By James Pethokoukis

What lessons or big-think economic conclusions might we draw from the stunning events of the past two and half years: global pandemic, economic shutdowns and reopenings, war in Europe, the biggest inflation surge since the 1970s? Perhaps the cumulative impact of these events will cause a sea-change in economic thinking. Speaking of the ‘70s, that decade’s volatility and stagflation “discredited the mixed economies of the postwar era [and] paved the way for the market-liberalizing transformations pioneered by Margaret Thatcher and Ronald Reagan,” notes Financial Times columnist Martin Sandbu in a recent column. “For now, 2022 feels like a 1945 or 1979 kind of moment—a historical hinge point or paradigm shift.”

So to what, exactly, might we be swinging or shifting? Not surprisingly, Sandbu suggests the possibility of a return to bigger and more intrusive government. If the past four decades was about liberalization, then a shift to a new governing philosophy would naturally be about the opposite. The State strikes back! From the FT essay:

Energy prices, the rising cost of living and worsening tensions in labour relations are fuelling calls for the government to come to the rescue. The economic ailments that in the 1970s led the state to withdraw are today dragging it back where, for almost half a century, it has feared to tread. . . . Government-administered prices are now the order of the day, from car and heating fuel to electricity and, of course, carbon emissions. The pressure for windfall taxes on fossil fuel companies seems irresistible, and governments across Europe are digging deep into their coffers to help hard-pressed households. . . . Even direct cash payments to households, with few strings attached or none, are in vogue, in an echo of the North American experiments with universal basic income in the 1970s.

While such analysis is Eurocentric, plenty of it applies to the US. A few examples that come to mind. Just this year, there have been legislative proposals to prevent “price gouging,” institute a “windfall” profits tax on energy companies, and bar Big Tech companies from favoring their own services in ways deemed anticompetitive by government. Moreover, all the government COVID-19 relief spending has some on the left suggesting massive and permanent income support. The check sending should start up again and never end. And don’t worry about paying for any of it; deficits don’t matter. (But of course, if you want to punitively crank up taxes on rich people and companies, feel free to do so.)

Yet count me skeptical about this supposed Vibe Shift. Yes, government action during the pandemic years helped foster rapid growth and jobs recoveries. But we’ve all seen the poor performance of government bureaucracies and the inflation impact of huge spending packages. And on the other side, the pandemic shows the value of the private sector, whether Amazon logistics or Moderna and Pfizer vaccines. (One might also mention SpaceX returning America to orbit on American rockets.) Maybe this hinge of history moment will involve a re-embrace of late 20th century liberalization.

The post What Sort of Economic ‘Vibe Shift’ Is America Really Facing? appeared first on American Enterprise Institute – AEI.