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In this episode of Berkeley Talks, Martha Olney, a teaching professor of economics at UC Berkeley, discusses the economic forecast — how the post-pandemic U.S. economy might compare to that of the so-called roaring ‘20s.
“When I studied the 1920s, I was really focused on consumer spending, particularly household spending for durable goods — cars, appliances, furniture, jewelry — and the role of installment credit in making a boom in consumer durables possible,” Olney said on UCLA’s Forecast Direct in January.
But, she said, today, much of the nation’s consumer spending is on services — going to restaurants, getting a haircut — which lengthens the time it takes to recover from a recession.
“There’s a little bit of optimism that starts, and production picks up, and then people get jobs,” she explained. “And when they get jobs, they can go out and they can go shopping. And when they go shopping, that creates jobs for somebody else. And they can go out, and they can go shopping. We get our standard Keynesian multiplier.”
However, she said, what starts that process has to be the production of goods because they can be produced ahead of demand, not consumed in the same moment as they’re produced, as services are.
“The services that are produced are only produced when the demand exists. And so, as an ever-increasing share of an economy is based on services, that share of the economy has to wait for the recovery to take hold in order for the recovery to continue taking hold. But the recovery starts with the goods sector. If we had today the mix of goods and services that existed half a century ago, recoveries would be 40% shorter.”
Listen to the full discussion in Berkeley Talks episode #106: “Will the post-pandemic era be the next ‘roaring ’20s’?”