Looking Back, Moving Forward: Year One of President Biden’s Economic Agenda
By Chair Cecilia Rouse
A year ago today, President Biden entered office with a full agenda: a pledge not only to fight the pandemic and support economic recovery, but also to rebuild our economy to produce long-term and more widely-shared growth.
The President was inaugurated amidst a still-raging pandemic and a weak economic recovery. A year later, thanks to the rescue efforts of the Biden Administration, millions of Americas have protection from the worst of COVID-19, businesses have been able to resume activity, and children are back at their school desks. Economic recovery has been strong, with sharp increases in employment and GDP, alongside projected reductions in child poverty.
The Administration has not only succeeded in shepherding the economy through the pandemic ups-and-downs to date, but also in laying the foundation for future economic growth. Millions of workers and businesses have avoided the economic scarring so typical of severe recessions. Combined with the passage of a historic infrastructure bill, the groundwork has been laid for longer-term economic investments.
The work has just begun. Challenges remain: weathering the next phase of the pandemic, curbing inflation, and investing in long-neglected parts of our economy. But, the Administration is poised for the next chapter with its continued focus on protecting and investing in America.
America in January 2021
When President Biden took office, America faced a great deal of uncertainty and anxiety—about the pandemic’s path and the viability of the nascent economic recovery. On the day he was sworn in, COVID-19 had endangered people’s lives and impeded many families’ means of safely supporting themselves and their children for almost a year.
It was still unclear how well vaccines—new and out of reach for most Americans—would succeed in fighting the pandemic. By Inauguration Day, only 1 percent of the population was fully vaccinated. No one knew for sure whether vaccines would hold up, particularly as the virus mutated and unknown variants emerged.
The pandemic uncertainty also increased economic uncertainty. In just the one month before President Biden took office, the United States had lost 306,000 jobs, and there were still about 4 million workers who had been unemployed for more than six months. While private sector forecasters predicted the unemployment rate would decline over 2021, they believed the pace would be slow and end up at 5 to 6 percent at year’s end.
In addition, the United States still faced the issues that had contributed to decades of low and unequal economic growth. Inadequate Federal investment in research and infrastructure, decreasing competition, and a notable lack of support for America’s workers had resulted in an economy that worked for some but left many behind, especially people and communities of color. Therefore, while the economy needed immediate attention to fight the pandemic, it also needed reform to create stronger and more equitable economic growth moving forward.
Supporting the economy through the pandemic
The pandemic has posed one of the greatest economic challenges this country has ever faced. In addition to the pandemic being a fast and severe blow to economic activity, the ever-changing nature of the virus required economic policy to be nimble enough to meet the challenges of a rapidly changing outlook.
President Biden met the challenge. In his first year of office the Administration focused on rescuing a damaged economy—and the people it left in its wake—as the pandemic continued. The American Rescue Plan (ARP) was an insurance policy for the economy, businesses, workers, and families harmed by the economic uncertainty brought about by the virus. The ARP prioritized ensuring that there were enough resources to get and keep the recovery on track. Examples include support for households in the form of Economic Impact Payments (stimulus checks), expanded unemployment insurance, and the expanded Child Tax Credit; increased funds to the Paycheck Protection Program (PPP) to help support small businesses; and flexible funds to State and local governments and school districts to fight COVID, keep schools open, and prevent cuts to services by State and local governments (a casualty during the Great Recession).
The ARP was crafted to address the extraordinary uncertainty of a global pandemic, supporting the economy and public health response as the virus evolved, often in unpredictable ways. The emergency measure worked, and the resulting pick-up in economic growth in 2021 has been extraordinary. The unemployment rate has come down much faster than forecasters predicted and GDP growth has been stronger than they anticipated at the start of the year. Labor force participation also rose substantially: prior to the pandemic, the economy had not seen a twelve-month increase in prime-age (25 to 54) labor force participation exceeding 0.9 percentage point since the mid-1980s.
Moreover, the long-term unemployment rate has been cut in half since December 2020. In comparison, during the Great Recession it took around four years for the long-term unemployment rate to fall that quickly. Long-term unemployment is typically one of the most difficult and pernicious economic challenges coming out of downturn, as those who have been unemployed for more than 6 months often struggle to find work. Given that, the rapid improvement in long term unemployment in 2021 is astonishing.
It is also remarkable that in a year of loss and unprecedented hardships, the poverty rate (as measured by the Supplemental Poverty Measure) is expected to have reached a record-low level of 8.5 percent in 2021.[1] For the first time ever, the poverty rate of children is projected to be lower than that of the general population, also approaching a historically low level of 5.9 percent. Furthermore, these reductions are projected to be widely shared, with hundreds of thousands of adults and children of all races lifted over the poverty line last year.
