Wonking out: Alexander Hamilton and post-COVID America
By Paul Krugman
In the spring of 2020, the U.S. economy went into what I described at the time as a “medically induced coma”: We shut down much of the economy in an attempt to limit the spread of the coronavirus. This was, in retrospect, a wise policy that should have been followed much more thoroughly. After all, by slowing the spread of the virus, we didn’t just avoid overwhelming the health care system; we also bought time for the development and dissemination of vaccines so that tens of millions of Americans who would have been infected without the lockdowns ended up dodging the bullet.
But there was a huge initial cost in terms of reduced employment and, to a somewhat lesser extent, reduced gross domestic product. Many analysts expected a sluggish recovery at best — similar to the sluggish recovery from the 2008 financial crisis. In fact, we seem to be bouncing back quickly as some of us predicted we would. (Sorry, I just pulled a muscle patting myself on the back.)
But will the post-COVID economy look the same as the pre-COVID economy? Probably not — for reasons originally laid out by none other than Alexander Hamilton in 1791.
The founding father’s “Report on the Subject of Manufactures” is widely regarded as the first important statement of what came to be known as the “infant industry” doctrine. At the time, the young United States was an overwhelmingly agricultural nation, relying on imports — mainly from Britain — to satisfy its demand for manufactured goods.
However, Hamilton argued that U.S. industry would be able to compete with British industry if domestic manufacturers were given the opportunity to gain experience — that once Americans had seen that industry could be profitable, once they had had the chance to gain manufacturing experience, a U.S. industrial base would become self-sustaining.
So Hamilton called for, among other things, temporary tariffs to protect U.S. industry and give it time to become competitive. Economists then proceeded to spend the next 220 years arguing about whether and when infant-industry protection is actually a good policy. But the idea that sometimes temporary protection for an industry makes it competitive in the long run clearly has a lot to it.
What does this have to do with COVID-19? The pandemic produced some extreme forms of de facto infant-industry protection, forcing millions of Americans to work differently from the way they had before. And many, though not all, of these changes are likely to stick; even with the vaccines, many individuals and businesses won’t go back to the way things were before.
The obvious case, of course, is remote work. American workers with traditional office jobs weren’t hit nearly as hard by the pandemic as, say, restaurant workers and seem to be mostly, though not all the way, back to normal.
But they aren’t back in their offices. Office occupancy rates have gone up a bit, but they are still far below normal in major cities, presumably because of the prevalence of working from home.
Many workers will, no doubt, eventually go back to the office. But the past year and a half has shown that much of what used to take place in conference rooms can be done on screens instead, with little loss of effective interaction and big savings in commuting time and personal wear and tear. (I’ve taught a graduate seminar via Zoom; I actually thought that student participation was better than in person, although that wouldn’t have been true in a larger or less-advanced class.)
And we have, of course, all gotten much better at using the tools of remote work — just like Hamilton’s industrialists, whom he expected to get better at manufacturing after a few years’ experience. “You’re still muted” remains a common phrase, but in my experience, anyway, no more than “I’m sorry, could you please speak up” was in live meetings.
And remote work wasn’t the only thing many Americans learned to do during the pandemic. Many others, perhaps millions, learned to do something different — namely, not work at all.
A vast majority of workers idled by pandemic restrictions will go back to work — mainly out of sheer necessity, but also because for many, work is a source of meaning in their lives.
However, forced unemployment gave a significant number of Americans a chance to discover both that they really disliked their jobs and that they can manage financially without them, even without special government aid. Such workers won’t be going back.
This is probably especially true among older workers, who have seen a much sharper drop in labor force participation than prime-age adults.
Many of these older workers were planning to retire fairly soon anyway; now they’ve learned that retirement is a better experience, and the extra money they can earn by working longer is worth less in life satisfaction than they realized. So the pandemic didn’t just provide infant-industry protection to remote work; it also provided infant-industry protection to nonwork among certain groups.
And all of this is OK! The purpose of the economy isn’t to maximize GDP; it is to make our lives better. The time saved and aggravation avoided when people telework rather than fight traffic to get to and from the office isn’t counted in GDP, but it represents a real gain. And although the increased life satisfaction some people get by retiring early and spending more time at home actually comes at the expense of GDP, it makes the nation richer in what matters.
So the post-COVID economy will look different from what we had before. There will probably be a glut of office space, and total employment will probably be a bit lower — Goldman Sachs estimates by around 1 million — than it would have been otherwise, because of early retirement. But these changes will, on the whole, be good things. The pandemic was deadly and costly, but one small compensation is that it gave us a chance to think, work and live differently.