Your Guide to the Permanent Pandemic Economy

We may be learning to live with Covid, but as the latest inflation report shows, it’s still a pandemic economy. Two and a half years after the initial lockdowns, the economy remains weird: It can take over a year to get a dishwasher, many months to get a passport, businesses are understaffed, stores routinely run out of basic supplies such as pain and of course there is high inflation. Americans enjoyed years of abundance, where the latest, best was always available and many services got cheaper by the day. Now sometimes it feels like we woke up in the dystopian second half of ‘Atlas Shrugged’. When will things finally get back to normal? In some ways, maybe never. The pandemic accelerated changes in the economy that were already in the works. And it turned many of our assumptions upside down, changing the economic relationships that formed the basis for many forecasts, making everything from inflation to consumer spending harder to predict in the coming years. There will always be parts of the economy, such as energy prices, that we have less control over, but other aspects can be resolved. Soon we should be able to count on fully stocked shelves and more stable prices again. So here’s a quick rundown of what needs to come back and what we’ll all need to get used to as the Covid economy moves into the new economy.

Things going back to normal

• The labor shortage is a major problem. It’s a major reason why the economy is still weird. Every recession loses workers and some people, especially men, still don’t work. In addition to the current shortages is the fact that legal immigration is still effectively suspended, with a backlog of visas yet to be 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 people are retiring and even some of the pandemic early retirees are returning to work.

• The supply chain is still confused. The pre-pandemic global economy was incredibly efficient because goods were made with parts from all over the world. But the system was complex and the pandemic showed how vulnerable it was to disruption. In December last year, ports began to unclog and computer chip shortages eased, but hopes for normalcy in 2022 were dashed by Russia’s war against Ukraine. China still has Covid-driven shutdowns. And a US rail freight strike appears to have been narrowly averted. Still, the Citi supply chain pressure index shows it’s better than a year ago. There will be more improvement as energy costs fall and more people go back to work. In the longer term, companies can become more resilient to future disruptions and become more diversified.

Problems that don’t go away

• Inflation uncertainty means more volatility in asset markets. Once the supply chain and labor market recover, inflation will ease somewhat and stabilize, helping asset markets stabilize. But it will be a long time before inflation falls back to 2% or lower. Of course, between demographic changes and weaker trade relations, inflation can be higher no matter what the 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.

• Offices are still empty. The coming months will reveal what the future of work will look like as some bosses demand that all employees come back to the office. Some will be reluctant to go back and others never. Business districts already have more life, but they are not bustling five days a week. Offices are not full every day and most public transport is still down to 60% of pre-pandemic levels. The pandemic has made working from home a viable option and the office will never be the same.

• Trust in institutions should never be restored either. During the pandemic, everything from public health to central banking became politicized. It was somewhat inevitable as government becomes a bigger part of life in an emergency; it is condemned for bad decisions (prolonged school closures were a predictable tragedy) and it gets no credit for good policy. Nevertheless, distrust will undermine the economy in the future, as strong trust in government and its services, businesses and cultural institutions is crucial for a healthy economy and public safety. Fewer children are going to public school, many people no longer trust election results, the justice system or public health authorities.

The pandemic economy will survive the pandemic. Some changes, such as how we use technology, could one day have a positive effect. But more than two years later, bottlenecks in the flow of goods and people mean that we are still living with shortages, high inflation and a lot of uncertainty about when at least some things will return to normal.

More from other writers at Bloomberg Opinion:

What a terrible, terrible, not-good, very bad day: John Authers

Inflation? The US workforce is the bigger problem: Tyler Cowen

We still have an economic recovery, right?: Daniel Moss

This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.

Allison Schrager is a Bloomberg Opinion columnist on economics. A senior fellow at the Manhattan Institute, she is the author of “An Economist Walks Into a Borhel: And Other Unexpected Places to Understand Risk.”

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