The Economy Is Booming. Why Don’t Firms Believe It?

This is a guest post on the Odd Lots blog by Alex Williams. Alex is a research analyst at Employ America, and he’s a multi-time former guest on the Odd Lots podcast, once talking about semiconductors and another time talking about municipal finance. He also writes a fantastic newsletter going chapter-by-chapter through Keynes’ General Theory.

Trusting the Boom: Why Aren’t We Seeing Harrodian Instability?

By Alex Williams

One of the cool things about studying the economy is that no matter what’s happening, it’s extremely likely that something similar has happened before. Sure, every time some aspect is different, but by picking out a few types of things to look at – wages, balance sheets, debt levels, gross investment – you can get a little closer to comparing two different species of apple, rather than an apple and a pear.

A corollary to this is that, if you have a Current Event, you can probably find someone in the history of thought who has put together a whole theory around a similar event before. Usually they’ve tried to adduce the particular factors that they feel contributed most, and those can prove a good starting point. The pandemic has proven a great opportunity for this. People have trotted out everything from models of the impact of the stimulus payments on the Treasury General Account to nineteenth century business cycle models derived from situations where pandemics disrupted a harvest.

One of the most interesting aspects of the Covid-19 pandemic has been the success of fiscal policy in preserving consumer spending, and the second-order effects of that success. Rather than an economic crash during the pandemic, we have instead seen aging supply lines straining under a surge in demand, the likes of which hasn’t been seen for decades. Whether in lumber, shipping, semiconductors, or any of a range of industries, this has been a fascinating through-line in recent episodes of Odd Lots.