Another form of consumption-stinting simply has been the recognition of uncertainty moving forward. Most experts do not expect another immediate Covid development comparable to the delta wave. Still, we are now all acutely aware of these risks. That makes it harder to plan, for both businesses and households, which translates into fewer opportunities.
During the pandemic, the federal government has spent trillions of dollars in stimulus, to smooth incomes and limit the economic pain. Even if you disagree with many of the details of those policies, or think (as I do) that they were excessive, it’s hard to argue against the basic principle: In directional terms, it was the proper response. In essence, the stimulus policies limited the decline in consumption during 2020 and 2021. Or rather, the stimulus shifted much of that decline to the future.
That future is now arriving. In the long run we are all dead, Keynes famously said. What he didn’t say, but I will, is that in the medium run our wages have not yet caught up with inflation. Both statements are accurate—but right now, it is the medium run that is more vivid in the eyes of most Americans.
Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include The Complacent Class: The Self-Defeating Quest for the American Dream.