What’s the right answer? Another $2 trillion in federal relief spending, on top of the trillions already spent? Or ease up on the fiscal accelerator, mindful of the swelling federal debt burden? In 2020, as the Covid virus tore into large parts of the economy, Democrats and Republicans alike were quick to provide $2.2 trillion in federal relief. Reaching a second round proved politically more difficult but by December, Congress agreed to spend another $900 billion. Now, with Covid still taking its toll on businesses from restaurants to airlines, America’s new president wants $1.9 trillion more. Will he get it?
To President Biden’s backers, it would ultimately cost more not to spend the additional money. Businesses continue to fail. America’s unemployed workers are losing their skills. Critical state and local services, from policing to education to transit, are under tremendous fiscal strain. These hurricane-force headwinds say the Keynesian crusaders, will scar the economy long-term if allowed to worsen, draining its productive capacity and sapping its long-term growth potential. The additional money, they add, will buy the economy time. In only a matter of months, vaccines promise to end the terrible storm once and for all. What a shame it would be to allow so much long-lasting damage in the interim. And besides, there’s never been a safer time to borrow with interest rates so low.
But notwithstanding a growing band of modern money theorists, most economists agree that too much debt really can be a problem. The value of the dollar could collapse. Inflation could return with a vengeance. For Americans wary of too much federal power, swelling debts are a dangerous manifestation of overreach.
Another round of federal spending or not, large portions of the economy are thankfully in good shape as the first month of 2021 nears its end. It’s true of many sectors, from technology to consumer goods to agriculture to housing to finance. One way to look at it: The economy right now is like a car driving on a flat tire. Once the tire gets more air (in other words, more vaccinations) it should be running smoothly again. It’s different from the downturn a decade ago, when key parts of the economy’s engine were broken, i.e., its finance and housing sectors. The Covid crisis, meanwhile, is accelerating some major shifts in the economy—toward adoption of electric cars, for example, and Big Tech’s intent on participating in that shift. Companies in all realms are hastening their adoption of new tech tools like machine learning. The world, meanwhile, is pushing past the age of hydrocarbons. But less certain are the permanence of other big pandemic-era developments, like working from home, foregoing business travel and telehealth. Are those practices here to stay? How about the problem of worsening inequality, also turbocharged by pandemic-era forces?
For the moment, America’s hospitals continue to battle against Covid, amid worries about new strains of the virus. Health care professionals are all the while engaged in their epic campaign to vaccinate the public, racing against time. Producing, distributing and administrating hundreds of millions of vaccinations, to be sure, is no easy task. Alas, progress has thus far been slow.
Still, stock markets generally held strong last week, never mind the bubble talk, with a boost from healthy company earnings. There are certainly no signs of the Federal Reserve tightening the money supply any time soon. Will that mean interest rates stay extremely low? Or does the uptick this month herald something more noteworthy? How about last week’s bitcoin bust? Is that a trend? Will commodities—oil, minerals, grains, etc.—maintain their upward march?
We won’t discover all the answers this week. But we will get an avalanche of fourth-quarter earnings reports. It’s the busiest earnings week of the quarter, in fact, featuring iconic tech companies like Apple, Facebook and Microsoft. Johnson & Johnson will field questions not just about its earnings but more importantly, its promising one-shot Covid vaccine. Tesla will certainly command attention. Verizon and AT&T are up this week. So is McDonald’s and Starbucks. Are there any signs of hope in the airline sector? American and Southwest might have some answers, as might Boeing and General Electric, the latter a big supplier of aircraft engines. But first, some highlights from last week: