Things that will return to normal
• Labor shortage is a big problem. This is one of the main reasons why the economy is still weird. Every recession loses workers and some people, especially men, are still out of work. Adding to current shortages is the fact that legal immigration is still pending, with a backlog of visas that have not yet been processed. The Biden administration should make this a much higher priority. But compared to other recessions, the labor market has recovered, wages have risen, and people are returning to the labor market. Fewer and fewer people are retiring and even some of the pre-retirees of the pandemic are returning to work.
• The supply chain is still disrupted. The pre-pandemic global economy was incredibly efficient because goods were made with parts sourced from around the world. But the system was complex, and the pandemic showed how vulnerable it was to disruption. In December last year, ports were starting to unclog and shortages of computer chips were diminishing, but hopes of normalcy in 2022 have been dashed by Russia’s war on Ukraine. China is still experiencing Covid-driven shutdowns. And a US railroad strike appears to have been narrowly avoided. Even so, the Citi Supply Chain Pressures Index shows it is better than a year ago. There will be more improvement if energy costs come down and more people return to work. In the longer term, companies could become more resilient to future disruptions and better diversified.
Problems that don’t go away
• Inflation uncertainty means more volatility in asset markets. Once the supply chain and labor market heal, inflation will ease somewhat and level off, which will help stabilize asset markets. But it will still be a very long time before inflation falls back to 2% or less. Between demographic shifts and weaker trade relations, inflation can naturally be higher, no matter what central banks try to do. We may have to learn to live with 3% or 4% inflation. And that means interest rates (and mortgages) will also be higher.
• The offices are always empty. The next few months will reveal what the future of work will look like as some bosses demand that all employees return to the office. Some will reluctantly return and others never will. The business districts already have more life, but they are not bustling five days a week. Offices aren’t full every day and most public transit is still at 60% of pre-pandemic levels. The pandemic has established working from home as a viable option and the office will never be the same.
• Trust in institutions may also never recover. During the pandemic, everything has been politicized, from public health to central banking. It was somewhat unavoidable as government becomes a bigger part of life in an emergency; it is condemned for bad decisions (extended school closures were a predictable tragedy) and it is not recognized for its good policies. Nevertheless, mistrust will undermine the economy in the future, as strong trust in the government and its services, businesses and cultural institutions is essential for a healthy economy and public safety. Fewer and fewer children are attending public school, many people no longer trust election results, the justice system or public health authorities.
The pandemic economy will survive the pandemic. Some of the changes, like the way we use technology, may one day turn out to be positive. But more than two years later, bottlenecks in the flow of goods and people mean we are still living with shortages, high inflation and a lot of uncertainty about when at least some things might return to normal. .
More other writers at Bloomberg Opinion:
What a terrible, horrible, not good, very bad day: John Authors
Inflation? America’s workforce is the biggest problem: Tyler Cowen
We still have an economic recovery, don’t we? : Daniel Moss
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Allison Schrager is a Bloomberg Opinion columnist covering the economy. A senior fellow at the Manhattan Institute, she is the author of “An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk”.
More stories like this are available at bloomberg.com/opinion