These short-run rescue measures do not just affect economic growth in 2021; in fact, they are an important way the Biden Administration has supported long-run economic growth. By making up for family income lost due to the pandemic, supporting the unemployed, and reducing child poverty, the rescue agenda prevented much of the long-term scarring—what economists call “hysteresis”—that can be a persistent drag on long-run growth after deep recessions.
In fact, the International Monetary Fund now believes the U.S. economy will be larger in 2024, with higher employment, than it predicted prior to the pandemic. Without action from policymakers, long-term growth potential may well have been held back due to scarring or insufficient investment. By providing extraordinary support for Americans in the dark days of the pandemic, the Biden Administration helped lay a strong foundation on which to build a better economy for the future.
Rebuilding for sustained and shared growth
Helping families and businesses weather the pandemic and prevent long-term scarring from its economic harms is not enough, however, to ensure a strong and equitable economy going forward. A dearth of needed Federal investment has held back growth and well-being in the United States for decades. Thus, returning the United States to a path of sustainable, inclusive growth is a critical part of the Biden Administration’s legislative agenda. A historic step toward this goal was this year’s enactment of the Infrastructure Investment and Jobs Act (now known as the Bipartisan Infrastructure Law or BIL), which provides long overdue investment in our nation’s physical infrastructure.
The BIL is focused on rebuilding our nation’s infrastructure and fighting climate change, which includes investing in roads and bridges, clean water, and access to broadband. It makes investments in upgrading U.S. ports and waterways, closing technological gaps between U.S. and foreign port infrastructure. It further invests $66 billion in railways, which handle about 28 percent of domestic freight transportation and have also been under significant strain. By strengthening America’s goods transportation system, these public investments will encourage private businesses to invest and hire workers, particularly in manufacturing. Unlike the ARP, which was short-run stimulus and insurance designed to be spent out over the course of the pandemic emergency, the BIL will be spent out over years, building and strengthening the foundation our economy needs to increase its productive capacity.
President Biden has also taken Executive action to strengthen the U.S. economy. For instance, in July, the Administration issued an Executive Order aimed at increasing competition in markets in the United States. Concentration has increased in over 75 percent of U.S. industries since the late 1990s (as discussed at-length in a previous CEA piece), and the profits and markups of the largest firms—indicators that many economists point to as aggregate measures of market power across the economy—have grown over the last 30 to 40 years. For instance, in 1977, the largest four beef-packing firms controlled 25 percent of the market, compared to 82 percent today. Over 80 million (or about 25 percent of) Americans have access to only one broadband provider.
When there is insufficient competition, dominant firms can use their market power to charge higher prices, offer decreased quality, and block potential competitors from entering the market—meaning entrepreneurs and small businesses cannot participate on a level playing field, and new ideas cannot become new goods and services. Market power is connected to inequality; in an economy without adequate competition, prices and corporate profits are elevated, while workers’ wages are depressed. This means large corporations and their shareholders have increased wealth compared to a more competitive equilibrium, while consumers and workers pay the cost. Thus, this Executive Order is aimed at bringing the weight of the Federal government to bear on an issue that has remained largely unaddressed for decades.
As another example, the Administration issued a first of its kind Executive Order on racial equity aimed at advancing equity throughout the Federal government and finding ways through agency action to achieve that goal. Improving equity in our economy can increase our productive capacity by ensuring that everyone is achieving their full potential. As one example, Mary Daly and co-authors estimate that the cost to the economy of racial and ethnic economic inequality was over $20 trillion in the past 30 years. Similarly, the Administration undertook historic strides in ensuring the full participation of women in all aspects of society, including in the economy. These include the establishment of the White House Gender Policy Council and the creation of the first-ever National Strategy on Gender Equity and Equality. Supporting women, who make up more than half of the U.S. population, advances the nation’s full economic potential.
There were many other administrative actions taken this past year to improve the foundation for long-run economic growth. For instance, President Biden called for an all-of-government approach to address climate change, which presents a huge threat to the future of stable and strong economic growth (discussed in a previous CEA issue brief). By the end of this century, the increase in global average temperatures could surpass 3 degrees Celsius (5.4 degrees Fahrenheit), which one recent meta-analysis finds could cause damages equal to 7 to 11 percent of annual global GDP year-after-year and create systemic risks to environmental, human, and economic systems. The Administration brought the automobile industry and the United Auto Workers together to commit that by 2030, half of all light vehicles sold would be electric, and the Environmental Protection Agency finalized Federal greenhouse gas emissions standards for passenger cars and light trucks for Model Years 2023 through 2026. These standards leverage advances in clean car technology to unlock up to $190 billion in net benefits to Americans—including reducing climate pollution, improving public health, and saving drivers money at the pump.
