The black box economy
Anyone who says they know exactly what’s happening in the economy is lying.
The pandemic economy has been strange and unpredictable from the get-go.
Throughout the past 14 months, the twists and turns have been surprising: The housing market boomed, the stock market soared, people got into day trading, everyone hoarded toilet paper, and lumber became a must-have. There’s been widespread disagreement about how much support from the government was needed, whether the country was doing too much or not enough, or whether help would come at all. We won’t know whether the country overshot or undershot the response for years, and there’s still uncertainty about what’s happening in the labor market, prices, and other areas. And the prevailing theme has been one that has nothing to do with the economy directly: As long as Covid-19 isn’t under control, the economy isn’t either.
“Having been a forecaster for 10 years, we were surprised all the time, because nobody has a crystal ball and particularly if you just pull out one data series, one month, there’s just no way,” said Claudia Sahm, a former Federal Reserve economist and now a senior fellow at the Jain Family Institute. “It’s going to be a wild ride; the data through the end of this year, they’re going to be tough.”
The country and the world are staring into a black box of uncertainty on the economy. It’s frustrating, but it’s also inevitable. Anyone who says they know exactly what is going on in the economy right now is lying. The same goes for anyone who says they know what’s going to happen next.
“Because of the unique nature of this crisis, there are going to be some swings,” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute. “In a year, they’re going to be trivia questions, but right now we’re obsessing about them.”
Few people will probably remember two years from now that the price of used cars and trucks went up by 10 percent in April.
We know that the economy is different now than it was a year ago and that it will be different a year from now. What’s not clear is exactly how. And what we need now — including economists, experts, and policymakers — is the intellectual humility to recognize that’s the case.