The impact of the pandemic on the U.S. and global economy was catastrophic. Economic historian Adam Tooze characterized its impact as being “the swiftest and most comprehensive contraction of global economic activity ever.”
There are clearly other factors at work with regard to the economic problems confronting the U.S. and rest of the world, but it is safe to assume that the present economic conundrums would not exist without the pandemic. President Biden is being blamed for issues that are largely beyond his control and not of his making. Inflation is the primary focus of most Americans, who are concerned about rising prices for gasoline, consumer goods and utilities. FiveThirtyEight found that inflation has had a significant impact on Biden’s approval rating.
The discontent over inflation is accompanied by fear of recession as the Federal Reserve raises interest rates to respond to spiraling prices. The stock market has been volatile, plunging in reaction to concerns over an uncertain economy. Yet, unemployment is also historically low, and the American public is traveling again at pre-pandemic levels — a sign of consumer confidence.
Peter Goodman wrote in the New York Times about what has been termed a “force hiding in plain sight” — the economic shock of the pandemic. Goodman suggests that the present economic crisis is in reaction to the pandemic and has been exacerbated by Russia’s disastrous attack on Ukraine. He quotes University of Texas economist Julia Coronado as saying, “Pretty much everything in our lives has been disrupted by the pandemic, and then we layer on that a war in Ukraine.”
Supply and demand, which is fundamental to the cost of goods and services, were affected dramatically by the pandemic. People largely stayed at home. Jobs were lost and businesses were closed. Supply chains were disrupted. The nature of work and education changed. How people viewed their jobs and their future in the workforce was altered.
Lockdowns meant that the home became central to day-to-day lives, which altered patterns of consumption and how the economy functioned. For example, going to movies and restaurants was drastically curtailed, even halted. The restrictions of everyday life during the height of the pandemic had an impact on how people viewed their day-to-day activities. Working from home, another pandemic-related change, affects issues such as office space, public transportation and the functioning of businesses that no longer connect to the pre-pandemic economic reality of going into the office regularly.
Understanding the role that the pandemic has played in determining the present economic state in the U.S. and globally, as well as the economic future, is key to determining responses to present crises. Biden has been criticized for putting too much money into the economy and thereby increasing the likelihood of inflationary pressure with his American Rescue Plan, but the plan was literally a lifeline for millions of Americans — who, in turn, helped stabilize the economy.
In addition, the U.S. just joined 17 other nations in responding to supply chain issues via the Supply Chain Ministerial Forum. This effort is a good example of a response to the international dimension that the pandemic and related crises are having on the U.S. and the global economy.
Familiar tools such as the Fed’s raising of interest rates are being used to respond to the rise in inflation. There are risks to this approach, but the calculation is that it is a risk worth taking. The issue of placing political blame on the Fed chairman plays an important role in the argument of whether there will be support for the Fed in its effort to raise interest rates and stop inflation from careening out of control.
As economic writer and scholar Sebastian Mallaby recently pointed out in the Washington Post, “If (former President) Trump or a Trumpist wins in 2024, he or she will probably attack the Fed at the expense of growth and jobs, even though the best thing the Fed can do for the economy is to deliver stable prices. Vacancies on the Fed’s decision-making committee could be filled by hacks with no stomach for the short-term costs of containing inflation.”
The economy is fundamental to how people view their future, and how they view their future determines how they vote. This does not mean that tough analysis on economic policy choices is not warranted. It is, but if that analysis is to be sound it must include an honest assessment of the circumstances surrounding the present state of the economy. This is an existential issue, because, while the medical response to the pandemic has changed for the better as a result of innovations, the pandemic is far from over. It is also a safe bet that there will be future pandemics that will impact the daily lives of Americans.
The present economic crisis is not so much about inflation as it is about trusting and empowering political leaders to act responsibly in managing the economy under difficult and evolving circumstances. That trust must be based on facts and sound analysis and not on a faux populism buttressed by disinformation. There is too much at stake to do otherwise.
William Danvers is an adjunct professor at George Washington University’s Elliott School and worked on national security issues for the Clinton and Obama administrations.