2021 outlook: A quick recovery but a slew of new economic problems
Skip to main content
  • Home
  • Economy
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Splash
  • Features
  • Videos
  • Long Read
  • Games
  • Epaper
  • More
    • COVID-19
    • Bangladesh
    • Infograph
    • Interviews
    • Offbeat
    • Thoughts
    • Podcast
    • Quiz
    • Tech
    • Subscribe
    • Archive
    • Trial By Trivia
    • Magazine
    • Supplement
  • বাংলা
The Business Standard
THURSDAY, MAY 19, 2022
THURSDAY, MAY 19, 2022
  • Home
  • Economy
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Splash
  • Features
  • Videos
  • Long Read
  • Games
  • Epaper
  • More
    • COVID-19
    • Bangladesh
    • Infograph
    • Interviews
    • Offbeat
    • Thoughts
    • Podcast
    • Quiz
    • Tech
    • Subscribe
    • Archive
    • Trial By Trivia
    • Magazine
    • Supplement
  • বাংলা
2021 outlook: A quick recovery but a slew of new economic problems

Analysis

Michael Hirsh, Foreign Policy
03 January, 2021, 03:50 pm
Last modified: 03 January, 2021, 04:59 pm

Related News

  • China Junshi's potential Covid drug shows promise in small trial
  • Indonesia to drop outdoor mask mandate as Covid-19 infections drop
  • N Korean leader slams officials' 'immaturity' in response to Covid outbreak
  • Shanghai achieves 'zero Covid' status but normal life is weeks away
  • N Korea mobilises army, steps up tracing amid Covid wave

2021 outlook: A quick recovery but a slew of new economic problems

Michael Hirsh, Foreign Policy
03 January, 2021, 03:50 pm
Last modified: 03 January, 2021, 04:59 pm
A face mask is seen in front of the New York Stock Exchange on Wall Street in New York City on May 26, 2020. JOHANNES EISELE/AFP VIA GETTY IMAGES/Foreign Policy
A face mask is seen in front of the New York Stock Exchange on Wall Street in New York City on May 26, 2020. JOHANNES EISELE/AFP VIA GETTY IMAGES/Foreign Policy

As 2020 passes like a bad dream and COVID-19 vaccines are distributed en masse, many economists believe that the global economic recovery in 2021 could prove the fastest in decades. But the pandemic, and associated lockdowns, will leave a grim legacy that could also take decades to overcome, not least the worsening income inequality that will likely only reinflame populist politics in the United States and other major nations.

And even the election of Joe Biden as the next US president, an avowed internationalist, won't be enough to parry the structural threats that still plague the economies of the United States and other developed nations. The 74 million Americans who voted for Donald Trump and the protectionist, neonationalist policies they both embraced aren't going away—and neither are the serious social and economic problems that underlay them.

After a dismal year in which nearly every major economy contracted—with the apparent lone exception of China—most economists expect 2021 to bring growth back in spades. According to the International Monetary Fund, global growth is projected at 5.2 percent this year. Other economists expect the strongest performers this year to be those countries that did severe lockdowns in 2020, led by the United Kingdom and Spain. China, for its part, already returned to economic growth last year and is forecast to enjoy a return to moderately strong GDP growth this year.

In the United States, after a devastating summer, the projections are for a big rebound. "I assume that if vaccination does not get screwed up or slowed down, we are going to have a substantial economic recovery," said Andrei Shleifer, a leading economist at Harvard University. "I hope Biden focuses on this, and is otherwise very boring for the first few months, so that tempers and emotions quiet down a bit. COVID is a major attainable victory for him in the next six months. Why would he do anything else?"

The fact is Biden likely won't be able to do too much more—both because of the potential of Republican obstructionism and the evolution in his own economic thinking since his days as Barack Obama's vice president. Not until after the Jan. 5 runoff elections in Georgia will Biden know if Republicans keep control of the Senate—essentially blocking his economic agenda—or if Democrats can wrest control, opening the door to progressive legislation like a new tax on the wealthy and expanded earned income tax credits. 

But even if Biden has a relatively free hand, the incoming administration has already signaled that it is not going to simply return to the centrist, unabashedly pro-free trade policies of past Democratic presidents. A once highly regarded trade pact like the 12-nation Trans-Pacific Partnership, which many economists viewed as a much more effective way to pressure China than Trump's trade war, may no longer be salvageable in the United States. (It continues as a smaller, 11-nation pact without Washington's involvement.) And Biden has also indicated support for protectionist measures like "Buy American" legislation and hinted he would be willing to keep Trump's China tariffs in place—at least initially. 

"We expect Biden's trade policy to represent a break with the last four years but not a return to the pre-2016 free trade agenda," Oxford Economics wrote in a recent report. "Grand deals like NAFTA under Bill Clinton or the Trans-Pacific Partnership under Barack Obama have become unpopular across the political spectrum, which is likely to make President-elect Biden much less pro-trade than he was as vice president." 