The Administration also issued an Executive Order increasing the minimum wage to $15 for workers on Federal contracts. Raising the minimum wage helps workers at the bottom of the income distribution by increasing earnings growth. Importantly, the economic literature suggests it may also increase worker productivity and reduce turnover, both benefits to employers.
These are but a few examples of important accomplishments in the first year of the Biden Administration that should lay the foundation for stronger, more inclusive economic growth going forward.
Challenges ahead
Despite the substantial policy successes of 2021 and the extensive economic recovery, we cannot come out of two years of one of history’s most extraordinary crises without facing additional challenges. One of the most serious is inflation. Price growth in the Consumer Price Index as of December 2021 was 7 percent year-over-year. The pandemic itself has been a major driver of inflation. The pandemic necessitated critical support for the economy which fostered strong consumer demand. Further exacerbated by a shift from services to goods, this put unprecedented pressure on global supply chains, which were already strained by the impact of the pandemic. While private-sector forecasters foresee price growth moderating in 2022 and beyond, high inflation is a burden for American families today. There is also ongoing uncertainty about energy and food prices, which are volatile and affected by a number of global factors, including weather and geopolitical events.
The principal means to reduce inflation, of course, rests with the Federal Reserve in the context of their dual mandate. Notwithstanding the Fed’s leadership and importance, however, there are also important steps that the President and Congress can take to help families deal with costs, especially through measures that aim to expand the productive capacity of the economy over the short-, medium-, and long-term.
The most serious short-run threat to our productive capacity is the pandemic itself, and so policies to address the virus ought to be seen not only as public health actions, but also as economic capacity measures. The labor force, supply chains, and businesses are still being impacted by the challenges that come with high virus caseloads. For instance, if it was no longer the case that any worker was out of the workforce or unable to work due to COVID, the gap between the prime-age employment rate and its pre-pandemic level would close by about 25 percent. That fact speaks to the importance of the pandemic in the labor force disruptions that families and businesses are currently experiencing.
In addition, there are still investments in the long-run growth potential of the economy that must be made, addressing problems and shortfalls that pre-date the pandemic. For decades, our economy has lacked policies that invest in our people, including those that facilitate labor supply and provide investments in children. History teaches us this is not the right path. Investments made in the early 20th century in universal primary and secondary schooling drove growth throughout that century. The United States developed a highly skilled labor force, and established some of the best universities in the world.
Yet, the United States has now fallen behind. As one measure, the United States ranked 35th in math and 11th in reading in the 2018 OECD Programme for International Student Assessment. Research and employment projections indicate that demand for the kinds of postsecondary skills provided by higher education has increased and will likely continue to do so. One paper documents that the share of employment in professional, technical, and managerial occupations—high-paying occupations typically associated with at least some college education—grew from around 30 percent in 1970 to 46 percent in 2016. Estimates are that nearly half of net job creation between 2020 and 2030 will be in occupations that require at least some postsecondary schooling at the entry level, and two out of five will require at least an AA degree.[2] Investments in Pell grants, community colleges, HBCUs, and other education and training can help workers move into higher-paying jobs.
Similarly, there is evidence that the United States has fallen behind our economic competitors because of a failure to implement policies that allow families to address tensions between work and family life. Labor force participation in the United States for people ages 25 to 54 peaked at more than 84 percent in 1999, but has since slumped through three recessions and never again reached that level. Research shows that workplace supports, such as access to affordable, high-quality childcare and paid leave, are associated with higher labor force participation and job retention among caregivers, particularly mothers.
Some of these investments would both increase economic capacity moving forward and help with some of the labor supply issues the economy is currently facing. For instance, paid leave and childcare are not only important for long-term economic growth, but would also help ameliorate some of the pandemic disruptions that have held back labor force growth. Similarly, immigration would help improve economic growth and also provide needed support during the pandemic.
It is important that we stop neglecting these important investments, as the President’s agenda attempts to do, in order to ensure strong, sustained economic growth moving forward.
Conclusion
Given the uncertainty around the pandemic and the economy at the beginning of the year, economic progress was not pre-ordained. But thanks in large part to the rescue and investment actions taken by the Administration, the last year has seen unprecedented improvement in our economy and important investments made in its future productive capacity. Effective economic policy has supported families, workers, and businesses, and in doing so, likely averted long-term scarring that would have undermined economic growth in years to come. The Administration has made additional investments in sustainable economic growth through the Bipartisan Infrastructure Law and executive actions such as those aimed at promoting competition and addressing racial inequity. Challenges remain, but substantial down payments have been made on investments in long-term growth, laying the foundation for stronger and more widely shared prosperity for decades to come.
[1] Official estimates of poverty in 2021 will not be released until September of 2022.
[2] CEA calculations based on Bureau of Labor Statistics (2020), Table 1.7.
