Saturday, March 13, 2021

Dare We Be Optimistic?

Some economics commentators are getting practically giddy with the prospect of the covid pandemic ending, with a subsequent economic boom, juiced by the American Rescue Plan spending. And some, like Neil Irwin, are reading the tea leaves and seeing the possibility of a more long-term change in America's economic prospects. He's got 17--count 'em, 17!--reasons why Happy Days May Be Here Again! I follow this literature closely and I think Irwin's points are well-taken; if nothing else, it's a nice catalog of things to think about as the 2020's economy unfolds.
"The 21st-century economy has been a two-decade series of punches in the gut.
The century began in economic triumphalism in the United States, with a sense that business cycles had been vanquished and prosperity secured for a blindingly bright future. Instead, a mild recession was followed by a weak recovery followed by a financial crisis followed by another weak recovery followed by a pandemic-induced collapse. A couple of good years right before the pandemic aside, it has been two decades of overwhelming inequality and underwhelming growth — an economy in which a persistently weak job market has left vast human potential untapped, helping fuel social and political dysfunction.
Those two decades coincide almost precisely with my career as an economics writer. It is the reason, among my colleagues, I have a reputation for writing stories that run the gamut from ominous to gloomy to terrifying.
But strange as it may seem in this time of pandemic, I’m starting to get optimistic. It’s an odd feeling, because so many people are suffering — and because for so much of my career, a gloomy outlook has been the correct one.
Predictions are a hard business, of course, and much could go wrong that makes the decades ahead as bad as, or worse than, the recent past. But this optimism is not just about the details of the new pandemic relief legislation or the politics of the moment. Rather, it stems from a diagnosis of three problematic mega-trends, all related.
There has been a dearth of economy-altering innovation, the kind that fuels rapid growth in the economy’s productive potential. There has been a global glut of labor because of a period of rapid globalization and technological change that reduced workers’ bargaining power in rich countries. And there has been persistently inadequate demand for goods and services that government policy has unable to fix.
There is not one reason, however, to think that these negative trends have run their course. There are 17."
Paul Krugman, on the other hand, is less optimistic and is worried about "secular stagnation" re-emerging after an impending boom period:
"What markets are telling us, in effect, is that after the boom they expect a return to stagnation — which would, again, be a bad place to be. How can we avoid it?
The answer is actually obvious: a large program of public investment, paid for largely with borrowing, although with a case for new taxes, too, if it’s really big. Such a program would do double duty. Macroeconomics aside, we need to spend a lot to rebuild our crumbling infrastructure, fight climate change, and more. And public investment can also be a major source of jobs and growth, helping to pull us out of the stagnation trap.
The good news is that the Biden administration’s economists understand all of this perfectly well, and by all accounts they’re already in the process of putting together a very ambitious infrastructure plan.
The bad news is that getting such a plan enacted will be very hard politically — probably even harder than getting to yes on short-term economic rescue....
So the big question is whether Democrats can pull off another political miracle, and pass a second round of crucial economic legislation in the face of scorched-earth Republican opposition. The answer to that question will determine whether the Biden boom will endure."
I see Krugman's point though I do think Irwin is right to highlight some of the potential economic shifts that could make the 2020's fundamentally different from the last several decades. I guess I am more or less in-between Krugman and Irwin on all this. YMMV.

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