Recovering from COVID-19 won’t cure all economic ailments (Mark Hester)
While some of the causes of inflation are transitory, economic challenges such as lack of affordable housing, rising food prices and inadequate childcare reflect longer-term challenges
While I did a lot of things in my journalistic career, the topic that I most enjoyed writing and editing about was the economy, and especially the impact of economic trends on consumers.
It’s an important subject that typically gets less attention than it should because of the shrunken size of newsrooms—fewer reporters mean fewer stories, especially on subjects that are complicated and research-intensive. In Oregon, we are fortunate not to have a complete dearth of economic analysis. Not only does The Oregonian still write on economic issues through its Sunday feature “Oregon Insight” and other coverage, but also the blog written by Oregon Office of Economic Analysis economist Josh Lehner is a treasure trove of economic insight.
There’s a lot of economic trends to analyze these days. Few things are truly unprecedented, but today’s economic circumstances come pretty close. Hence, using economic terms, the outward shift in the demand curve for high-quality economic reporting. Oregonians, and especially the state’s elected officials, should take note of a few broad and specific trends emerging in the economic literature.
One big trend: The U.S. is emerging, more slowly than we hoped a few weeks ago, from the first pandemic in a century. The economy has changed so much since 1920 that the lessons from that recovery are of minimal value. There are two broad similarities, though, that should inform policy-makers:
Pandemics distort the supply-demand equation, which creates short-term economic anomalies. Economists call these transitory effects. Consumers call them something else, often involving adjectives I don’t use in my columns. Today, the most well-known transitory effect may be a surge in prices – leading to at least temporary increases to inflation. The fact these conditions likely won’t last is important to economists—the short-run only has so much of an impact on long-run economic growth. But the person seeing rent jump and food prices spike isn’t really focused on the economic long-term. Policy-makers must acknowledge both economic principles and the economic realities on the ground.
Both pandemics came at a time of economic transition and growing concern about inequality. For more details, read this article from the Economic History Association. On the one hand, the similarities are entirely coincidental. Viruses aren’t caused by economic conditions (though their spread may be correlated with economic factors). On the other, the state of the economy heading into the pandemic certainly influences policy emerging from the pandemic.
A more specific issue to flag: We’re still figuring out how COVID impacted certain parts of the economy. Some of the economic effects of the COVID-19 pandemic were easy to identify. COVID-related labor shortages reduced supply of many goods (ranging from semiconductors to shower doors to automobiles) and created logistical bottlenecks even for goods that were available. Meanwhile, drought and other climate-related factors further constrained food supply, which also was affected by labor and logistics difficulties. A more detailed explanation of these factors is available on the Oregon Office of Economic Analysis blog mentioned above.
Then, there are the nitty gritty areas to really study. While many of these economic conditions are temporary, a few sectors of the economy face challenges for reasons that will remain even after COVID-19 is under control. Legislators and policy-makers should identify solutions to these challenges now, rather than hoping the problems will evaporate. They would do well to start with these three areas, all of which face both short-term and long-term inflationary pressures:
Housing: This topic is front of mind because of the debate over extending the federal eviction moratorium. The moratorium always was a short-term answer to a complex problem. Long-term solutions lie on the supply side; in this case, the availability of more housing. There are multiple policy paths – applying both liberal and conservative ideology – that can address the housing affordability crisis. The problem is so acute it probably will require both improving the finances of families (through targeted tax credits and subsidies) and increasing the supply of houses, which will require, among other things, loosening land-use regulations and reducing the amount of time it takes to get housing approved.
Food prices: Housing policy is complicated, but it’s not nearly as difficult to address as the factors driving food prices higher. Weather always has been an unpredictable variable affecting food prices. Climate change increases the likelihood of drought and other weather conditions that reduce food supply and increase costs. Higher temperatures also make it harder to find workers, which always has been one of agriculture’s biggest challenges. Also, the increased focus on healthy eating creates price pressures. Though there are exceptions, in general healthier food (fresh fruits & vegetables) is more expensive than food that is easily mass produced (starches such as potatoes and corn).
Childcare: The cost of childcare has been a major problem for years. Melissa Unger wrote on this topic earlier this week. While more investment in home care of all types is needed, there’s no clear path toward meeting that demand without causing a surge in prices that makes such care unaffordable to many families. Also, home care is a difficult job and always will be. We need to make the workforce in this sector larger while also improving their working conditions and pay. We’re early in the recovery from the pandemic, but at this point workers seem to have decided there are some jobs they don’t want – no matter the pay. If this is true for home care, then we will face some big, long-term issues.
Housing, food and home care all are essential aspects of a strong economy. They all face inflationary pressures that will persist even after the economy works through its post-pandemic transition. And all likely will require solutions that mix conservative and liberal economic principles and require compromise from both sides of the political spectrum. Now is a good time for state legislators and members of Congress to start thinking about how to make that happen.
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Mark worked 20 years at The Oregonian in positions including business editor & editorial writer. He currently is a communications consultant.
photo credit: "gas prices, texaco, corner of gladstone" by cafemama is licensed under CC BY-NC-SA 2.0