The COVID-19 pandemic has changed the world in more ways than one. From food to culture to politics, COVID-19’s reach extends far beyond the hospital, and the economy is no exception. However, its ripple effects within the economy itself are staggering. For the everyday person, academics, and policymakers alike, there is no doubt that COVID-19 catalyzed a paradigm shift.
Most prominently, the global pandemic impacted people on a personal level. According to the Brookings Institution, the resulting recession negated 113 consecutive months of job growth, putting an end to the longest recorded economic expansion in US history. To add insult to injury, women, non-white workers, lower-wage earners, and those with less education fared the worse in job losses. As the economy struggled, families struggled as well; in 26 states, more than a fifth of households reported that they were behind on rent. In addition, inflation roared to 5.4%, far exceeding the Federal Reserve’s target of 2% as COVID-19 snagged global supply chains. Small businesses have been squeezed as well, as their revenue dropped 20%, and Chapter 11 bankruptcies increased relative to 2019 [2].
Nevertheless, the effects are not all negative. Buoyed by government stimulus, startups swelled from 3.5 million in 2019 to 4.4 million in 2020, outpacing increases in previous years. Other countries, such as Turkey and Chile, enjoyed similar booms. On the whole, these businesses can help speed up recovery and prevent the need for “catchup” in the next decade [4]. Also, the US personal saving rate hit a peak in April 2020 and remained elevated throughout the pandemic [2]. On the whole, people can feel the effects of the pandemics on their wallets.
These changes are not just on the price-tags--they can be seen in economics journals and Congressional spars as well. The Great Financial Crisis in 2008 maintained the framework of economics birthed in the 1980s by Paul Volcker and his stagflation taming. While governments provided bailouts and central banks used quantitative easing, they shied away from further intervention. In the COVID economy, however, both the Trump and Biden administrations deficit spent to send direct cash infusions to households and businesses, adding up to trillions of dollars of support. The EU, once stymied by frugal countries like Germany or the Netherlands, organized a multi-billion dollar rescue fund for struggling members. Simultaneously, central banks purchased government debt and kept interest rates low to support this. This mindset has been referred to as “Bidenomics”, and it may be the new orthodoxy for economic policy [5]. Indeed, the US GDP returned to pre-pandemic levels by the second quarter of 2021, and worker shortages have pushed up wages.
Naturally, skepticism remains. Some argue that overbearing government support has fueled inflation, and the Federal Reserve has indicated that it may dial back its programs in response. Others feel that this support is still insufficient, and they continue to advocate for additional unemployment insurance and a reinstatement of the eviction-ban struck down by the Supreme Court [6]. At the same time, economic growth has begun to slow in the US and UK, while some countries have not recovered at all. This has stoked fears of “stagflation”, a noxious mix of high inflation and low growth that last reared its ugly head in the 1970s. Likewise, worker discontent has boiled over. The rate at which workers have been quitting their jobs is at a 20-year high [6] Garnering the moniker “Striketober”, October has been punctuated by strikes from film and TV workers, Kaiser Permanente healthcare professionals, United Auto Workers, and other groups [8]. Overall, the US and global economies still have obstacles to grapple with.
Regardless, the COVID-19 global health crisis altered the way people work by turning them to digital conduits and entrepreneurial pursuits. Not to mention, it instigated a shift in monetary and fiscal philosophy, one that may survive if the economy continues to recover and future policy is successful. For better or for worse, the future rests on the COVID economy.
References
[1] TayebMEZAHDIA. “Covid-19 Coronavirus Economy - Free Photo on Pixabay.” Pixabay.com, August 24, 2020. https://pixabay.com/photos/covid-19-coronavirus-economy-5511070/.
[2] Bauer, Lauren, Kristen E Broady, Wendy Edelberg, and Jimmy O’Donnell. “Ten Facts about COVID-19 and the U.S. Economy.” Brookings. Brookings, September 17, 2020. https://www.brookings.edu/research/ten-facts-about-covid-19-and-the-u-s-economy/.
[3] “CPI Home : U.S. Bureau of Labor Statistics.” Bureau of Labor Statistics, October 11, 2017. https://www.bls.gov/cpi/.
[4] “Startups Boom in the United States during COVID-19.” PIIE, February 17, 2021. https://www.piie.com/blogs/realtime-economic-issues-watch/startups-boom-united-states-during-covid-19.
[5] Boesler, Matthew. “The Covid Trauma Has Changed Economics—Maybe Forever.” Bloomberg Quint, June 2021. https://www.bloombergquint.com/global-economics/stimulus-checks-2021-is-government-cash-as-economic-policy-here-to-stay.
[6] Barnes, Mitchell, Lauren Bauer, and Wendy Edelberg. “11 Facts on the Economic Recovery from the COVID-19 Pandemic.” Brookings, September 29, 2021. https://www.brookings.edu/research/11-facts-on-the-economic-recovery-from-the-covid-19-pandemic/.
[7] “‘Striketober’ : Growing Number of U.S. Workers Are Pushing Back Against Employers.” PBS, October 18, 2021. https://www.pbs.org/newshour/show/striketober-growing-number-of-u-s-workers-are-pushing-back-against-employers.
“A Stock Market Malaise with the Shadow of ’70s-Style Stagflation.” The New York Times, 2021. https://www.nytimes.com/2021/10/13/business/stocks-inflation-stagflation.html