real-world economics review, issue no. 97 subscribe for free
A black-swan shock exposes the deep fissures, endemic imbalances, and structural weaknesses of the U.S. economy John Komlos [University of Munich, Emeritus] Copyright: John Komlos, 2021
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Abstract For years President Donald Trump touted how strong the U.S. economy became under his leadership, and a chorus of sycophants, pundits, and economists echoed that narrative. It did appear to be true superficially: after all, the official unemployment rate was at a record low, while the stock market was at a record high, and average incomes were actually growing. However, seeming is not being. The economy seemed strong if one overlooked the deep fissures, endemic imbalances, and structural weaknesses indicative of an economy vulnerable to large unforeseen shocks. Thus, the coronavirus pandemic struck an economy so off balance that its impact was magnified. JEL: A10, E02, E39, G10, H10 Keywords: Coronavirus pandemic, Covid recession, black-swan robust society, real unemployment rate
Introduction The c ace idi , a ib ed he ege da i e , Wa e B ffe , I he he ide g e ha ea h bee i i g aked, i a i id a a f i a i , f he Covid pandemic of 2020 found the U.S., as well as much of the world, swimming naked, i.e., unprepared for ee i g he cha e ge i ed. T be e, B ffe a i a a b i e c ce b b the 21st century it seems like these have morphed into black-swan shocks, inasmuch as ordinary inventory cycles, trade cycles, or demographic cycles have vaned in significance and have been overtaken by low-probability extremely-high impact events that are often referred to using the metaphor f a b ack a (Ta eb 2007). 1 Yet, in the 21st century U.S. such low-probability disasters have been appearing with uncanny frequency: the Dot-Com bubble, 9/11, the financial meltdown in 2008, and then the coronavirus pandemic.2 Hence, economists should take the threats such shocks pose to the system much more seriously than in the past and explore ways to create what Nicholas Taleb called a blackswan robust socio-economic system in which we would be less vulnerable to their devastating impact (Taleb, 2009).3 Ad i ed , hi i he i e ec i d i . The i ha e e hi k e i a concepts including efficiency, for instance, insofar as from now on we will need to think about maximization subject to the constraint that radical uncertainty looms in our future. They will also have Acknowledgements: Comments from Kevin Albertson, Charles L. Allen, William Galose, Justin Holt, Paolo Ramazzotti, Gian Cesare Romagnoli, Domenic Scalera, and André Pedersen Ystehede on an earlier version of this paper are greatly appreciated. All possible e ai i g e i i a e, f c e, he a h a e. 1 The metaphor arose because black swans were unknown in Europe before the discovery of Australia. 2 In addition, there were numerous devastating events of regional significance, including Hurricanes Maria, Katrina, Harvey, and Sandy, tornadoes, and wildfires. In the last two decades these regional catastrophes claimed upwards f 6,000 i e a d ca ed da age f $600 bi i . Wiki edia c ib , Li f di a e i he U i ed S a e b dea h . 3 Threats in the foreseeable future include global environmental degradation, hostile artificial intelligence, and the endemic U.S. national debt, domestic terrorism, not to speak of the possibility of untoward acts of adversaries around the globe.
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