President Biden and his economic advisers keep highlighting the economic crisis Biden inherited. This narrative may only last for another month or two.
It’s true Biden took office in January amid a grueling retrenchment that has torched 10 million jobs since last March. Coronavirus shutdowns have all but wrecked the travel and hospitality industries, with retailers struggling to adapt as well. Small businesses, independent contractors and lower-income service-industry workers are suffering the most.
This is the rationalization for Biden’s $1.9 trillion American Rescue Plan, which seems likely to pass in March. Congress may not approve the entire amount, but there will almost certainly be another $1,400 check, or more, for most families and an extension of supplemental unemployment benefits. The final price tag could be around $1.5 trillion. That would boost the total amount of fiscal stimulus during the last year to nearly $6 trillion, by far the most aggressive federal response to a recession since the 1930s.
Then, the boom will arrive. A variety of indicators are beginning to foretell a surge in economic growth, and the consequences of that. Retail sales surged 5.3% in January, much more that expected. One factor boosting spending was the $600 stimulus checks that went out to most homes in early January, as part of the late-2020 stimulus bill. Business spending picked up, as well, not surprising since CEO confidence recently hit a 17-year high.
With even more stimulus cash likely to hit mailboxes soon, economists are raising their forecasts for GDP growth. From Feb. 12 to Feb. 19, the New York Federal Reserve’s estimate of first-quarter GDP growth jumped from 6.7% to 8.3%. Forecasting firm Capital Economics expects full-year real GDP growth of 6.5% in 2021, which would be the strongest since 1984. “There is no recession,” says former Congressional Budget Office Director Douglas Holtz-Eakin. “The economy is growing strongly.”
Covid vaccinations are another bullish indicator. Biden says ample vaccines could be available by July, and other health experts think herd immunity could arrive sooner. That could bring a quicker revival of the gasping parts of the economy.
It’s a legitimate question whether the Biden rescue plan is going to be too large. In addition to adding an extra trillion dollars plus to the national debt, too much stimulus can cause unintended and unwelcome consequences. There’s been a lot of discussion of whether too much fuel will overheat the economy, possibly causing excess inflation or asset bubbles. If the Federal Reserves needs to counteract such problems, it could raise interest rates prematurely, choking off a recovery before everybody has recovered.
But the Biden stimulus plan seems certain to happen no matter what, with Treasury Secretary Janet Yellen and other heavyweights arguing it’s the best way to improve on the recovery from the 2008 recession, which took way too long. So by summer or fall, barring surprises, the economy could be roaring ahead like a cartoon Joe Biden smiling in a shiny convertible, behind his gleaming aviators.https://flo.uri.sh/visualisation/4252243/embed
The one lag is likely to be employment. Businesses no longer lay people off during a downturn, then hire them all back to do the same work when things pick up. Many businesses will be gone once the recovery kicks into gear. Others will have seized the opportunity to automate and replace employees. Work routines will obviously be different. Consumers have developed new habits and expectations. Some of the 10 million workers who have lost their jobs will struggle for months or years to find work they’re qualified to do, in a place where they can afford to live.
The political calculus behind the huge Biden relief plan probably anticipates all this, along with the 2022 midterm elections. Biden’s Democratic party will probably be in a strong position approaching the 2022 midterms, when they’ll be trying to enlarge very narrow majorities in both the House and the Senate. GDP could reach pre-pandemic levels this year and rise comfortably above them by next year. Housing should remain strong and the stock market ought to remain buoyant as long as the Fed stays loose.
Jobs will be the last piece of the puzzle to fall into place, and Biden may view his relief bill as an insurance policy to make as many voters as possible better off during the next 18 months. Happy days may soon be here again, and after a year of misery, Americans may not care how or why things got better.