All of us are anxious to see that social life is restored to pre-pandemic norms. Many also hope that the economy will return to its normal pre-pandemic characteristics. That said, it may be useful to review what important aspects of the “normal” (pre-COVID-19) economy looked like.
Wealth and Income
Although the U.S. is the wealthiest nation in the world, with the highest GDP (i.e., the market value of all final goods and services produced by a nation in a given year.) Its distribution of wealth has been growing increasingly unequal for decades. (See “What Wealth Inequality in America Looks Like: Key Facts & Figures” ) U.S. Federal Reserve Bank, Even though the U.S. Economy has grown over the past three and a half decades, a substantial portion of the population has not benefited from such growth. “The real economy more than doubled in size… Yet for half of all Americans, their share of the total economic pie has shrunk significantly, new research has found.” (See “A Bigger Economic Pie, but a Smaller Slice for Half of the U.S.” By Patricia Cohen, New York Times, Dec. 6, 2016)
“The reason that economic inequality is important is that people in the lower rungs of the economic ladder may experience diminished economic opportunity and mobility in the face of rising inequality, a phenomenon referred to as The Great Gatsby Curve. Others have highlighted inequality’s negative impact on the political influence of the disadvantaged, on geographic segregation by income, and on economic growth itself…” (See the Pew Research Center)
It’s important to keep in mind that “…Today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago” … And “wage gains have gone largely to the highest earners.” (See “For most U.S. workers, real wages have barely budged in decades” Pew Research Center August 7, 2018) Additionally, a November, 2019 Brookings Institute Study finds that low-wage workers comprise a shocking 44 percent of US workforce aged 18-64, more than 53 million people. Low-wage workers as those earning less than $16.03 per hour on average across the US. (Martha Ross and Nicole Bateman, “Meet the low-wage workforce” November 7, 2019)
“You might wonder: how can the United States, the world’s wealthiest nation, be a low-wage economy?” Of the 37 nations in the Organization for Economic Cooperation and Development, the unofficial club of rich and near-rich nations, the US has the third-highest percentage of low-wage workers, with nearly one in four workers defined as low-wage. Only Latvia and Romania are worse. (That study defines low-wage as earning less than two-thirds of a nation’s median wage.) In another study, Brookings found that 53 million Americans hold low-wage jobs, with a median pay of $10.22 an hour, and median annual earnings of $17,950.” (“A $15 minimum wage isn’t just about justice. It’s good economics” by Steven Greenhouse, The Guardian, February 26. 2021)
A recent Federal Reserve survey finds that 4 in 10 American adults wouldn’t be able to cover an unexpected $400 expense with cash, savings or a credit-card charge that could be quickly paid off (See Jeanna Smialek May 23, 2019 New York Times)
Meanwhile, the 5 richest men in the US have a staggering combined wealth of $435.4 billion. That’s more than 2% of America’s GDP. Amazon CEO Jeff Bezos tops the list with a net worth of $114 billion, followed by Microsoft co-founder Bill Gates ($106 billion), investor and Berkshire Hathaway chairman Warren Buffett ($80.8 billion), Facebook CEO Mark Zuckerberg ($69.6 billion), and Oracle co-founder Larry Ellison ($65 billion), according to the Forbes ranking. Their combined fortune comes out to more than 2% of the US GDP, which was $21.34 trillion in the second quarter of 2019. (Exactly 2% of $21.34 trillion would be $426.8 billion.)” (See Katie Warren, Business Insider, Oct 2, 2019) The Guardian reports that in the United States, the three richest people have the same amount of wealth as the bottom 160 million. (See “Most political unrest has one big root cause: soaring inequality,” Michael Massing, The Guardian, January 24, 2020)
Taxes, Tax Breaks, and Their Effects
Much of the re-distribution of wealth to the wealthy is due to secular decline in tax burdens on the extremely wealthy. “The top-line finding: Among the bottom 50 percent of earners, average real annual income even after taxes and transfers has edged up a meager $8,000 since 1970, rising from just over $19,000 to just over $27,000 in 2018. By contrast, among the top 1 percent of earners, average income, even after taxes and transfers has tripled since 1970, rising by more than $800,000, from just over $300,000 to over $1 million in 2018.” (See “The massive triumph of the rich, illustrated by stunning new data,” Greg Sargent, Washington Post December 9, 2019
“A report by American For Tax Fairness and the Institute for Policy Studies reveals that as the Covid pandemic engulfed the nation, the super-rich engage in an historically unprecedented round of profiteering. The report found that during the 17 weeks of March 18-July 16, 2020, the collective wealth in the nation’s 600-plus billionaires topped $700 billion….The total wealth of American billionaires grew by nearly a quarter, from just under $3 trillion to $3.66 trillion since the pandemic lockdown began. That works out to an average weekly gain of $42 billion”
The Washington Post reports that, “A new book-length study on the tax burden of the ultrarich begins with a startling finding: In 2018, for the first time in history, America’s richest billionaires paid a lower effective tax rate than the working class… in 2018 the average effective tax rate paid by the richest 400 families in the country was 23 percent, a full percentage point lower than the 24.2 percent rate paid by the bottom half of American households.
