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When will it stop being the 'pandemic economy?'

AILSA CHANG, HOST:

We've been reporting regularly about the many issues facing the U.S. economy, like labor shortages, inflation, supply chain disruptions. When they first arose amid pandemic-related shutdowns back in March 2020, we asked economist Austan Goolsbee what it would take to get the economy back on track.

(SOUNDBITE OF ARCHIVED NPR BROADCAST)

AUSTAN GOOLSBEE: The most important thing in a moment of virus economics is to slow the spread of the virus. But then the second is, how much permanent damage is done for however long we're shutdown?

CHANG: Well, we wanted to know what he thinks now. So we called the former chief of President Obama's Council of Economic Advisers, Austan Goolsbee. Welcome back to ALL THINGS CONSIDERED.

GOOLSBEE: Thanks for having me back.

CHANG: So, you know, when we talked to you back then, we talked a lot about the need for the stimulus packages to prevent permanent damage to the economy. What do you think now? Is the economy permanently damaged?

GOOLSBEE: You know, I at least feel good that I don't sound crazy. From the beginning, many of us were saying by far the most important thing for the economy is get control of this virus. And we've seen, after all these months, it's still the case that whenever the virus comes surging back, the economy goes back in the tank. I continue to think it's not permanent damage. Maybe that's converting into a hope that it's not permanent damage, but the fact that for the first half of this year, when we got control of the virus and it was improving, you saw really rapid, robust, booming economy. The economy wants to come back. We just have to give it the conditions that we can go back to spending money on services.

CHANG: OK. Well, then, let's take some of the most important factors that are concerning about the economy right now. Let's start with inflation. Explain how the pandemic keeps driving up prices.

GOOLSBEE: The pandemic's driving up prices in a bunch of sectors that were heavily affected by the pandemic. And so when demand comes booming back in areas where they can't satisfy the demand in the short run, you're going to get inflation. It's not unlike our discussion back in March of 2020 about toilet paper shortages. You know, there's a huge increase in demand for residential toilet paper as everybody's staying home. That's driving the price up. It's getting stocked out. And that's pandemic-created inflation in a microcosm. That same thing is happening now.

CHANG: OK. Let's talk about that production capacity because we are seeing these, like, huge bottlenecks in the supply chain right now. Explain how those bottlenecks are driven by the pandemic.

GOOLSBEE: I think of it as two ways this is happening. One is every country is trying to come back very rapidly, all at the same time. And the global supply chain is not really equipped for massive fluctuations like that. And then the second thing is that the pandemic shifted what we buy away from services, which is what we spend most of our money on, to physical goods...

CHANG: Right.

GOOLSBEE: ...TVs, furniture, cars. And until our demand is able to go back to services, i.e., the virus goes down so you can, whatever, go out and get a massage, go to a restaurant - until that happens, we're still going to be dealing with excess demand compared to the capacity. And that's leading supply chain shortage.

CHANG: Well, as an economist, I'm wondering if you would like to make a prediction on when all of the stuff we're talking about with the economy will settle down.

GOOLSBEE: I think it's at least going to be months, and it's going to be annoying. You're still going to go to the store, and there are going to be various things that you can't get. And I'm sure that there will be new ones that show up that we haven't even thought of yet. So I anticipate at least six months of grumpy.

CHANG: (Laughter).

GOOLSBEE: But hopefully within the year, we'll be growing faster than normal because we're catching back up.

CHANG: All right. I am bracing myself for several months of grumpy.

GOOLSBEE: (Laughter).

CHANG: Austan Goolsbee is a professor at the University of Chicago Booth School of Economics. Thank you very much for speaking with us.

GOOLSBEE: Yeah. It's always a pleasure. Thank you for having me. Transcript provided by NPR, Copyright NPR.

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