After years of both big-data and granular research about minimum-wage increases and homeownership/mortgages, Radhakrishnan Gopalan knows the pandemic-addled plight of the middle and under classes in America. Gopalan, professor of finance at Olin, also knows any economic plan must be multifaceted and multiyear. In short, this is going to take time. And effort.
“In my view, the Biden administration faces two short-run and three long-run challenges that it has to tackle to get the economy back on track,” he said.
“The two short-run challenges are the rampaging pandemic and the fact that many at the bottom of the pyramid are out of a job with little short-run prospect of getting one and are struggling to make day-to-day expenses,” Gopalan said. The pandemic is a public health issue, involving medical expertise, vaccines, masking, distancing and more. The economic challenge requires a directed stimulus program until COVID-19 is brought under control.
That leaves three long-run challenges, Gopalan said.
- Don’t count on household consumption. “While there may be some short-run pent up demand, I fear the household sector will have too much debt and will find it difficult to contribute to demand in the long-run.”
- Hospitality and transportation may never regain their lost employees. “This means retraining and repositioning the workers in these sectors.”
- WFH changes everything. “The virus has resulted in many structural changes in the way we work and enjoy leisure, and this would involve refocusing our investment in infrastructure.”
How to tackle the challenges
- “I believe the Biden administration will have a plan to tackle the fastest growing source of household debt: student debt. This may involve some debt forgiveness and more liberal eligibility for income-based repayment plans.”
- “To both tackle the limited demand from the household and corporate sector, the administration will have an infrastructure bill that would involve green investment and investment in digital as opposed to physical infrastructure — taking into account the transformation in the economy brought about by the virus.”
- “The administration may also have some targeted relief to the worst affected sectors of the corporate sector to help them recover and rebuild from the crisis. “
- “There are some who argue that one way to increase household demand is to increase the minimum wage. I agree that there is some merit to this argument, so in the medium- to long-term I see the administration increasing the federal minimum wage.”
- “To retrain and refocus workers from the sectors permanently damaged by the virus to the sectors helped by it, there will be investment in worker retraining.”
- “Finally, health care is a constant source of concern for all Democratic administrations, and we may see further strengthening of Obamacare marketplaces and Medicaid.”