While there is a growing concentration of wealth in the U.S. and spectacular upward distribution of wealth, the nation has found it possible to spend substantial funds on wars. The National Priorities Project at the Institute for Policy Studies has found that since 2001, Americans have spent at a rate of $32 million per hour on war. “Put another way: Since 2001, every American taxpayer has spent almost $24,000 on the wars — equal to the average down payment on a house, a new Honda Accord, or a year at a public university.” (We Have Spent $32 Million Per Hour on War Since 2001”, Stephanie Savell)
“In fiscal 2017, U.S. public schools lost $1.8 billion across 28 states through corporate tax incentives over which most schools themselves had little or no control. The 10 most affected states could hire more than 28,000 new teachers if they were able to use the lost revenues, according to the report released by Good Jobs First, a left-leaning Washington think tank. ( See Hillary Russ, “Corporate tax breaks cost U.S. schools billions of lost revenue: report” Reuters December 4, 2018
The Future?
As Yogi Berra said, “The future is one of the hardest things to predict.” Nonetheless, the future U.S. economy is likely to look different than its pre-pandemic form. When we return to “normal” that normal is likely to look different from the past “normal”. In “What the Post-Pandemic Economy Will Look Like” Forbes anticipates that:\
- The main long-lasting impact of Covid-19 will be the acceleration of the shift to remote work. Pre-pandemic, roughly 5 percent of full-time employees with office jobs worked from home, a figure likely to settle at 20-30 percent in the new normal…. This will have massive ripple effects, including reducing demand for business travel, impacting the hotel and transportation industries, especially air and train transportation.
- The retail apocalypse, in which brick-and-mortar retail increasingly gives way to e-commerce, is here.
- The acceleration of the shift to online activities and the destruction of less efficient companies, as well as the pressure to cut costs in a recession, will lead to a major boost in automation and efficiency-improvement and a lower demand for workers.
- A drop in demand, and the corresponding wage stagnation, will hit especially hard in several ways: Demand for workers in the social-distancing related industries will decline as they become more efficient; routine office jobs will be automated faster; there will be fewer sales jobs, especially in brick-and-mortar retail; likewise there will be less demand for in-person customer service jobs in restaurants, for construction workers, and for higher education workers. Lastly, more white-collar jobs will be offshored.
- a more negative impact on the demand for less-educated workers than on professionals. But at the same time, the long-run trend of much lower growth in the supply of less educated workers will continue.
- The bad news overall is that the economic scars of the pandemic are not only likely to linger for years but also exacerbate the decades-long trend of rising income inequality.
For more projections about what the post-pandemic economy and society may look like, see the following:
“Re-imagining the post pandemic economic future” McKinsey and Company
“The ABCs of the post-COVID economic recovery,” Brookings Institute
“What will the new post-pandemic normal look like?” The Harvard Gazette
Resources:
“The Pandemic’s Effects on the Economy, Part 1 – Where We are and Where We’re Going”
