The next few months are going to be incredibly grim. The pandemic is exploding, but Donald Trump is tweeting while America burns. His officials, unwilling to admit that he lost the election, are refusing even to share coronavirus data with the Biden team.
As a result, many preventable deaths will occur before a vaccine’s widespread distribution. And the economy will take a hit, too; travel is declining, an early indicator of a slowdown in job growth and possibly even a return to job losses as virus fears cause consumers to hunker down again.
But a vaccine is coming. Nobody is sure which of the promising candidates will prevail, or when they’ll be widely available. But it’s a good guess that we’ll get this pandemic under control at some point next year.
And it’s also a good bet that when we do, the economy will come roaring back.
OK, this is not the consensus view. Most economic forecasters appear to be quite pessimistic; they expect a long, sluggish recovery that will take years to bring us back to anything resembling full employment. They worry a lot about long-term “scarring” from unemployment and closed businesses. And they could be right.
But my sense is that many analysts have overlearned the lessons from the 2008 financial crisis, which was indeed followed by years of depressed employment, defying the predictions of economists who expected the kind of “V-shaped” recovery the economy experienced after earlier deep slumps. For what it’s worth, I was among those who dissented back then, arguing that this was a different kind of recession, and that recovery would take a long time.
And here’s the thing: The same logic that predicted sluggish recovery from the last big slump points to a much faster recovery this time around — again, once the pandemic is under control.
What held recovery back after 2008? Most obviously, the bursting of the housing bubble left households with high levels of debt and greatly weakened balance sheets that took years to recover.
This time, however, households entered the pandemic slump with much lower debt. Net worth took a brief hit but quickly recovered. And there’s probably a lot of pent-up demand: Americans who remained employed did a huge amount of saving in quarantine, accumulating a lot of liquid assets.
All of this suggests to me that spending will surge once the pandemic subsides and people feel safe to go out and about, just as spending surged in 1982 when the Federal Reserve slashed interest rates. And this in turn suggests that Joe Biden will eventually preside over a soaring, “morning in America”-type recovery.
Which brings me to the politics. How should Biden play the good economic news if and when it comes?
First of all, he should celebrate it. I don’t expect Biden to engage in Trump-like boasting; he’s not that kind of guy, and his economics team will be composed of people who care about their professional reputations, not the quacks and hacks who populate the current administration. But he can highlight the good news, and point out how it refutes claims that progressive policies somehow prevent prosperity.
Also, Biden and his surrogates shouldn’t hesitate to call out Republicans, both in Washington and in state governments, when they try to sabotage the economy — which, of course, they will. I won’t even be surprised if we see GOP efforts to impede the wide distribution of a vaccine.
What, do you think there are some lines a party refusing to cooperate with the incoming administration — and, in fact, still trying to steal the election — won’t cross?
Finally, while Biden should make the most of good economic news, he should try to build on success, not rest on his laurels. Short-term booms are no guarantee of longer-term prosperity. Despite the rapid recovery of 1982-1984, the typical American worker earned less, adjusted for inflation, at the end of Reagan’s presidency in 1989 than in 1979.
And while I’m optimistic about the immediate outlook for a post-vaccine economy, we’ll still need to invest on a large scale to rebuild our crumbling infrastructure, improve the condition of America’s families (especially children) and, above all, head off catastrophic climate change.
So even if I’m right about the prospects for a Biden boom, the political benefits of that boom shouldn’t be cause for complacency; they should be harnessed in the service of fixing America for the long run.
And the fact that Biden may be able to do that is reason for hope.
Those of us worried about the future were relieved to see Trump defeated (even though it’s possible he’ll have to be removed forcibly from the White House), but bitterly disappointed by the failure of the expected blue wave to materialize down-ballot.
If I’m right, however, the peculiar nature of the coronavirus slump may give Democrats another big political opportunity. There’s a pretty good chance that they’ll be able to run in the 2022 midterms as the party that brought the nation and the economy back from the depths of COVID despond. And they should seize that opportunity, not just for their own sake, but for the sake of the nation and the world.
Paul Krugman
Paul Krugman, winner of the Nobel Memorial Prize in Economic Science, is an Op-Ed columnist for The New York Times.
