Chill Out

The doomsayers are out in full force. The economy will overheat, they say. Inflation will run wild. It will be the 1970s all over again! Paul Krugman's advice is to take a deep breath and exhale -- slowly:

Chill out, everyone. Mostly we’re just experiencing the economic equivalent of a moment of wheelspin.

OK, there are some real issues involving current events that need discussing — and some of the continuing discussions, shockingly, involve serious debates among serious people. How much are closed schools and lack of child care keeping mothers out of the paid labor force? Are enhanced unemployment benefits making workers reluctant to take low-paying jobs?

And there are genuine questions about where we’ll be next year. Might the economy start to overheat, forcing the Fed to tap on the brakes to head off longer-term inflation? I don’t think that’s the most likely outcome, but it’s certainly a possibility.

Most of the scare headlines right now, however, reflect what you’d expect to see in an economy that’s trying to go from 0 to 60 in seconds flat.

Krugman cautions his readers to remember where we've been:

At the beginning of this year, the United States was still very much in the depths of the pandemic. Daily deaths were higher than ever, with Covid-19 taking more than 3,500 lives in the country every day. Parts of the economy that depend on close physical contact were largely frozen: According to the restaurant booking service OpenTable.com, there were about 60 percent fewer seated diners than there had been during the comparable period prepandemic.

Then came an extraordinarily successful vaccination campaign. Deaths have plunged more than 85 percent and are still dropping. As fear recedes, the economy is surging, in what may end up being the fastest recovery ever. For example, restaurant bookings are already almost back to normal.

Why would anyone imagine us able to achieve that kind of sudden acceleration without leaving a few skid marks, and maybe even burning some rubber?

Mainly, however, we’re just seeing the problems you’d expect when the economy tries to roar ahead from a standing start, which means that we’re calling on suppliers to ramp up production incredibly fast and expecting employers to quickly attract a large number of new workers. These problems are real, but they’ll mostly resolve themselves in a few months.

Yes, labor supply issues may have held back April’s job growth, although more recent data suggest a possible rebound. April inflation surprised on the upside, largely because of used car prices. None of this tells you anything at all about how much we should worry about overheating, let alone how much more we should be spending on infrastructure and family support (answer: a lot) or how we should pay for these initiatives (answer: tax corporations and the rich).

What's the bottom line? "The virus is losing, and the economy is winning."

Image: USA Today