Commentary: It’s the summer of recovery, but can it last?

We've spent more than enough money on the pandemic to deliver a fantastic summer for most Americans. As long as the vaccines roll out at the current pace, we'll soon be walking the mall, dining out and rebooking family vacations as if nothing had ever happened. Some of us may even have a little extra cash in our pockets — either saved or as a stimulus check — to compensate for a long, lonely lockdown.

But that, it turns out, was the easy part. Now, the Biden administration is attempting to keep the U.S. economy from sinking back to its pre-pandemic, low-growth rut. Without any further government action, this year's generous fiscal support will likely turn into a stiff headwind that could easily cut the celebration short.

President Joe Biden's next spending plans are as ambitious as they come, including efforts to redress inequality and take on climate change. But even the central economic goal to support higher sustainable growth rates remains a tall order. Investors need to answer two key questions: Will the money arrive before the effect from the stimulus runs out, and will it really do enough to overcome the forces of automation and demographics that helped drive growth lower over the last decade?

The answer to the first question depends crucially on the mix of spending and tax increases that Congress and the president manage to agree on. Legislative outcomes are notoriously difficult to predict, especially with such a thinly divided Senate, but packaging an initial $2 trillion proposal around popular spending to fix roads, bridges and tunnels seems likely to succeed in some form.

Large parts of the program devoted to research and job training have drawn criticism for being far beyond the scope of traditional infrastructure, but from a macroeconomic perspective, this spending might help support demand until the more complicated hard infrastructure projects are actually shovel ready.

Of course, the higher taxes the president envisions to pay for it all will surely take a bite out of corporate earnings. The actual impact, however, will depend as much on what new deductions firms may be allowed to take even as the headline rates rise. There will likely be plenty of incentives to encourage private investment. And if ever there were a time to reclaim half the tax cuts of 2017, it's probably during a year of economic growth that may top 8%.

Whether this spending will deliver growth that is sustainably higher presents a much bigger question for investors looking at the long-term prospects for America Inc. A discerning eye will want to make sure the programs are designed to crowd in private investment, rather than have the effect of crowding it out. Government spending on electrical vehicle charging stations in rural areas, for example, should encourage commercial competitors in cities. The analysis will need to include an assessment as to whether the money creates jobs for the future or "jobs for the boys" that do little more than pay off political favors.

Above all, it will have to be effective enough to reverse some of the pressures that have driven average annual growth rates to 2% over the last decade, from 3% or more. Explanations include factory automation and global competition that have eroded labor force participation rates as manufacturing jobs disappear. An aging workforce intent on saving rather than spending probably contributed, too.

At least one of the key explanations for lower growth, however, is a decadeslong decline in U.S. government investment as a proportion of the economy, including in hard infrastructure, research and education. While these programs accounted for 6% of GDP in the 1960s, they have fallen to just 2% today (with a brief surge to 4% after the global financial crisis).

The spending alone will not do much to boost growth without broader reforms in immigration and training to expand and upgrade the labor force, but those changes won't go far without a serious recommitment to government investment. Mr. Biden's second trillion-dollar investment program include large commitments to provide better access to college and health care.

Altogether, these initiatives will likely fall short of their lofty aspirations. But there is so much money coming that the country's economic trajectory will surely improve a little, and in some areas it will improve a lot. For the careful investor, this means a sharp pencil and a keen eye for opportunities that will thrive among these broad initiatives. It also means looking beyond the fabulous summer coming into view and imagining just how these programs will accelerate growth for a country that considers itself "recovered."

Christopher Smart is chief global strategist of Barings LLC and head of the Barings Investment Institute, based in Boston. This content represents the views of the author. It was submitted and edited under P&I guidelines but is not a product of P&I's editorial team.