We may be on the brink of an economic boom unlike any since the end of WWII

October 24, 2021 — Permanent link

I haven't modeled this properly but, as a -very- crude comparative statics only, bottoms-up heuristic, think of the many tens of millions of US white-collar households who, essentially overnight, do not have to spend over a third of their income on transportation anymore, while still receiving the same salary due to wage stickiness — multipliers aside, that consumption shock alone may be on the order of a trillion dollars of newly suddenly disposable middle class income, or ~5% of the US GDP.

Even with a conservative multiplier (and, admittedly, lots of ansätze), my irresponsible guesstimate is a possible economic boom roughly at least half as large as the post-WWII miracle or so (or possibly higher), with possibly 6-9% GDP growth in 2021-22, followed by a likely short contraction due to fed action or 'mean reversion' effects due to overabundance of tulips for two quarters or so, and then followed by a burst of nearly historically unprecedented US GDP growth figures in the (lower) double digits in 2022-23 —which would transform the nation (and, with some lag, the world).

P.D. February 2, 2023 — I missed in retrospect a (possible) extra effect of rising asset prices on household incomes; and underestimated the persistence of inflation and severity of fed action needed. The broader claim still stands.

Miguel I. Solano Weblog

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