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   제목: The Covid Trauma Has Changed Economics뾏aybe Forever


The Covid Trauma Has Changed Economics뾏aybe Forever


Policymakers learned the lessons of 2008 and deployed a wider set of tools to help repair the damage from Covid. They know how to create a recovery, but can they manage the boom?

By Matthew Boesler


June 1, 2021

Once ideas about how to manage the economy become entrenched, it can take generations to dislodge them. Something big usually has to happen to jolt policy onto a different track. Something like Covid-19.

In 2020, when the pandemic hit and economies around the world went into lockdown, policymakers effectively short-circuited the business cycle without thinking twice. In the U.S. in particular, a blitz of public spending pulled the economy out of the deepest slump on record뾣aster than almost anyone expected뾞nd put it on the verge of a boom. The result could be a tectonic transformation of economic theory and practice.

The Great Recession that followed the crash of 2008 had already triggered a rethink. But the overall approach뾲he framework in place since President Ronald Reagan and Federal Reserve Chair Paul Volcker steered U.S. economic policy in the 1980s뾢merged relatively intact. Roughly speaking, that approach placed a priority on curbing inflation and managing the pace of economic growth by adjusting the cost of private borrowing rather than by spending public money.


The pandemic cast those conventions aside around the world. In the new economics, fiscal policy took over from monetary policy. Governments channeled cash directly to households and businesses and ran up record budget deficits. Central banks played a secondary and supportive role뾟uying up the ballooning government debt and other assets, keeping borrowing costs low, and insisting that this was no time to worry about inflation. Policymakers also started looking beyond aggregate metrics to data that show how income and jobs are distributed and who needs the most help.


While the flight from orthodoxy was most pronounced in the world뭩 richest countries, versions of this shift played out in emerging markets, too. Even institutions like the International Monetary Fund, longtime enforcers of the old rules of fiscal prudence, preached the benefits of government stimulus.

In the U.S., and to a lesser extent in other developed economies, the result has been a much faster recovery than after 2008. That success is opening a new phase in the fight over policy. Lessons have been learned about how to get out of a downturn. Now it뭩 time to figure out how to manage the boom.


FOR CENTURIES, theorists have pondered the recurring and inevitable swings that make up the business cycle. They뭭e looked for causes in mass psychology, institutional complexity, and even weather patterns. According to the traditional laws of the cycle, it should뭭e taken years for households to claw their way back from 2020뭩 sudden collapse in economic activity.

Instead, the U.S. government stepped in to insulate them from its worst effects in a way that hadn뭪 really been tried before: by replacing the wages that millions of newly out-of-work Americans were no longer receiving from employers. In the aggregate, benefit checks made up for all the lost paychecks and then some뾢ven though creaky systems for delivering unemployment insurance or one-time stimulus payments meant that many people missed out.

The scale of this innovation is apparent in what Jan Hatzius, chief economist at Goldman Sachs Group Inc., has called 뱓he most amazing statistic of this entire period. In the second quarter of 2020, a time when economic activity뿭measured by the conventional gauge of gross domestic product뾵as shrinking at the fastest pace on record, U.S. household income actually went up.

Excerpts articles from Bloomberg
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