Remember V-J Day?
Photo: Victor Jorgenson. Source: Wikipedia. Public Domain.
Not many of us do. That was over 75 years ago. No one seems to know who the sailor and the nurse were who enjoyed that spontaneous kiss in Times Square, either. But the end of World War II sparked the beginning of an economic boom in the US that lasted well over a decade. By the summer of 1945, Americans had been living under wartime rationing for more than three years, including limits on coffee, sugar, and gasoline. The savings rate was over 20%.
When the war ended, folks were ready to splurge. Car sales grew 15% per year, home sales surged, and the baby-boom generation was born. Pessimists had predicted that the millions of recently demobilized soldiers, sailors, and marines would create a second Great Depression. But that didn’t happen. America went from serving as the “Arsenal of Democracy” to being the producer of first resort, as North America had seen almost no physical damage from the war.
The parallels of the post-war economy with the coming post-Covid economy are striking: consumers have extra cash sitting in their bank accounts. People have been deferring consumption for over a year. Government-imposed restrictions are poised to be lifted as soon as enough people are vaccinated. So far, almost 500 million doses have been given out around the world. In the US, we’re administering 2.5 million shots per day. At this rate, less than 10% of the country will be susceptible to the virus by the end of May.
That means that we should be ready to celebrate V-V Day – victory over the virus – and looking at a post-virus economy.
But very few people can remember what a post-war economy acts like, or feels like. The postwar economy was no picnic. It suffered from supply shortages and rising prices, with accerating inflation. Big corporations became bigger and more dominant in American life. Washington’s power as a regulator mushroomed, and corporate lobbying become a necessary business expense. With dramatic increases in productivity, traditional occupations like farming suffered.
The prospective boom this time has us on the verge of similar revolutionary changes. While I’m sick of Zoom, I have to admit that I’m thankful for the convenience, and I’ll still use it – and Teams, and Slack, and Facetime – after the crisis is over. The technology that created the m-RNA vaccine will continue to produce medical miracles – and profits for the pharmaceutical companies that can harness its power. Our phones will continue to get more important, and we’ll prize their convenience, even as we lament how much they seem to run our lives.
Photo: Thomas Ulrich. Source: Pixabay.
And it’s clear that inflation is coming. While officials repeatedly claim that they “have the tools” to tame inflation and assure us that it won’t get out of hand, I’m a little skeptical. The principal tool that Paul Volker and Alan Greenspan wielded was aggressive monetary tightening that put the economy into a recession and contributed to at least four bear markets. Does the current Fed have the political independence as Volker and Greenspan enjoyed?
The global postwar boom accelerated the economic, cultural, and scientific trends that were already changing society. Our post-Covid boom promises to do the same thing.