If the virus again puts the economy to the sword, it might not benefit from the life support it got in March in the form of lavish unemployment insurance and emergency loans for small businesses. Republicans in the Senate will probably support a limited second round of fiscal stimulus, but are in no mood for another blowout. A debate is raging about whether the Federal Reserve should extend its emergency lending into the new year. Job cuts by state and local governments, whose budgets have been hit by the pandemic, are already weighing down the labour market. They need a bail-out that Republicans do not want to give. Mr Biden’s first challenge will be to persuade Congress to keep the purse strings loose until the vaccine has brought about a full reopening.
At the same time the new president will need to grapple with the post-vaccine economy, which will look different from the one that entered the pandemic. The crisis has hastened the digitisation that was already poised to define business and investing in the 2020s. That trend will not fully reverse, even after the pandemic has subsided. Investors are still struggling to make sense of an economy in which intangible capital replaces the bricks-and-mortar kind, and in which network effects make incumbents more dominant and profits more enduring.
As technology permeates business, the nature of investment is changing. After the global financial crisis of 2007-09, the share of private non-residential investment flowing to intellectual property hit 30%. Soon it may breach the 40% threshold (see article). In this world, Walmart must become an e-commerce giant, Ford must compete with Tesla to make electric cars, and computers must allocate capital. Even McDonald’s has been working on its digital strategy (see article). The tech revolution will change the economy as much as the globalisation wave that defined Bill Clinton’s presidency in the 1990s. As it reshapes the labour market—blue- and white-collar jobs alike—it could tear at the social fabric, much as the automation of manufacturing jobs did.
America’s epidemic could be fading by the end of 2021. The tech surge will outlive Mr Biden’s presidency. Yet the same principle should guide him on both: that government must not resist economic change, but should instead help people adapt to it. One reason America’s economy is outperforming Europe’s is that its stimulus has done more to prop up household incomes than it has to preserve redundant jobs. Similarly, governments that respond to technological change by remaking safety-nets and rewriting social contracts for the new era will do better than those which seek to preserve obsolete models of capitalism and government.