The Biden economy stinks, and the numbers prove it. Employers added just 49,000 jobs in January, a plodding pace of growth that wouldn’t repair the damage of the last 10 month for 17 years, if it continued.
Nobody blames President Biden, though. In fact, Biden himself acknowledges the hole, saying on February 5, “It’s very clear our economy is still in trouble.”
This rough start to the Biden presidency might actually turn out be a huge advantage for Biden. He’s taking over with the scaffolding for a recovery in place, as vaccines are making their way into arms. That will eventually allow the widespread business reopening that will be the most important stimulus anybody could muster.
Yet the economy remains weak enough to justify the huge, $1.9 trillion relief bill Biden is pushing for. Some economists think Biden’s asking for too much. Harvard economist Larry Summers, a Democrat who worked for presidents Bill Clinton and Barack Obama, argued in a Feb. 4 op-ed that $1.9 trillion would be three to six times more aid than the economy needs. That raises the risk of excessive inflation.
No matter. Biden may not get the entire $1.9 trillion, but the final package may be close to that. Biden and his fellow Democrats made clear this week they’re willing to forego Republican cooperation, since Republicans only back about one-third of the spending Biden wants. With no need to negotiate with the other party, Democrats only need to agree among themselves. Why not max out the credit card while they can?
A year from now—barring surprises—the economy could be humming again. The Congressional Budget Office forecasts job gains averaging 521,000 per month in 2021, with the unemployment rate falling from 6.3% now to 5% by the end of the year. Since job growth is obviously off to a slow start, that would imply closer to 600,000 new jobs per month later in the year. CBO sees job growth improving and unemployment falling through 2025.
That forecast doesn’t factor in any new relief money, so the recovery could be faster. Biden has a lot of other plans, but Americans sent Biden to the White House mainly to eradicate the Covid-19 virus and get the economy back on track, after President Trump’s erratic handling of the crisis. The president’s party often loses ground in the midterm elections, and Democrats have such narrow majorities in the House and Senate that Republicans could easily flip one or both. The best case for Democrats, however, would be a swift economic recovery and a return to normal, which looks like it could be in the cards. Voters would be inclined to keep the party going.
People stand in line to register for an appointment for their first dose of the COVID-19 vaccine at a vaccination site at Yankee Stadium, Friday, Feb. 5, 2021, in the Bronx borough of New York. Yankee Stadium opened as a COVID-19 vaccination site Friday, drawing lines of people from surrounding neighborhoods in the Bronx. The mega-site is being restricted to Bronx residents as a way to boost vaccination rates in the New York City borough with the highest percentage of positive coronavirus test results. (AP Photo/Mary Altaffer)
What could go wrong? Summers could be right about inflation returning, and that could force the Federal Reserve to raise interest rates sooner than expected. That would startle financial markets, which could hurt stocks, and cause a slowdown in hiring and investing. But there hasn’t been meaningful inflation in more than 20 years and White House economists pushed back hard against this scenario. Covid virus mutations could thwart the vaccine, or delay its effectiveness and the return to normal.
Politically, however, Biden may be in a Goldilocks position, with the economy weak enough to warrant emergency aid but strong enough to get back on its feet fairly quickly. Biden’s Democratic predecessor, Barack Obama, benefited from similar lucky timing. Obama, of course, took office amid the Great Recession and the accompanying financial crash, with the economy reeling and stocks plunging. The stock market bottomed out two months after Obama took office, however, and the recession ended two months after that. Stocks went on a 11-year tear as the economy gradually recovered, enough for Obama to win a second term in 2012.
Biden and his advisors have been talking a lot about the stimulus package Congress passed in February 2009, with Obama just one month into the job. The $787 billion package was huge at the time, but in retrospect, many economists think it wasn’t nearly enough to bounce the economy out of the crater it was in. Job and income growth was slow for most of the rest of Obama’s presidency.
To respond to the Covid recession, Congress has already pumped more than four times as much aid into the economy as in 2009—not including the next package Biden wants. That should help the economy recover faster, but Democrats know it might also brighten their political prospects. Obama’s Democrats lost control of the House in 2010, and the Senate in 2014. Obama governed with his party controlling Congress for just two of his eight years. As Obama’s VP, Biden clearly learned that lesson, so when he says “go big,” he’s not just talking about economics. He’s talking about everything Democrats hope to do in the foreseeable future.
