspect that the plague years have stimulated innovation, improved governance, and enhanced resilience. In the long run it is these factors that will shape the furture and far-future prospects of human economic growth and welfare once we look beyond the next business cycle.