My City January 2022

MYECON

A 2021 Economic Wrap-Up BY DR. CHRISTOPHER DOUGLAS

If the 2021 economy could be summarized in one word, I would say it is “disappointing.” Vaccine development and deployment has far exceeded expectations since the pandemic began; anyone who wants a vaccine can get one! e economic recovery in the face of this, however, is far below expectations. Gross domestic product (GDP), which is the value of all ™nal goods and services produced in the economy, remains $327 billion below potential. is means that the economy is producing $327 billion fewer goods and services than it could if all productive resources were utilized. is is especially disappointing, in that given the slow recovery following the Great Recession, GDP had only returned to potential in 2018, before falling signi™cantly below it during the shutdown. A big reason why GDP lags below potential is that many of the jobs lost during the shutdown have not yet returned. Prior to COVID, there were 152.5 million jobs in the economy. In November 2021, there were only 148.6 million. us, total employment is 3.9 million jobs lower than what it was in February 2020. Fewer people working means fewer goods and services produced. e reason for this is that there are 11 million job open- ings in the economy not being ™lled, a record high number. In a normal economy, there are roughly seven million job openings due to things like resignations, ™rings and new jobs being created. us, there are four million more job open- ings than what would normally be expected. If these surplus job openings were ™lled, employment would return to its pre-COVID level, labor market shortages would be resolved and GDP would return to potential. e reason these job openings are not being ™lled is that many workers who exited

the labor force during the shutdown have not yet returned. Labor force participation, which is the percentage of the population working or looking for work, has only regained half of its losses experienced during the shutdown. is is not the situation in Canada, where both total employment and labor force participation have returned to pre-COVID levels. At 6.8% in November, in€ation is at a 40-year high and is four times higher than pre-COVID levels. Various excuses have been made for the rising in€ation, namely it was due to “base e…ects” (e.g. prices quickly rising after falling during the shutdown) or that it is “transitory.”Now, both the Federal Reserve and Secretary of the Treasury have admitted that the in€ation is not transitory and thus, is permanent. is should not have been a surprise to anyone, given that in€ation comes from new money being created and then spent. is is what has happened over the past 22 months, with the money sup- ply being doubled to fund three rounds of COVID relief plus other spending. If this goes on, in€ation will continue. With a safe and e…ective vaccine being widely avail- able, life should be returning to normal. e fact that this is not happening does not bode well for the future. ®

alphaspirit / stock.adobe.com

Dr. Christopher Douglas came to the Univer- sity of Michigan-Flint in 2006. He earned a B.S. in Electrical Engineering and a B.S. in Economics from Michigan Technological Uni- versity in 2001, and his Ph.D. in Economics from Michigan State University in 2007. As

Associate Professor and Chair of the Department of Economics, he teaches Principles of Microeconomics, Principles of Macroeconomics, International Economics, Public Finance, and Sports Economics.

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