COVID and Economic Pessimism

Economist Claudia Sahm, both at Substack and Bloomberg, makes the argument that COVID is to blame for poor consumer sentiment. From Bloomberg:

Lots of reasons have been given for the gloominess, including political partisanship, the media’s focus on negative news stories and bad “vibes” in general. There’s another, less talked about but more likely explanation for the disconnect: Covid-19 itself. The timing is clear, sentiment plunged at the start of the pandemic but failed to rebound when the economy re-opened and snapped back. In terms of sentiment, the pandemic caused a sudden increase in pessimism that hasn’t gone away…

The question is, how long will this Covid-19 pessimism last? Prominent economic disruptions in the pandemic, like global supply chains and labor shortages, are basically back to normal. But that’s the economics. Sentiment has a broader lens, and so far the extra pessimism from the pandemic persists. And with Covid-19 cases rising once again, it may not end anytime soon.

I don’t think this can be downplayed at all. While a disproportionate amount of attention is paid to the fraction of U.S.-ians who are full-out COVID minimizers, they’re not the majority. Many people are either taking COVID precautions, or suspect they should be, but aren’t because ‘people aren’t doing that anymore.’ For these two groups respectively, COVID is just something they have to deal with or something lurking in the background, but which isn’t going away.

To put this another way: if a vaccine that conferred broad, highly effective immunity to COVID and which essentially made long COVID an incredibly rare event were released, does anyone doubt that various indices of consumer sentiment would improve (at least for a few months)? Of course they would. If nothing else, a subset of people would feel more comfortable consuming things (dining in restaurants, going to theaters, traveling).

So, despite former COVID czar and current White House Chief of Staff Zients’ belief (and arguably Biden’s belief too) that the pandemic is best not dealt with directly, if they want things like consumer sentiment to increase, then they must take COVID head on* and make it safer. Otherwise, the general crankyness will continue…

*Why they pissed away over a year to get research on the second generation of vaccines mobilized escapes me. It’s not just political malpractice, it’s horrible policy.

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