Looking Forward in December 2020 1.

            The recession of 2020 and beyond did not spring from “normal” causes.[1]  It sprang from the Covid-19 pandemic.  That pandemic continues to ravage the world, so a full recovery cannot begin.    Only widespread vaccination will allow the American economy to recover.  Estimates for that seem to run into mid-Summer 2021.[2]  An optimist might guess-timate that the economy will have fully recovered by the end of 2021. 

            The federal policy response to the Covid-triggered economic crisis[3] has been far more robust than the response to the 2009 financial crisis that led to the “Great Recession.”  Including the bill just signed—finally–by President Trump, the government spent more as a share of GDP over two years than the previous administration spent over five.  This may have contributed to avoiding the steep plunge in spending by states that helped deepen the crisis of a decade ago.  All this means that the economy did not sink into as deep peril as was the case ten years ago. 

Then, there are reasons to hope that the economy can make a sustained recovery.  The Federal Reserve Bank has promised to not raise interest rates until annual inflation hits two percent and all the Covid-caused unemployment has been absorbed.  This recession may not have done as much long-term damage as normal recessions.  Bankruptcies haven’t shot up the way one would expect, although they may still rise.  If many businesses are “only mostly dead,”[4] many could spring back.  If they do, then they will bring back employees while reviving pre-recession relationships with suppliers and customers.  A long drawn-out recovery is not fated. 

With a third of a million Americans dead from Covid-19 so far, it may seem petty to turn to the political effects.  Yet both parties are struggling to define their course in an environment without the disruptive factors of Donald Trump and Covid-19.  The outcome of these struggles will influence the direction of American society in the immediate future.  Would a rapid recovery dampen enthusiasm for any sweeping changes in economic organization or the role of government?  Would business people claim that they had “Built Back” during the recovery largely on their own?  Would it be difficult to blame anyone, other than the virus, for the recession?  Would Republicans want to fend off all calls for assistance to the “front-line” and “essential” workers once the crisis has passed, even if they try to restrict the scope of such definitions that President Biden would propose?  It is shaping up to look like at least two more years of tweaks to legislation.  Most of the action will come in nibbling rule-writing rather than in big new laws. 

[1] Greg Ip, “2021 Could Be (a Lot) Better Than You Think,” WSJ, 24 December 2020.  On Ip, see: https://en.wikipedia.org/wiki/Greg_Ip 

[2] See, for example, the chart on the front page of the WSJ, 12-13 December 2020.  However, that leaves aside places in the world where vaccination will take place later.  Will Egypt ever get around to vaccinating any but the elite? 

[3] This is different from the federal response to the health emergency itself.  Operation “Warp Speed” appears to have done an astonishing job of creating and now distributing the vaccines that offer the only real long-term solution.  No one would—or should—forgive President Trump for his relentless down-playing of the immediate dangers or his undermining of scientific opinion on short-term safety measures.  He had the chance to be seen as a great president  He muffed it 

[4] See the classic exposition of the distinction: https://www.youtube.com/watch?v=xbE8E1ez97M 

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