With his inauguration as president in just a few weeks, Joseph R. Biden Jr. faces an economic crisis that is second to none and yet eerily familiar.
Millions of Americans are unemployed, small businesses are struggling to survive, hunger is rife, and people across the country fear they will be thrown from their homes. The moment was similarly dangerous exactly 12 years ago when Mr Biden was the elected Vice President and preparing for office.
“I remember the utter terror,” said Cecilia Rouse, who was Obama White House economic advisor and was chosen to lead Mr. Biden’s Council of Economic Advisers.
The $ 900 billion pandemic relief plan that moderate lawmakers pushed through Congress last month gives the incoming government some breathing space. This second tier of aid will provide $ 600 stimulus checks, help small businesses, and extend federal unemployment benefits through mid-March.
But, as Mr Biden has made clear, it is merely a “down payment” – a short bridge to get through a dark winter and not nearly enough to restore the health of the economy.
Around 19 million people receive some kind of unemployment benefit, and many entrepreneurs wonder if they can survive the year. The coronavirus crisis has exacerbated long-standing inequalities, with workers on the lower end of the income spectrum – who are disproportionately black and Spanish – bearing the brunt of the pain.
At the same time, bottlenecks in the rollout of the Covid-19 vaccines, as well as fears about a much more transmissible strain of the virus, could further delay the recovery of large parts of the economy such as restaurants, travel, live entertainment and sports.
“We face troubled waters even if we continue to be on the other side of the pandemic,” said Ms. Rouse.
Despite the scorched earth left by the coronavirus, the economy is more stable in several ways than it was at the beginning of 2009.
Rather than tumbling down a hole with no clear view of the ground, Mr Biden takes office when the economy is on an uptrend. No matter how weak the growth is, most analysts predict that 2021 will end better than it started, even if there are stumbling blocks along the way.
While this pandemic-induced recession was greater in terms of initial loss and job closure, Ms. Rouse described it as “collateral damage” from a health emergency rather than a rift in the underlying global financial system.
“Now we know what to do: provide homes, businesses and communities with a social safety net so they can get to the other side of the pandemic intact,” Ms. Rouse said.
The Biden government will also focus on addressing the ingrained inequalities that have exacerbated this crisis, she added.
“There’s at least one pillow during that time,” said Jason Furman, who chaired President Barack Obama’s council of economic advisers and is now an economist at Harvard University’s John F. Kennedy School of Government.
The transition of the president
Updated
Jan. 4, 2021, 4:39 p.m. ET
However, if the Biden administration has a little more room for maneuver in the economy, it is likely to have much less political leverage than Obama did in the first two years of his presidency, when his party controlled both houses of Congress.
If the Democrats regain control of the Senate by winning both seats in the Georgia runoff election on Tuesday, Mr Biden’s path will be a lot easier. Otherwise, the new president will have to grapple with a Republican Senate led by Kentucky’s Mitch McConnell that has blocked the Democratic-controlled House’s legislation.
In this case, the administration will have a tough slog that will convince lawmakers to approve more aid when this round ends. With a Democrat en route to the Oval Office, many Republicans who put aside their debt concerns with the 2017 tax cut have rediscovered their domestic deficit hawk.
Mr McConnell successfully defied President Trump’s repeated calls by the Democrats to increase the recent stimulus payments from $ 600 to $ 2,000.
Failure to extend or expand federal aid when it expires this spring would not only cause significant trouble and unnecessary suffering, but could seriously affect the economy, said Joseph Stiglitz, a Nobel Prize-winning economist.
Even though economic activity is most likely to be on the up, the economy will continue to be weakened, said Stiglitz. Eviction moratoriums and forbearance on mortgages have kept families from losing their homes, but their housing debts have built up even if they are not yet on household balance sheets.
Many small businesses, especially in the severely affected service sector that has produced low-wage jobs, will not survive. Economic inequality will increase.
“There was a lot of long-term damage,” said Mr. Stiglitz.
At the same time, the number of workers who have been unemployed for six months or more has grown to more than four million, increasing the likelihood that they may never find another job. More and more men and women are also leaving working life.
None of these issues can really be addressed without widely distributing the vaccines and reopening schools so parents, especially mothers, can get back into work.
This is why economists say it is so important to channel direct aid to state and local governments.
“That sector has been gutted,” said Abigail Wozniak, labor economist at the Minneapolis Federal Reserve Bank, but “it is the sector that enables all other sectors to operate.”
States and localities will play a critical role in the introduction of vaccines and the provision of emergency medical personnel. You will also be responsible for sending teachers back to safe classrooms and helping disadvantaged students regain lost ground.
The Senate Republicans were absolutely opposed to providing this kind of direct aid. Mr McConnell has criticized it as a “bailout for the blue state” despite the fact that many red and blue states – and especially rural areas – have lost public sector revenues and jobs.
Economists on the right and left agree that while there are echoes from the Great Recession, there are also important differences. Restoring the economy this time, they warn, requires some kind of economic serenity prayer: recognizing the similarities, recognizing the contrasts, and having the wisdom to know the difference.
For Michael R. Strain, an economist at the conservative American Enterprise Institute, the economy has repaired faster than expected. He fears that some suggestions for help, especially those that prop up certain industries, will keep some dying businesses alive and “slow the process of adapting to a new post-virus economy.
“The faster this process goes, the faster the economy heals,” said Strain.
However, many liberal economists, including those on the Biden team, caution against ignoring an important lesson from the last recession: if they don’t act quickly to provide enough money to the people and businesses that need them, it can damage the economy far into the future.
Brian Deese, whom Mr. Biden selected to head the National Economic Council where he served as an assistant during the Obama administration, said public investment was necessary to ensure economic growth.
“We are in a moment when the risk of doing too little outweighs the risk of doing too much,” he said.
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