Opinion: Why we should stop waiting for the pre-COVID economy to return

For those waiting and hoping to see the economy return to pre-COVID levels of activity, recent employment data, while showing considerable strength, must be discouraging.

The data are reminiscent of American novelist and playwright Gertrude Stein’s comment following a disappointing visit to Oakland, her childhood hometown, where she had hoped to see familiar sites from long ago: “There is no there there.”

In our case, rock-solid employment growth in manufacturing and goods activity just isn’t there. Instead, employment activities supported by federal spending and debt, such as health care and government work — along with a recovery of the dining-out industry — are looking pretty good. But surprisingly, the best news might come on the entrepreneurship front.

Yes, you may be thinking, total employment has recovered, real wages are rising and the unemployment rate is comfortably low. But during the last year, just three industries — “Leisure and Hospitality,” “Government,” and “Health Care and Social Assistance” — account for 75% of the payroll employment growth tracked by the Bureau of Labor Statistics.

The latter two are dependent on federal funding, which means increased federal debt (which has jumped from $23.1 trillion in early 2020 to about $35.4 trillion). Prior to the pandemic, these same industries explained only 45% of growth.

But here’s the thing: It’s a mistake to expect the economy to generate a repeat of pre-COVID activity. That world is gone. We get a slightly different economy every day. After many days and years, the one at hand is far different, better in ways, than what we had in 2019.

Harking back to Stein, there’s a new “there” there. This one has much to do with an explosion in small-business startups.

You might be surprised to hear that the boom in new business applications that began during COVID, in part because a lot of workplaces were shuttered and people had to make a living, is still going strong. In 2020, the number of these applications jumped from an ongoing level of about 300,000 per month to over 400,000. The higher pace has continued. In November, the Department of Commerce recorded 448,000.

Of these, some 28,000 are expected to have a payroll in four quarters. Interestingly, the individuals involved aren’t counted as additions in the BLS employment report. They are providing jobs to themselves or others and are not on a payroll.

Of course, most of these tadpole companies don’t make it to maturity, but many do. The growing number of firms that flourish is the source of America’s future prosperity. Remember, not too many years ago, Amazon, Dell, Microsoft, Starbucks and Nvidia were startups.

A recent McKinsey Global Institute analysis indicates that small businesses with fewer than 500 workers produce almost 40% of value added nationally and grow into a meaningful share of very large corporations. Those same smaller firms over the past 25 years produced almost 50% of U.S. industrial output.

More to the point, a National Bureau of Economic Research study indicates that the count of new business applications predicts improvement in GDP growth with considerable accuracy. There’s more to this story than just numbers. It’s for real.

There’s a new “there,” and thanks to startups, it looks pretty good. All this suggests the future could look even brighter.

Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and former executive director of the Federal Trade Commission. ©2025 Tribune Content Agency.