Well, here we are. We made it through an entire pandemic year…even if it felt like a decade.
2021 brought the United States a new president. We saw the deployment of vaccines and development of new viral variants. Supply chains faltered, economies sputtered, and inflation has reared its head. Too many parts of the world experienced natural disasters. Countries convened to address the climate crisis. A boat got stuck in the Suez Canal!
At the Peterson Institute for International Economics (PIIE), (virtual) scholarship never ceased. The pandemic, especially vaccine manufacturing and distribution, held our attention, but so did inflation, taxes, monetary policy, climate, and more. Of course, we also kept an eye on trade, regularly updating our US-China Trade War Tariffs chart, US-China phase one tracker of Chinese purchases of US goods, and Trade War Timeline.
Here are the most read pieces we published on our site in 2021.
In January, Peter R. Orszag, Robert E. Rubin, and Joseph E. Stiglitz warned (presciently) that current low interest rates may not last forever. Uncertainties about future interest rates and their impact on government borrowing call for a cautious approach to fiscal deficits. Unpredictable factors like global shocks and climate change require greater use of budgetary "automatic stabilizers" that self-activate in response to economic distress. The authors endorsed fiscal stimulus through 2022 but disagreed over policies if and when circumstances change in later years. They supported a "permanent" infrastructure program focused on projects that could be quickly undertaken to stabilize economic fluctuations and avoid destructive cuts or delays during recessions.
As part of a 2020–21 research series on the Korean economy, Jacob Funk Kirkegaard wrote that the limited fiscal impact of COVID-19 is fortuitous for South Korea, as the pandemic coincided with the country's rapidly shrinking working-age population and rapidly accelerating aging. South Korea had the lowest fertility rate of any advanced economy in 2020, which Kirkegaard says is a drag on the economy. But government action to increase fertility levels is likely to be modest.
Chad P. Bown and Tom Bollyky from the Council on Foreign Relations wrote in August about how COVID-19 vaccine supplies remained limited even though the vaccines had been approved for public use for months. They mapped the supply chains for Pfizer/BioNTech, Moderna, AstraZeneca/Oxford, Johnson & Johnson, Novavax, and CureVac. Their research demonstrated that each major vaccine relied on multiple supply chains as production expanded, in part because manufacturers feared that governments would restrict exports. The United States and United Kingdom funded vaccine development early to help manufacturers minimize risk. Other governments dithered and administered funds too narrowly, slowing the process. More investment in input production and better monitoring could have eased delays.
Jason Furman's analysis of the May jobs market found that the labor market, as evidenced by record job openings and growth in average nominal hourly earnings, was running hot, but still an unusually low number of people were transitioning from unemployment to employment—a flow that should be at or near record levels given the overall labor market. His analysis of the April jobs market was also popular this year. You can read his most recent analysis, of the November jobs market, here. Stay tuned for the December jobs numbers and an overall 2021 analysis coming in January.
Jean Pisani-Ferry wrote in August that one way or another, decarbonization will put a price on a resource that used to be relatively free, forcing an economic adjustment that will raise prices and trigger labor reallocation and other adjustments in carbon-intensive economic sectors, including autos, heavy industry, and transport. Years of procrastination have produced a painful choice between an abrupt transition and catastrophic climate change. The building of a carbon-free economy will bring a surge in investment to replace old carbon-based processes, while lowering consumption and putting pressure on public finances. A tradeoff looms between short-term sacrifice and future wellbeing. Macroeconomists must devise strategies that soften the blow of these challenges.
Despite a health catastrophe and one of the worst economic downturns in modern history, startup business activity grew in the United States in 2020—business startups grew from 3.5 million in 2019 to 4.4 million in 2020, a 24 percent increase. The authors found entrepreneurship in the United States increased during the pandemic more than in any other advanced economy. Changing customer preferences, government programs and administrative processes to help new business formation, and reduced opportunities in the wage sector encouraged entrepreneurship and fueled a rise in new business applications.
School closings and ongoing childcare challenges have been a tremendous source of stress for parents during the pandemic. Jason Furman and coauthors in May asked a specific, empiric question: How has parenting affected the aggregate employment numbers over the course of the pandemic? They found that despite the widespread challenges facing parents across the country because of school and daycare closures, excess employment declines among parents of young children were not a driver of continuing low employment levels. The pattern also held when looking only at women, indicating childcare issues that have pushed mothers out of the workforce account for a negligible share of the overall reduction in employment since the beginning of the pandemic, adjusting only for age differences.
In March, Chad P. Bown and Tom Bollyky proposed an enforceable COVID-19 Vaccine Investment and Trade Agreement to coordinate governments in strengthening and expanding the global infrastructure of labs and manufacturers that produce specialized inputs for COVID-19 vaccines. A global coordinating body could help some countries increase production of early stage ingredients and critical equipment, thereby encouraging other countries to subsidize expansion of later vaccine production steps. The US Operation Warp Speed, with its elaborate network of incentives, could serve as a model for the rest of the world.
Shortly after the Biden administration took office, Chad P. Bown wrote about year one of the US-China phase one deal President Trump signed in January 2020 and what year two could look like. According to evidence from the deal's first year, China was never on pace to meet the purchasing commitments, with the economic devastation of the COVID-19 pandemic only partly to blame. US manufacturing had suffered from the trade war Trump waged with China and never fully recovered. US agriculture also suffered but received subsidies and did recover. Energy commitments were undercut by legal and climate complications.
Bown has been tracking China's monthly purchases of US goods, updated regularly, through October 2021 here. China has fulfilled roughly 60 percent of the commitment.
The most read piece published this year is Olivier Blanchard's February warning about the risk of inflation in 2021. He discussed the size of the output gap (i.e., the gap between actual and potential output in the economy), the size of the multipliers (i.e., the likely effects from the stimulus), and how much inflation an overheating economy may generate. Blanchard reached two likely scenarios: one in which the Fed would let inflation increase, and another in which the Fed would tighten monetary policy. It's not quite an "I-told-you-so," but in November Blanchard took stock of inflation over the course of 2021 here.
1. The blog at #5 is by Simeon Djankov, former senior fellow at PIIE, and Eva (Yiwen) Zhang, former research statistician and quality control coordinator at PIIE, who joined Bridgewater as a research associate in November 2021.