Illustration: Kate Dehler for Bloomberg Markets
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?
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.