Report Says U.S. Economy to Recover Twice as Fast as Expected

Report Says U.S. Economy to Recover Twice as Fast as Expected

The American economy will accelerate nearly twice as fast as expected this year as the coming passage of President Biden’s $1.9 trillion stimulus plan, combined with a rapid vaccine rollout, ignites a powerful recovery from the pandemic, the Organization for Economic Cooperation and Development said Tuesday.

But countries that are stumbling in the pace of their vaccination campaigns, especially those in Europe, risk falling behind in the global recovery as a failure to beat back the spread of the virus forces governments to keep swaths of their economies closed, delaying the chance for people to get back to normal lives, the organization said.

In its half-year outlook, the organization said the United States would expand 6.5 percent this year, up sharply from 3.2 percent forecast in December. The surge in the world’s largest economy will generate enough momentum to help lift global output 5.6 percent, from a 3.4 percent contraction in 2020.

China, which contained the virus earlier than other countries, remains a big global winner, with growth of 7.8 percent forecast.

Although a global recovery is in sight, spending by governments intended to jump-start their economies will have limited impact unless authorities accelerate national vaccine rollouts and relax virus containment measures, the report added. If vaccination programs aren’t fast enough to cut infection rates, or if new variants become more widespread and require changes to vaccines, consumer spending and business confidence would be hit.

“Stimulus without vaccinations won’t be as effective because consumers won’t go out doing normal things,” Laurence Boone, the O.E.C.D.’s chief economist, said in an online news briefing. “It’s the combination of health and fiscal policy that matters.”

That is especially the case for Europe, and Germany and France in particular, where a mix of poor public health management and slow vaccination programs are weighing on a recovery, despite billions in government support. Such spending “won’t be fully effective as long as the economy doesn’t reopen,” Ms. Boone said.

The euro area economy is expected to grow 3.9 percent this year, slightly more than forecast in December but slower than the United States. In Britain, which sped a national vaccination rollout late last year, the economy is expected to grow 5.1 percent, up from a 4.2 percent forecast.

India’s economy is expected to grow 12.6 percent after a 7.4 percent fall in 2020, the organization added.

But Will Stagnation Follow the Biden Boom?

From Paul Krugman:

The big question is whether Democrats can pull off another political miracle, and pass a second round of crucial economic legislation in the face of scorched-earth Republican opposition. The answer to that question will determine whether the Biden boom will endure.

President Biden’s American Rescue Plan is what the name implies. It’s a short-term relief measure meant to address an economic emergency. There are some elements Democrats hope will become permanent — child tax credits, enhanced subsidies for health insurance — but the great bulk of the spending will fade out within a year.

There’s a growing consensus among economists that the U.S. economy spent most of the decade after the 2008 financial crisis producing less and employing fewer people than it should have. We may — may — have finally gotten close to full employment on the eve of the pandemic, but even that isn’t clear.

Exactly why we found ourselves in this condition is a subject of some debate, but a few factors are obvious. A drastic slowdown in growth of the working-age population reduced investment demand; so did an apparent slackening in the pace of technological progress. Whatever the reasons, the prepandemic economy spent most of its time underperforming relative to its potential.

And financial markets are signaling that they expect a return to underperformance once the Biden boom is behind us. These days interest rates are, in effect, a barometer of economic optimism — and these rates have in fact risen as the rescue plan has moved toward the finish line. But the rise has been modest, comparable to the “taper tantrum” of 2013 (don’t ask) and minor compared with some interest rate surges of the 1990s.

What markets are telling us, in effect, is that after the boom they expect a return to stagnation — which would, again, be a bad place to be. How can we avoid it?

The answer is actually obvious: a large program of public investment, paid for largely with borrowing, although with a case for new taxes, too, if it’s really big. Such a program would do double duty. Macroeconomics aside, we need to spend a lot to rebuild our crumbling infrastructure, fight climate change, and more. And public investment can also be a major source of jobs and growth, helping to pull us out of the stagnation trap.

The good news is that the Biden administration’s economists understand all of this perfectly well, and by all accounts they’re already in the process of putting together a very ambitious infrastructure plan.

The bad news is that getting such a plan enacted will be very hard politically — probably even harder than getting to yes on short-term economic rescue.

In a well-functioning democracy, putting together a big public investment plan wouldn’t be hard. “Every bit of polling evidence I have reviewed,” wrote Gallup’s Frank Newport, “shows that Americans are extremely supportive of new government infrastructure legislation.” Remember, the Trump administration spent four years promising a plan any day now, although it never delivered.

But every bit of polling evidence I’ve reviewed also showed that Americans — including many Republicans — supported the American Rescue Plan. Yet not a single elected Republican voted for it.

Republicans will probably offer similar lock-step opposition to anything Democrats propose on infrastructure. In fact, the very popularity of infrastructure spending will stiffen their opposition, because what they want, above all, is to make the Biden administration a failure.

'It definitely stinks': Lawmaker demands probe of huge stock buy just before DeJoy announced USPS contract

'It definitely stinks': Lawmaker demands probe of huge stock buy just before DeJoy announced USPS contract

We Already Got Rid of the Filibuster Once Before

We Already Got Rid of the Filibuster Once Before