Jul 30, 2022 - Economy

Inflation, recession, pandemic makes for messy reality

Photo illustration of newspaper cut-outs shaped like bursts and arrows pointing in varying directions

Photo illustration: Annelise Capossela/Axios. Photos: FPG, Heritage Art/Heritage Images via Getty Images

There's an air of unreality to the news these days — one perfectly in keeping with the "nobody knows anything" vibe that arrived with the onset of the pandemic in 2020 and never really left.

Why it matters: Recent days have seen a flurry of headlines that feel as though they've been run through an impossibility drive.

  • My job, as a newsletter writer, is to make sense of those headlines and to deliver you a story that explains them. But the honest truth is that there is no such story, and that things are very messy and weird right now — not always in a bad way.

Driving the news: The economy has spent the past six months shrinking, per the official Q1 and Q2 GDP reports. Other data, like gross domestic income (GDI), tell a different story — as does the labor market. The strong dollar cuts both ways, depending on how you look at it.

What's happening: In Washington, the announcement on Wednesday that the Inflation Reduction Act would likely pass the Senate upended all manner of conventional wisdom. Among the impossible things that happened:

  • Senator Joe Manchin went from fickle obstructionist to master tactician overnight. Larry Summers became a hero to the left.
  • America has some claim now to be a climate leader, should this bill pass and succeed in reducing U.S. carbon emissions to 40% below 2005 levels by 2030.
  • The global 15% minimum corporate income tax is now back on the front burner — and there's a decent chance that the carried interest tax loophole, much beloved of private equity and venture capital executives, will finally be abolished.

The big picture: The pandemic precipitated an epistemic crisis, as well as a medical one. To this day, the amount we don't know about the SARS-CoV-2 virus is enormous, and the uncertainty around economic and financial issues is just as large.

Between the lines: Inflation is creating cognitive disconnects everywhere. Second-quarter growth came in at an annual rate of $24.9 trillion, for instance, up 2% from the $24.4 trillion seen in Q1 and up more than 9% from the $22.7 trillion a year previously.

  • A mature business that saw revenues rise 2% in 3 months and 9% in 12 months might be thought to be doing OK. But after accounting for inflation, Q2 GDP declined by 0.2% quarter-on-quarter, which is definitely not good (although it could yet be revised upwards).

The bottom line: If you are clinging to a simple narrative that explains the current situation, where a character like Vladimir Putin or Joe Biden or Jay Powell is determining the outcome of the global economy, you are wrong.

  • Everything is in a messy flux right now, and no one is holding the reins.
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