As we knew, GDP in the US rose 6.5% in the second quarter of this year. Though the number is not as good as street expected, it signifies that the US economy has emerged out of recovery and now it is in expansion. The economy has surpassed its pre-pandemic level. While the economy growth is largely dependent on the evolving path of the coronavirus, especially its mutation delta and possible more deadly variances, we can reasonably hope that the pandemic is under control and is being managed in the US and other major economies in the world, thanks to vaccines with high efficacy and tight government measures in place.
With that the after mass and consequences from this pandemic become clearer.
First, inequality is accelerated, reflecting the differences in adaptability to changing, especially severe environment among people with different job skills, knowledge levels and economic sectors. In the second quarter, with economy expanded, the employment is still under 7 million compared with the pre-pandemic level and most of the unemployment is with low income and minorities. With the current job expansion rate, it will take about a year to make up 7 million jobs.
Second, the pandemic disrupted the process of normalization in monetary policy that was twisted by the financial crisis in 2008. Policy interest rate went back to low zero bound, and asset purchase became a primary control approach. More importantly, monetary policy lost its maneuverability – range of changes that is needed. Zero interest rate can erode the timing value of money and push money to stock market to seek returns, and increase the risks of financial crisis.
Third, the increase of public debt. Government, in response to health crisis and closure of economy, has to provide trillions of dollars fiscal stimulus. The US government debt has increased by about 5 trillions in less than two years, and more stimulus packages are under discussions. The stimulus is necessary in a civilized world to help those unfortunate and less adaptable people. However, high debt motivated the government to choose higher inflation and lower yield as a long term policy target. Higher inflation erodes debt obligation for those who are in debt, however, reduces purchase power for consumers and therefore lower overall living standard. That is likely the prices we will have to pay for the after mass of this pandemic.
Fourth, economic transitions occur upon major social events. I think four “new economies” are either accelerated or emerging. They are Digital Economy, Climate Economy, Health Economy and Space Economy. Among them, the Digital Economy has been accelerated in the past two years, as represented by Apple, Facebook, Google, Zoom …… collectively reflected in the sizeable rises of NASDAQ index since the beginning of the pandemic. Climate changes are of more evidences and its main representative in the economy is electrical vehicles such as Tesla. Power generations rely less on fossil fuels and more on renewable. However I think a true revolution, has to be an energy storage technology that is yet to come. Once energy density in batteries is high enough, solar power is the ONLY power generation that is needed, and power lines on our streets and long transmission lines in rural areas will be removed. In health economy, biotech is my focus. mRNA is a major contribution to the development of COVID-19 vaccines, the same technology yet to be extended to vaccines for other diseases, such as AIDS and cancers. Gene editing is another exciting area that could have huge impact on us in health repair, in life extension and subsequently in our morality. Space economy includes space tour, space travel, and human colony of other planets.
In summary, I think we should keep positive life attitude any time. I admire Warren Buffet and especially like what he says that “human potential is enormous”.