PROJECT SYNDICATE: Column Draft: For Now, Enjoy the Soft Landing, &—Across All Dimensions—the Amazing Strength of the Post-Plague American Economic Recovery
Remarkable, surprising strength in the American economy’s post-COVID plague recovery. Employment in September, seasonally adjusted, was 326,000 more than we thought last month that employment had been in August. And the unemployment rate—which was 3.8% a year ago and had risen to 4.3% as of July—was back down to 4.1% in September.
Recovery after the COVID-19 plague has, truly, been nothing short of extraordinary. Such resilience underscores the broader strength across the economy—both in income and production—defying repeated fears of recession. As macroeconomic policy navigated through the challenges of shifting demand patterns, inflation, and supply-chain disruptions, the U.S. economy has emerged remarkably strong. Yet there are always questions: Was this soft landing driven by fiscal policy expansion more powerful than expected, by a new post-secular stagnation equilibrium in interest rates with a higher r*, by warranted expectations of future growth from a forthcoming AI-driven boom, or by irrational exuberance yet again? it is always, in macroeconomic forecasting, safe to be a downer Eeyore, for there is always a “challenge”, if not a disaster, anticipated or surprising, rushing towards us as we go through our tunnel of ignorance on the railroad track of time…
The COVID plague that began in 2020 created a short-run and a medium-run challenge for American economic policy.
The short-run challenge was how to maintain consumers’ incomes and macroeconomic balance in the face of enormous and rapid lockdown- and supply-chain disruption-generated shifts in aggregate supply, neither falling into too big a depression nor goosing the economy with so much liquidity as to cause too much inflation.
The medium-run challenge was that the COVID plague induced a great structural wheel of the American economy away from the purchase of services—especially in-person services—and towards the purchase of durable goods: what happened during the height of the plague was that we crammed a couple of decades’ worth of societal learning about how to use the internet to do our shopping into two years, plus we learned that doing more of our consumption at home backed by our stocks of consumer durables was in many respects a more comfortable way to live.