Not to ruin the party, but the 2021 forecast is nightmarish
The year’s end is a time for reflecting on the past year and preparing for the new one. Most people are looking forward to moving past COVID-19 and its lockdowns and returning to “normal life.” But, for Joe Biden, still popping Champagne corks after the Electoral College vote, 2021 may be creeping up to become his worst nightmare. America was severely broken and fundamentally changed during 2020 and it will take a long time to fix it — a job that President-elect Biden is unprepared to handle.
The true culprits, if there are any, appear to be China and many U.S. state and local governments.
There is strong evidence that China knew the coronavirus that originated in Wuhan was dangerous and failed to alert the world. Biden will be disinclined to further investigate that or retaliate against China, and his strongest supporters and closest advisers would restrain him if he tried. China has shown signs of triumphalism from its growing economic and military strength, and that specter will only get more threatening during 2021. Over the first few months of 2021, Biden will face a trial by fire from China, as well as Russia, Iran and North Korea.
But the even more serious threat in 2021 is economic failure and a recession that might be sustained throughout Biden’s presidency. The nails in that coffin are the massive overspending and hugely increased debt by the federal government over the past 20 years, but especially over the past year; massive overspending and burning reserves by state and local governments, already crippled by an overwhelming public employee pension overhang; and a transformed and totally new American economy, emerging from the lockdowns and the stock market collapse and recovery, which has and will continue to crush the job-creating engine of small businesses (hundreds of thousands of which were lost forever by the lockdowns).
The post-pandemic economy has replaced localized large employers with more efficient, gigantic, technology-based businesses, which have thrived during the lockdowns and which require much smaller workforces. The impossible problem for Biden will be how to stimulate private-sector jobs with declining small-business investment and no federal funds for public works jobs.
Throughout 2020, the federal government, facing surging business failures and unemployment, largely because of the state and local lockdowns, spent trillions of dollars on COVID-19 relief programs. Federal debt as a proportion of gross national product now exceeds 108 percent, topping the level at the peak of World War II. By comparison, the ratio was around 40 percent under George W. Bush. It began to rise during the 2008 financial crisis and exploded under Barack Obama to around 80 percent. It remained relatively stable under Donald Trump, until the lockdowns drove it to over 108 percent.
That is a level that threatens federal government debt default, cratering the market far worse than anyone has ever seen, raising interest rates to a level that dissolves business investment and can lead to record unemployment — in short, perhaps the worst economic conditions in recent American history. It could mean a collapse of the dollar, a global recession, and an inability to pay federal workers and the military. It could mean a large portion of tax revenue used to service the national debt.
The bad news for Biden is that raising taxes for anyone — especially businesses and the rich — or any increase in federal spending easily could push the American economy over the cliff in 2021. Under these conditions, tax increases on business and the rich, which reduce investment and promote capital flight, could reduce federal revenue rather than increasing it. Less revenue to service the debt puts Social Security at risk, leaves no room for any huge new programs, and means the only solution will be drastic federal budget reduction. That will put Biden on a collision course with the Democratic Party’s radical left wing at one end and sustaining national security and Social Security at the other end.
Many states and local governments are in even worse shape. During the COVID-19 crisis they promoted restrictions that crushed their local businesses and created huge unemployment and out-migration. All of that translates into less tax revenue. They will try to increase taxes, but that will only crush remaining businesses and taxpayers, creating a further downward spiral. Most state and local governments resisted serious budget cuts and staff furloughs during 2020 (although they forced their local businesses to cut staff and close down), and burned through their reserves. Most assumed an eventual federal bailout would come. But the feds cannot afford that bailout and many state and local governments may well become insolvent.
The media, which were slavishly indulgent of Biden as the “non-Trump” candidate, likely will start to turn on his administration, demanding answers where there are none. Biden lacks Obama’s political and personal skills to deflect such attacks. Obama was transformational; Biden is transitional, essentially a caretaker. Biden’s “Weekend with Bernie” strategy of dodging the press and tough questions will evaporate. The honeymoon will end about as quickly as Biden’s first budget. Biden’s uninspired and mediocre economic team will be of little help — none has shown skill at budget-cutting.
On its current course, the midterm elections will be a windfall for Republicans and a death knell for radical progressives. The same might easily repeat in 2024.
My forecast (guess) for 2021: A dark night for Joe Biden.
Grady Means is a writer (GradyMeans.com) and former corporate strategy consultant. He served in the White House as a policy assistant to Vice President Nelson Rockefeller. Follow him on Twitter @gradymeans1.