Full Title: The Economy’s Fundamental Problem Has Changed
Highlights
Since the pandemic hit, the economy has been plagued by shortages, some caused or worsened by COVID and many not. Indeed, none of the supply crunches I just cited—coins, formula, antibiotics, veterinary services, early-childhood education, truck drivers—has much to do with the virus still afflicting the world. Something deeper is going on. After the Great Recession, we went through a decade in which economic life was defined by a lack of demand. Now, after the COVID recession, we’ve entered a period in which economic life is defined by a lack of supply.
[Derek Thompson]: America is running out of everything
During the aughts and 2010s, the primary problem was that most families did not earn enough money. Unemployment and underemployment were rampant. Wage growth was slack because companies had no incentive to compete for workers. The middle class was shrinking. And inequality yawned, with the haves getting richer while the have-nots struggled.
This era—which lasted from 2007 until 2018, give or take—was one of extremely loose monetary policy and stingy fiscal policy. The Federal Reserve made it as cheap as it possibly could for businesses and individuals to borrow, but only corporations and the wealthy had the cash on hand to take advantage; Congress, for its part, declined to do much long-term investment and kept its spending stable. It was also an era of low GDP growth, low inflation, and a steady debt-to-GDP ratio, outside of the Great Recession itself. In this environment—let’s call it Demand World—the fundamental problem was the economy’s low appetite for goods and services. ()
Note: The economy’s fundamental problem has changed since the pandemic hit - from a lack of demand to a lack of supply. During the 2007-2018 period, the primary problem was a lack of income for most families, caused by unemployment and underemployment, lack of wage growth, a shrinking middle class, and high inequality. This period was characterized by loose monetary policy and minimal fiscal policy, resulting in low GDP growth, low inflation, and a steady debt-to-GDP ratio.
