It’s fashionable to think that, just like his former boss, President Barack Obama, president-elect Joe Biden is inheriting a damaged economy that will struggle to recover, perhaps for years.
The reality is quite the opposite, with Biden stepping into a dream scenario for economic growth on the other side of the battle with the Covid-19 pandemic.
When Obama took office in January 2009, the economy was still grappling with the aftermath of the housing bust and subsequent financial crisis while not receiving the fiscal support needed from Congress to boost the pace of growth. A slow recovery ensued.
So, naturally, the failure of Congress to agree on another stimulus package before last week’s election and the inability – so far – of the Democrats to gain control of the Senate has raised the specter that the economy will endure a similar fate in come years.
But the current economic cycle is in no way like the last. The economy is instead poised for a rapid rebound for six main reasons:
First, there is nothing fundamentally “broken” in the economy that needs to heal. And unlike the last two cycles, there was no obvious financial bubble driving excessive activity in any one economic sector when the pandemic hit.
There is no excessive investment that needs to be unwound and the financial sector has escaped largely unharmed.
Second, the indiscriminate nature of the shutdowns this past spring provides the economy with a solid base from which to grow. The economy collapsed in the spring because in the effort to get ahead of the virus, we shut down about a third of the economy on an annualized basis.