Economic challenges waiting for Biden
With his presidential inauguration just weeks away, Joe Biden is confronting an economic crisis that is unparalleled and yet eerily familiar.
Millions of Americans are out of work, small businesses are struggling to survive, hunger is rampant and people across the country fear getting kicked out of their homes. The moment was similarly perilous exactly 12 years ago, when Biden was the vice president-elect and preparing to take office.
“I remember the utter terror,” said Cecilia Rouse, who was an economic adviser in the Obama White House and has been chosen to lead Biden’s Council of Economic Advisers.
The $900 billion pandemic relief plan that moderate lawmakers powered through Congress last month provides the incoming administration with some breathing room. This second tier of aid will deliver $600 stimulus checks, assist small businesses and extend federal unemployment benefits
through mid-March.
But as Biden has already made clear, it is simply a “down payment” — a brief bridge to get through a dark winter and not nearly enough to restore the economy’s health.
More than 19 million people are still receiving some type of unemployment benefit, and many business owners wonder whether they will be able to survive the year. The coronavirus crisis has worsened longstanding inequalities, with workers at the lower end of the income spectrum— who are disproportionately Black and Hispanic — bearing the brunt of the pain.
At the same time, bottlenecks in the COVID-19 vaccines’ rollout aswell as fears about a much more transmissible strain of the virus could further delay the revival of large swathes of the economy such as restaurants, travel, live entertainment and sports.
“We are in for some choppy waters, even as we continue to get to the other side of the pandemic,” Rouse said.
Yet despite the scorched earth left by the coronavirus, the economy is on a more stable footing in several ways than it was at the start of 2009.
Instead of hurtling down a hole with no clear view of the bottom, Biden is taking office when the economy is on an upward trajectory. However anemic the growth, most analysts predict that 2021will end better than it began even if there are stumbles along the way.
While this pandemic-related recession was larger in terms of initial job losses and closures, it is collateral damage froma health emergency and not a crack in the global financial system.
Now, Rouse said, “we know what to do.”
But if the Biden administration will have a bit more running roomon the economy, it is likely to have a lot less politically.
Senate Majority Leader Mitch McConnell, R-Ky., was often intent on blocking Obama’s agenda, but his party was in the minority.
Biden must deal with a much more polarized Congress, which could still have McConnell as majority leader. The $900 billion pandemic package was enacted after six months of stalemate.
But the administration will have an uphill slog persuading lawmakers to approve more aid when this round ends. Biden will face resistance from some Republicans who put aside their concerns about debt when it came to cutting taxes in 2017 but who have rediscovered their inner deficit hawk.
McConnell has already pushed back against President Donald Trump’s — and Democrats’ — repeated calls for increasing stimulus checks to $2,000 from $600.
The failure to extend or expand federal aid when it expires this spring not only would cause significant hardships and needless suffering but also might seriously scar the economy, said Joseph Stiglitz, a Nobel Prize-winning economist.
Though economic activity will most likely be on an upswing, the economy will remain weakened, Stiglitz said. Eviction moratoriums and mortgage forbearance have prevented families fromlosing their homes, but their housing debt has been accumulating even if it has not yet shown up on household balance sheets.
Many small businesses, particularly in the hard-hit service sector, will not survive. Economic inequality will increase.
“There’s been a lot of long-term damage,” Stiglitz said.
At the same time, the ranks of workers who have been unemployed for six months or longer have swelled to more than 4 million, increasing the chances that theymay never find another job.
None of those problems can really begin to be addressed without widely distributing vaccines and reopening schools so parents, particularly mothers, can return to the workforce. That is why economists say funneling direct aid to state and local governments is crucial.
“That sector has been gutted,” said Abigail Wozniak, a labor economist at the Federal Reserve Bank of Minneapolis, but it “is the sector that allows all the other sectors to operate.”
States and localities will play a critical role in the vaccine rollout and in providing emergency medical personnel. They will also be responsible for sending teachers back to classrooms that are safe and helping disadvantaged students regain lost ground.
Senate Republicans have been dead set against providing that kind of direct aid. McConnell has criticized it as a “blue-state bailout,” though many red and blue states — and rural areas in particular — have lost revenues and public sector jobs.
But many liberal economists, including those on the Biden team, warn against ignoring a crucial lesson from the last recession: Failing tomove quickly to provide sufficient money to the people and businesses that need it can damage the economy far into the future.