Economics: Post-Covid lessons from post-WWII

The current macro environment is reminiscent of the post-WWII period

Consumer spending boomed after WWII but ran into supply-side constraints. Factories were slow to reopen after the war and large numbers needed to be re-incorporated into the labour force. Inflation spiked, but it quickly came back down.

The global economy saw regime shifts across several dimensions

Governments used fiscal policy more actively to target full employment. Central banks aided this shift, but large balance sheets compromised their use of monetary policy. At the same time, the global economic system fractured into East and Western blocs.

This period offers several important lessons for the next few years

The post-war period should remind us that inventory cycles inject volatility into activity and inflation in both directions; that disruptive events can help reshape economic geography; and that the policy response to these events can have long-lasting effects.