“It’s a Jackson Browne Economy: Running on Empty”

"Running on Empty," Jackson Browne's 1977 hit, was about a feeling everyone knows: running on fumes. That feeling describes today's economy. Fiscal relief, excess savings, an AI-driven investment boom, and a Federal Reserve with room to respond kept the post-Covid expansion going through six years of shocks.

Now those cushions are spent.

The Iran war did not arrive at a resilient economy. It arrived at an exhausted one.

That war is now in its second month. The Strait of Hormuz -- through which about 20 percent of the world's oil normally moves -- remains effectively closed. Friday's jobs report showed 178,000 new jobs in March, a headline stronger than the underlying trend. On a three-month basis, job growth is closer to stall speed than the headline suggests: February's revised loss of 133,000 both drags the average down and flatters the March comparison. Much of the health-care gain came from Kaiser Permanente strike workers returning to payrolls.

Since the conflict began, oil has surged past 100 dollars a barrel and Treasury yields have climbed roughly half a point. The S&P 500, at an all-time high just weeks before the first strikes, has fallen more than 6 percent. Goldman Sachs, one of the more measured houses on Wall Street, now puts the 12-month U.S. recession probability at 30 percent and rising.

Survival Is Not the Same as Strength

Six years. Six shocks: inflation, rate hikes, a regional banking crisis, a shooting war in Ukraine, and an oil shock. The expansion continues. BCG's Philipp Carlsson-Szlezak and Paul Swartz argued in a recent Harvard Business Review piece that an economy which shrugged off all of that has proven its resilience.

They are right about the record. They are wrong about what it proves.

The economy kept going because it had cushions, not because it was built to last.

In 2022, $5 gasoline arrived while households still had excess savings to draw on, a cushion that absorbed both high interest rates and energy costs at once. Today those savings are gone, and a Federal Reserve seen as unable to cut leaves an exhausted system facing higher debt-service costs with no savings left to fall back on.

The Cushions Are Gone

Four cushions kept the post-2020 economy aloft. Each is now largely gone.

Fiscal policy did the first job. Between 2020 and 2021, the federal government deployed roughly 5 trillion dollars in relief, creating an income floor that held consumption steady through the inflation spike and the rate hikes that followed. That support is gone.

Household savings did the second. The Federal Reserve Bank of San Francisco estimated that excess pandemic savings peaked at 2.1 trillion dollars in August 2021 and were fully depleted by March 2024. The personal saving rate, which averaged around 6 to 7 percent in the four years before the pandemic, has since fallen below that level. Households have far less capacity to absorb a new cost shock than they had when the earlier shocks arrived.

Investment momentum was the third. AI data centers and infrastructure spending pulled hard through 2024 and into 2025. That pipeline continues, but the surge that drove it has slowed.

Monetary room was the fourth. When earlier shocks hit, the Fed had room to cut rates and did. It still has room in principle. What it does not have is the ability to act. With energy-driven inflation above target and bond markets pricing out cuts, that constraint is not going away.

This was cushioning, not toughness. Remove that cushioning, and the channels through which shocks travel compound unchecked.

The Pressures Compound

Misreading survival as strength is not the only trap. The more dangerous one is treating those channels as though they operate independently. A drag on real wages from higher energy costs is one thing. When it arrives simultaneously with a 5 percent equity drawdown, wider borrowing costs for businesses, and a Federal Reserve that cannot respond, it is another thing entirely.

These are not hypothetical risks. They are live conditions, and they are still deteriorating as the Middle East war enters its second month.

We have seen this before. In 1990, a slowing economy, a moderate energy shock, a confidence collapse, and credit tightening from the savings-and-loan crisis arrived within months of each other. No single channel caused the recession. Their convergence did.

Today's mix -- higher energy costs, falling equity prices, tighter credit, and a sidelined Fed -- fits the same pattern.

The standard assumption is that households draw down savings to keep spending. For those most exposed to gasoline and heating costs, that option is largely foreclosed. Their liquid reserves are spent. Higher energy costs translate directly into fewer purchases: not a savings rate revision but a spending cut.

The asymmetry runs one way: getting it wrong on the downside costs far more than getting it wrong on the upside.

The Cost of Being Wrong Is Not Symmetric

The question is not whether the Iran war will, by itself, trigger a recession. It is which mistake costs more: preparing for weakness that never comes, or assuming resilience that is no longer there.

If the conflict resolves quickly and the expansion continues, those who prepared for a weaker environment mainly give up upside. They invest later than they could have, hire more slowly, and hold back on plans that turn out to be unnecessary.

If the conflict drags on and a downturn hits an economy with spent cushions, the cost is far higher. Capital committed at today's valuations becomes hard to unwind, and households that assumed the good times would last have little left to fall back on. Even if the most likely outcome is still continued expansion, the cost of misjudging the tail has risen.

Resilience was a condition of this economy. It was built up over years and spent down over years.

The tank is empty. The fuel was never ours.