When Joe Biden entered the White House as Vice President, the US economy was in the process of collapsing. Job losses were increasing. Stocks were collapsing. Millions of Americans were in the early stages of losing their homes to foreclosure as the real estate bubble burst.
Biden returned to the White House as president a dozen years later, the economy battered and shaken by a pandemic. But this time it’s different – and it could reset national politics if Biden and the Democrats can count on a level of growth not seen in a generation.
Despite the 9.8 million jobs lost due to the coronavirus, there are signs the country is on the cusp of some kind of boom unnoticed during the days of Presidents Barack Obama and Donald Trump.
Current account balances have increased by $ 2.4 trillion since the start of the epidemic. Home prices are skyrocketing due to high demand. And each additional vaccination brings the world’s largest economy closer to its full reopening.
“If the economy improves dramatically in the spring or early summer, it might actually help Biden do more of his agenda … because success can breed success,” said Jason Furman, economist. chief of the Obama administration. He highlighted the possibility of growth facilitating the path of an infrastructure and climate investment agenda.
But any effort to revive the economy is a lasting partisan divide that contributed to the deadly assault on the U.S. Capitol this month as Biden’s Electoral College victory had to be certified. Politics are increasingly shaping how Americans think about the economy, blurring the political incentives for lawmakers to cooperate.
There are also concerns over whether the worsening pandemic and the slowness of vaccinations so far could portend more serious problems on the coronavirus front that could hamper economic recovery.
The potential for a boom largely reflects the roughly $ 4 trillion approved so far in federal aid, with Biden last week proposing an additional $ 1.9 trillion, an unprecedented level of stimulus. The additional money, which must be approved by Congress, is intended to speed up vaccine deployment, reopen schools and reduce the child poverty rate to an all-time low.
Investment bank Goldman Sachs estimates growth this year could be 6.6% if part of Biden’s stimulus package passes.
It would be the biggest gain since 1984, when a 7.2% increase in gross domestic product helped push Republican President Ronald Reagan to a second term in a landslide. Wells Fargo is forecasting 4.6% growth this year, which would be the best since 1999.
Still, there are many economic risks Biden faces. The most optimistic forecast hinges on getting much of Biden’s aid package through Congress. And any gain would likely depend on getting past the pandemic. It’s also possible that the additional stimulus Biden championed is more than what the economy needs, perhaps boosting inflation.
But the Great Recession taught Biden’s side the advantage of going big with the raise. New White House chief of staff Ron Klain said Biden officials learned the hard way that the roughly $ 800 billion approved in 2009 to tackle the Great Recession was insufficient, a mistake they did not not want to repeat this time.
“It wasn’t big enough,” Klain said Friday during an event broadcast live in The Washington Post. “Our recovery has fallen behind as a result.”
In the first nine months of the Obama presidency, the unemployment rate soared to 10% and the rapid recovery that was predicted never happened as the country took years to overcome foreclosures and rebuild its system. financial.
This forced Obama administration officials to claim that the economy would have been even worse without the stimulus. Republicans countered that the effort failed when they took control of the House in the 2010 midterm election.
“There is no doubt that the economy did better in 2009 and 2010 thanks to the recovery act,” said Douglas Elmendorf, who was then director of the Congressional Budget Office and is now dean of the University’s Kennedy School. Harvard. “Too many people have failed to strike [stronger growth] as a sign that the stimulus did not work, when in fact the economic situation was worse than what was generally known.
Biden can count on the support of Wall Street investors this time around to borrow. Thanks to supportive policies from the Federal Reserve, low interest rates keep financing a stimulus and paying off additional debt.
The interest rate on a 10-year US Treasury note is around 1.15%, down from 11.67% in 1984 when growth prospects last looked so good and the amount of federal debt was significantly smaller.
Republican lawmakers still see the need for more help to contain the pandemic, but some are expressing concerns over Biden’s desire for another major spending program. They point out that any new spending should be spent on increasing immunizations and that Biden’s proposal of direct checks of $ 1,400 per person could delay people’s return to work.
“Explode an additional $ 2 trillion in borrowed or printed money – while the ink on December’s $ 1 trillion aid bill is barely dry and much of the money is not still spent – would be a colossal waste and economically harmful, ”Republican Senator Pat Toomey of Pennsylvania said in a statement.
Republican voters have already turned bearish on the economy after Trump lost the election. The University of Michigan reported on Friday that its index of consumer expectations among Republicans fell from a reading of 96 in October to 53 in January. It could dampen their willingness to spend and encourage Republican lawmakers to blame Democrats for all economic ills.
For now, Biden’s team are hoping to push their revival with Republican support in the Senate. But political tensions could force him to pursue many of his initiatives – like a minimum hourly wage of $ 15 and tax increases on businesses and the wealthy – with only the backing of Democrats.
If the Republicans regained control of Congress, any policy adopted exclusively with Democratic support could be quickly overturned or allowed to expire. This swing between competing policies could erode the degree of certainty that businesses and consumers need to make investments that lead to growth, said Donald Schneider, Cornerstone Macro Policy Research Team Member and former Chief Economist of the House Ways and Means Committee.
“It’s a big problem in the future if one side comes to power and makes changes, then the other side comes into power and reverses them and so on,” Schneider said.