Biden’s should be easier to clean up.
The president-elect lacks some political advantages his old boss enjoyed when he prepared to enter the White House amid the financial crisis and Great Recession. President George W. Bush cooperated in the transition to Obama’s administration. And weeks after his inauguration, large Democratic majorities in the House and Senate allowed Obama to swiftly pass a large economic stimulus.
Today, President Donald Trump is impeding the transition and ignoring the surging coronavirus pandemic that caused this year’s recession. Barring an improbable sweep of two runoffs for Georgia Senate seats in early January, Biden will face stiff resistance for his economic agenda from a Republican-controlled Senate.
The economy itself, however, is better-positioned to recover now than it was then. And simply replacing an erratic, fumbling administration with an experienced, serious-minded one — whether Biden gets much through Congress or not — should speed the recovery.
Financial crisis vs. pandemic
The 2008 financial crisis ravaged Wall Street, threatened the banking system, and cast the future of America’s auto industry into doubt. The economy was shedding 700,000 jobs a month as Obama took office, sending unemployment rising to 10% late in his first year.
This year, coronavirus triggered a sudden, deep springtime plunge in economic activity that produced the highest levels of unemployment since the Great Depression. But vast government expenditures cushioned the impact. Re-openings triggered sharp summer snap-backs in output and hiring.
The economy is still short 10 million jobs it had in February. The fall resurgence of the virus threatens to halt the recovery in the remaining weeks of 2020.
Nevertheless, economists agree that the promise of substantial improvement in 2021 augurs a swifter bounce-back than the grinding slog that weighed down much of Obama’s presidency.
“Obama had to tell people it could have been worse,” said Jason Furman, a top White House economic adviser throughout Obama’s presidency. “Biden will be able to tell people it’s gotten better.”
Part of the improvement can come simply from the competent management that Trump has been unable to provide. For White House chief of staff, Biden tapped longtime aide Ron Klain, who ran the Obama administration’s successful response to the Ebola crisis.
Biden has pledged more aggressive and coordinated testing as well as stronger mitigation steps through mandated mask-wearing. He also stands to benefit from the promise of one or more coronavirus vaccines during the first half of 2021.
Vaccine breakthroughs in turn could accelerate the resumption of business activity and unleash pent-up demand for goods and services Americans have set aside this year. There’s no business cycle downturn to reverse.
“This recession is the first that’s caused by something that has nothing to do with the economy,” said Austan Goolsbee, another top Obama economic adviser. “If we get control of the virus, the economy wants to come back on its own.”
The government will also play a role
A new coronavirus relief package could ameliorate the near-term threat of intensified economic suffering. By year-end, millions face the expiration of unemployment benefits and evictions protections from earlier pandemic legislation. Hundreds of thousands of public employees face the threat of layoffs by state and local governments starved of tax revenue but required by law to balance their budgets.
Talks among the Democratic House, Republican Senate and the Trump administration remain at an impasse. Furman says Democrats would boost the 2021 economy more by accepting a smaller compromise package now than by seeking a larger one when Biden takes office.
Whether the economy will resume its long-term trend of 2% growth after the pandemic remains unclear. The sudden expansion of work-from-home arrangements has diminished the outlook for sectors such as commercial real estate and business travel. Increased online shopping has accelerated the demise of in-store shopping and retail stores.
The shift to virtual education has knocked millions of parents — most often women — off their career paths, and left many students needing costly remedial instruction. Countless small businesses have failed. Between April and September, a Brookings Institution analysis reported this month, the share of unemployed Americans whose jobs had been permanently eliminated rose from 10% to 40%.
“How much scarring do we have?” said Diane Swonk, a leading business economist at the Grant Thornton advisory firm. “What we don’t know is how much this reduces our potential to grow on the other side.”
Biden’s ambitious agenda for bolstering growth through expanded health, education and child-care programs faces an uphill climb in Congress. His best initial chance to spur long-term growth may come through infrastructure legislation tied to the 2021 expiration of federal highway programs. That would provide a vehicle for investments in Biden’s agenda for combating climate change.
Biden aims to reverse the tax-cuts and deregulatory steps that business interests have applauded throughout Trump’s term. But corporations and Wall Street have also signaled they welcome a turn away from Trump’s impulsive trade wars and erratic behavior.
“There’s some upside from being calm, and having a plan, and just not being crazy,” Swonk observed. “You remove uncertainty.”