The global recovery plan in the United States is not large

Recovery programs in the United States are unprecedented. However, the health crisis has created prolonged fluctuations in the labor market. As with the 1929 and 2008/2009 crises, the only solution is to incorporate economic policies on a larger scale and over time. U.S. stimulus programs have these characteristics, especially those related to infrastructure, which should make it possible to return to a strong balance over time.

In an article from 1992, Christina Romer pointed out that the monetary policy adopted by the Federal Reserve was a key factor in explaining the strong resumption of US growth since 1933. Not aware of such a strong and rapid grip. Economic policy has played a key role in resuming growth since 1933 after the break of 1929.

The monetary policy implemented is very comprehensive and very comprehensive in terms of conventional criteria. But it is this excess that has allowed the economy to regain a high trajectory and a steady pace. Moreover, in 1938, when the economy was believed to be adequate, the central bank became more restrained, and then the economy shrank by -5%. The US Federal Reserve immediately reversed its action and resumed growth.

In 2009, economic policies were more responsive
To reduce the risk of depression at all costs.

In 2009, to get out of the financial crisis, monetary and budget resources were not normal in the United States and the rest of the world. This policy is expanding everywhere and, above all, is well integrated between all countries.

Since the signing of the G20 in London in April 2009, the dynamics of budget spending in all countries have accelerated. Suddenly, all governments are moving their strategy in the same direction.

In terms of monetary policy, interest rates fell very quickly almost everywhere. The central banks wanted to reduce the liquidity risk very quickly. The combination of these supports and their integration saw the resumption of the global economy in mid-2009.

However, as in the United States in 1938, when the policy of expansion did not last, the economy fell back into recession. Fighting against a public debt is highly regarded in the eurozone since mid-2011 when the EU decided to pursue an austerity budget. As with 1938, this was not a good choice as the eurozone economy experienced a 6-quarter recession from mid-2011 to late 2012.

To measure the need for a long-term policy, monetary policy after the financial crisis accommodates almost systematically.

The central bank’s attempt to normalize was thwarted by the health crisis and the ECP The possibility of normalization is not even imagined. The period of adjustment of the economy is not the financial markets.

The shock of instability requires significant corrective action
And in the long run to set the economy on a new sustainable path.

The course of the economy does not correct itself spontaneously and endogenously. In a typical situation, the economy varies around a trend and adjusts its grip according to the position of the economy in the economic policy cycle. It is more controlled when tensions arise and provides more space when those tensions subside. The response of economic policy will then facilitate economic stability by avoiding exaggeration.

In a crisis situation, the economy abruptly deviates from its usual fluctuating limits. She now lacks self-correction and the ability to return to normal.

The aim of economic policy is then to restore the cycle in a new direction and stabilize around it. The mechanisms are important and should last a long time.

The lesson of the 1929 and 2008/2009 crises is the need for more active, large-scale and long-term policy to stabilize the economy around a new sustainable path.

Joe Biden’s plans apply
In line with previous crises?

The policies of the new US president are linked to large-scale plans to respond to the brutal and profound trauma that has hit the economy. To quantify this shock, we need to look at the labor market. This marks the end of a crisis when the employment situation is considered satisfactory and in line with past developments.

By April 2020, U.S. employment was down nearly 20.7 million. Never in the history of the United States has such a decline been seen in absolute terms and as a percentage of the working population.

The labor market is still far from restoring its balance. If employment grows again at the rate of March 2021, i.e. 916,000 new jobs, then pre-crisis employment will not be restored until the end of February 2020, 2021, and will not coincide with the pre-crisis trend until the summer of 2022.

But 916,000 jobs (0.64% increase) is a staggering number. This compares with 163,000 (0.11%), the average number of jobs created during the last cycle of the US economy from June 2009 to February 2020.

To get a more reliable metric, we can take the number of jobs created in the last 6 months. This figure is 376,000 (0.26%). This is also an important person. If we reproduce this number again, the return to pre-crisis work will take place in February 2023, and the merger towards the pre-crisis trend will not take place until the end of 2027. The map illustrates this phenomenon.

The return to normalcy can only last with time and with very active economic policies. The 2027 horizon is the most distant horizon. Everything needs to be done to get closer to it and recovery plans are moving in this direction.

Discussions on the scale of recovery plans reflect two perspectives on the health crisis. For one it is a brutal crisis but not so deep. In this way, regular markers of circulatory tensions will quickly manifest themselves. The risk of inflation is high.
One is that trauma is considered to be caused by continuous disintegration with the need to intervene for a long time to find the equilibrium state. The risk of inflation is low because the economy is still far from equilibrium.

In the best cases, if the consolidation of the labor market takes place by the end of 2027, the shock cycle is not justified, but the large-scale policies of 1929 and 2008/2009 in line with that time.

This option is especially important as the world is less cooperative than in 2008/2009. So we need to build momentum in our own internal market without waiting for big support from other parts of the world. One peculiarity of this crisis is that the world grew with less cooperation.

In Joe Biden’s strategy, there is a desire to stop the economy at a higher productivity rate. It is also one of the foundations of the infrastructure project aimed at technology and carbon neutrality. Both may be associated with higher levels of production than have been experienced in recent times. This would be good news for the labor market as it is associated with a strong ability to create more productive jobs. This issue is what drives the new US president’s economic policy.