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The New Economics

Illustration: Kate Dehler for Bloomberg Markets

Markets
The Big Take

The Covid Trauma Has Changed Economics—Maybe 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?

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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 record—faster than almost anyone expected—and put it on the verge of a boom. The result could be a tectonic transformation of economic theory and practice.