"Grand deals like NAFTA under Bill Clinton or the Trans-Pacific Partnership under Barack Obama have become unpopular across the political spectrum."

If Trump's rise was fueled in part by the income inequality that worsened after the last recession in 2008-2009, when Wall Street was bailed out while middle-class homeowners were not, then continued inability to fix those problems spells political trouble—especially in the wake of unprecedented economic turmoil during the pandemic. 

"The pandemic and recent recession made the problem worse," said Mark Gertler, an economist at New York University. Those employed in white-collar jobs, like in the already high-paying tech sector, made out fairly well, while low-income workers, especially in service industries, took the worst hits. Though department and food stores remained open for the most part, other retail, food services, hospitality, entertainment, and leisure industries took the biggest blow, affecting a much larger fraction of the already suffering middle class, many of whom are also struggling with higher health insurance costs.

In a recent report, the Massachusetts Institute of Technology economists David Autor and Elisabeth Reynolds conclude that the COVID-19 crisis "will exacerbate economic pain in the short and medium terms for the least economically secure workers in our economy, particularly those in the rapidly growing but never-highly-paid services sector."

Thus, rather than promising a major boom following the COVID-19 recession, "the economy may be too sideways to fully recover," Gertler said. "We're still 10 million down in jobs and without an immediate new stimulus." 

Shortly before the new year, Trump signed a new, $900 billion COVID-19 relief package after months of stalemate—and it came just as benefits from the previous $2 trillion plan expired at the end of the year. An extension of unemployment insurance and a moratorium on evictions and debt repayment will salve some immediate pain and put off some of the worst effects of inequality—but they won't fix the underlying problems, especially as the pandemic-driven recession, unlike most previous downturns, left the rich unaffected.

"I am worried about the longer-term downside risk. The millions of people who have lost a whole lot of labor income—I'm not sure that they are coming into the post-pandemic world with a ton of financial resources. And I am worried their spending is not going to surge," said Wendy Edelberg, a former chief economist at the Congressional Budget Office. "I'm worried we've lost hundreds of thousands of small businesses. In a typical recession, even those who keep their jobs see hits to their wealth, to long-term earnings. This recession has been unusual in that wealth has not taken a hit." 

The likeliest outcome: even greater societal polarization of the kind that led to the rise of Trump and other nationalist demagogues. 

In Europe, the picture is much the same. Granted, the European Central Bank and the European Union rushed to put together a massive rescue package early on, passing a hefty new EU budget that eased the immediate economic threat and helped bridge the gap between Northern and Southern Europe. But the second wave of the pandemic, including a fresh round of lockdowns, closed businesses, and growing unemployment, spells similar problems as in the United States.

"The EU has had a rather good year compared to the US Even so, the second spike of the pandemic has not been handled very well, with more unrest and resentment," said Harold James, a political economist at Princeton University. 

And that's not even counting the almost certain disruption from Brexit. As December came to a close, the UK and the EU secured an eleventh-hour trade deal governing their future relationship; the pact calls for no tariffs or quotas on goods, and British Prime Minister Boris Johnson declared it a big victory. But the long-delayed Brexit agreement, which was approved overwhelmingly by Parliament on Dec. 30, doesn't appear to cover services such as finance, which account for the vast majority of Britain's flagging economy and most of its trade with the EU.  Nor will British citizens enjoy their previous rights to live and work in the EU. And the EU still has lingering trade and economic policy fights with Washington that won't be solved by a magic wand from Biden.

"It would be a far cry for either the EU or the UK to think they have a very special relationship with Biden," said James, who specializes in trans-Atlantic relations. Europeans who saw US policy upended in its entirety in Trump's first term now know how short-lived the promises of even a committed internationalist can be—and they have 74 million reminders of the possibility of more whiplash in the near future. And no matter how much Biden wants to court, rather than clobber, Europe when it comes to trade disputes, Brussels simply has different priorities.

"The big cross-Atlantic tensions will be competition and tech policy. The EU has a much more aggressive campaign toward [breaking up and fining] the big tech giants than the US is prepared to do," despite the recent federal lawsuits mounted against Facebook and Google, James said.

"The big cross-Atlantic tensions will be competition and tech policy. The EU has a much more aggressive campaign toward [breaking up and fining] the big tech giants than the US is prepared to do."

And there's another scary economic legacy of the pandemic that could pose a huge challenge for Biden going forward. Months of virtual work during the pandemic have started to alter labor patterns, which will ultimately have a disproportionate impact on the already struggling working classes.

"There are going to be some significant shifts in where the jobs are," said Edelberg, now the director of the Hamilton Project at the Brookings Institution. "We're not going to unlearn all the new ways of doing business after the pandemic. There will be a lot more remote work, a lot less business travel, and there will probably be much more automation in different sectors."

Or as Oxford Economics wrote in another recent report: "The trauma of lockdowns may encourage firms to adopt more labor-saving technologies to limit any future disruption from social distancing."

