We may learn to live with Covid, but as the latest inflation report shows, it’s still a pandemic economy. Two and a half years after the first lockdowns, the economy remains strange: It can take more than a year to get a dishwasher, many months to get a passport, businesses are understaffed, stores routinely run out of staples like painkillers and of course there are high inflation. Americans enjoyed years of plenty, when the latest and greatest was always available and many services became cheaper by the day. Some days it feels like we woke up to the dystopian second half of Atlas Shrugged.
When will everything go back to normal? In a way, maybe never. The pandemic accelerated changes in the economy that were already in the works. And it turned many of our assumptions on their head, changed the economic relationships that formed the basis of many forecasts, and made everything from inflation to consumer spending more difficult to predict in the years to come. There will always be parts of the economy, like energy prices, that we have less control over, but other aspects can be fixed. One day we should be able to count on filled shelves and more stable prices.
So here is a quick overview of what should snap back and what we should get used to as the Covid economy evolves into the new economy.
What Will Return to Normal: The US labor shortage is a big deal, a key reason why the economy is still weird. Every recession loses workers and some people, especially men, are still not working. Adding to the current bottlenecks is the fact that legal immigration is still effectively suspended, with a backlog of visas still to be processed. The Biden administration should make this a much bigger priority. But compared to other recessions, the job market has recovered, wages have risen and people are returning to the job market. Fewer people are retiring and even some of the pandemic-related early retirees are returning to work.
Supply chains are still messed up. The global economy before the pandemic was efficient because goods were made with parts from around the world. But the system was complex and the pandemic showed how vulnerable it was to disruption. In December last year, ports began to free up and computer chip shortages eased, but hopes for normalcy in 2022 were dashed by Russia’s war in Ukraine. China still has Covid-related shutdowns. And a US freight rail strike seems to have just been averted. Still, the Citi Index of Supply Chain Pressure shows it’s better than a year ago. There will be further improvements as energy costs come down and more people go back to work. In the longer term, companies could become more resilient to future disruptions and better diversified.
What remains: uncertainty about inflation means more volatility on the investment markets. Once supply chains and the labor market recover, inflation will ease and stabilize, and this will help stabilize asset markets. But it will be a very long time before inflation returns to 2% or below. Of course, between demographic shifts and weaker trade links, inflation can be higher no matter what central banks try. 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 still empty. The next few months will show what the future of work will be like, as some bosses are calling for all employees to return to the office. Some will return reluctantly and others never. Business districts already have more life, but they’re 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 established working from home as a viable option, and the office will never be the same.
Trust in institutions may also never recover. Everything from public health to the central bank has been politicized during the pandemic. It was kind of 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 not praised for good politics. Nonetheless, distrust will undermine the economy in the future, as strong trust in government and its services, businesses and cultural institutions is essential for a healthy economy and public safety. Fewer children are attending public schools, and many people no longer trust election results, the judiciary or health authorities.
The pandemic economy will outlast the pandemic. Some of the changes, like how we use technology, could one day turn out to be positive. But more than two years later, due to bottlenecks in the flow of goods and people, we’re still living with congestion, high inflation, and great uncertainty about when at least some things might return to normal.
Allison Schrager is a columnist for the Bloomberg Opinion on economics.
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