That includes, for example, more automatic checkout machines in stores and other retail businesses—expediting the need for millions of workers to shift into new sectors. That, in turn, will create the need for big federally funded retraining programs—just the thing that has been conspicuously missing in recent decades when both Democrats and Republicans underestimated the devastating effects of globalization and technological advances on the industrial working class.

The Biden transition team has made clear that ambitious job retraining programs, as well as a meaty infrastructure bill that could rebuild a crumbling nation and act as a fiscal stimulus, are big priorities. But the new president will have a harder time pushing through progressive tax legislation, such as his proposed new tax on the wealthy, expanded earned income tax credits, and new tax credits for health insurance, child care, elderly care, and homeownership.

With ultimate control of the Senate still uncertain, will Biden have the political heft on Capitol Hill to make all that happen? Or will political gridlock spell another lost decade of growing inequality, political polarization, and, ultimately, a renewal of Trumpism?


Michael Hirsh is a senior correspondent and deputy news editor at Foreign Policy. Twitter: @michaelphirsh

Disclaimer: This article first appeared on foreignpolicy.com, and is published by special syndication arrangement.

Coronavirus chronicle / Top News / Global Economy

2021 / Recovery / economic problems / Covid

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Govt’s bank borrowing 43% of target in 10 months of FY22
    Govt’s bank borrowing 43% of target in 10 months of FY22
  • Fiscal consolidation is a way out
    Fiscal consolidation is a way out
  • Finance Minister AHM Mustafa Kamal, Photo: TBS
    Annual foreign debts can be paid with two months’ remittance: Finance minister

MOST VIEWED

  • Fiscal consolidation is a way out
    Fiscal consolidation is a way out
  • Falling trade barriers and hyper-efficient logistics produced an age of abundance for many. But the last four years have brought an escalating series of disruptions.Source: Bloomberg
    Age of scarcity begins with $1.6 trillion hit to world economy
  • Sketch: TBS
    'Food inflation is an unavoidable consequence of currency devaluation'
  • Scorched earth.Photographer: T. Narayan/Bloomberg
    The global safety net against hunger is frailer than you think
  • Sri Lanka default hints at trouble ahead for developing nations
    Sri Lanka default hints at trouble ahead for developing nations
  • FILE PHOTO: An image of Elon Musk is seen on a smartphone placed on printed Twitter logos in this picture illustration taken April 28, 2022. REUTERS/Dado Ruvic/Illustration
    Elon Musk can't easily give Twitter the boot over bots

Related News

  • China Junshi's potential Covid drug shows promise in small trial
  • Indonesia to drop outdoor mask mandate as Covid-19 infections drop
  • N Korean leader slams officials' 'immaturity' in response to Covid outbreak
  • Shanghai achieves 'zero Covid' status but normal life is weeks away
  • N Korea mobilises army, steps up tracing amid Covid wave

Features

Sketch: TBS

'Food inflation is an unavoidable consequence of currency devaluation'

11h | Interviews
The open-browser-tabs question also tells an interviewer how much of an internet native the job applicant might be. Photo: Noor-a-Alam

The best question to ask a job applicant

11h | Pursuit
Illustration: TBS

Ugly business: Politics in workplace

10h | Pursuit
Illustration: TBS

‘Do you have insurance?’: Life of a life insurance agent

13h | Panorama

More Videos from TBS

Putin's strategies to face Nato

Putin's strategies to face Nato

34m | Videos
How many countries have nuclear weapons and how many are there?

How many countries have nuclear weapons and how many are there?

49m | Videos
Dengue fever is rising, so beware

Dengue fever is rising, so beware

59m | Videos
How a university teacher and PHD holder become farmer

How a university teacher and PHD holder become farmer

5h | Videos

Most Read

1
Tk100 for bike, Tk2,400 for bus to cross Padma Bridge
Bangladesh

Tk100 for bike, Tk2,400 for bus to cross Padma Bridge

2
Representative Photo: Pixabay.
Bangladesh

Microplastics found in 5 local sugar brands

3
Mushfiq Mobarak. Photo: Noor-A-Alam
Panorama

Meet the Yale professor who anchors his research in Bangladesh and scales up interventions globally

4
A packet of US five-dollar bills is inspected at the Bureau of Engraving and Printing in Washington March 26, 2015. REUTERS/Gary Cameron
Banking

Dollar hits Tk100 mark in open market

5
The story of Bangladesh becoming a major bicycle exporter
Industry

The story of Bangladesh becoming a major bicycle exporter

6
PK Halder: How a scamster rose from humble beginnings to a Tk11,000cr empire
Crime

PK Halder: How a scamster rose from humble beginnings to a Tk11,000cr empire

The Business Standard
Top
  • Home
  • Entertainment
  • Sports
  • About Us
  • Bangladesh
  • International
  • Privacy Policy
  • Comment Policy
  • Contact Us
  • Economy
  • Sitemap
  • RSS

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net

Copyright © 2022 THE BUSINESS STANDARD All rights reserved. Technical Partner: RSI Lab