Thursday, October 28

Joe Biden writes a check for the United States and the rest of the world | United States economy

ORS chairman Joe Biden did the world a favor last Thursday when he signed a bill that delivers $ 1.9 trillion (£ 1.4 trillion) of bailout funds to state and federal agencies, millions of students and workers and the US vaccination program

The money will first appear as checks landing on doormats starting this week, softening the blow of the pandemic for those who work and for the many who remain out of work and under severe financial pressure.

For the remainder of the year, the funds are expected to increase US national income by 3-4%, and return the economy to the path it would have been if the pandemic never happened.

More than that, the trade effect of rising U.S. imports and exports will boost the world economy by an additional percentage point, adding nearly another quarter to its 2021 growth rate, according to the Organization’s latest forecast. for Cooperation and Economic Cooperation. Development. The Paris-based think tank estimates that the global economy will expand 5.6% this year from its pandemic-induced low, an increase in its forecast of 4.2%, made last December.

With so much at stake in this, some Democrats were surprised that the vote was close in both houses of Congress. The victory followed a 220-211 vote in the House of Representatives and a single vote, cast by Vice President Kamala Harris, to triumph in the Senate.

However, it was far from a narrow debate among the general public. A Pew Research Center poll last week found that 70% of Americans are in favor of the stimulus package.

David Blanchflower, a renowned labor market economist at Dartmouth Ivy League University, said Republicans would regret their snipers and their efforts to derail the plan.

“It’s just what the US economy needs right now,” he said. “Entering the pandemic, the economy was weaker than they thought, with a significant number of people underemployed or not participating in the labor market. The situation is much worse now that millions of people need help ”.

Blanchflower, who spent three years on the Bank of England’s monetary policy committee before and after the 2008 bank crash, said the US economy had more slack than official figures show, which means that even a major stimulus the size of Biden could fail. put the US economy on a permanent growth path.

David blanchflower
David Blanchflower of Dartmouth College said the US economy was weaker than many thought. Photograph: Getty Images

This month, the Bureau of Labor Statistics reported that, as of mid-February, the economy was still 9.5 million jobs below where it was in February 2020. Elise Gould, an economist at the Institute for Economic Policy, said this translated into a 11.9 million employment deficit “When a reasonable counterfactual of employment growth is used if the recession had not occurred.”

As a rescue measure, the Biden package is a blunderbuss, distributing money to a wide range of targets. It will provide $ 350 billion for state, local and tribal governments, preventing a repeat of the 2008 crisis, when many of these organizations, struggling to balance their accounts, were forced to make drastic spending cuts.

There will be $ 30 billion for transportation authorities to cover lost passengers and $ 130 billion for elementary and secondary schools. As in the UK, there will be assistance for those unable to pay the mortgage, although tenants, who are excluded from assistance in the UK, are also part of the deal.

Students will have their loan tax payments forgiven and federal unemployment payments of $ 300 per week will run through September. More significantly, it provides another round of direct payments to households, sending checks of up to $ 1,400 to individuals earning up to $ 80,000, single parents earning $ 120,000 or less, and couples with household incomes of no more than $ 160,000.

Barry Naisbitt, an American economics expert at the UK’s National Institute for Economic and Social Research, said some parts of the package could fall short: “There is a question mark as to whether the $ 350 billion for states and local areas will be enough when we are dealing with much of the pandemic spending. ”

Economists at the Washington-based Brookings Institution said that while $ 700 billion in direct payments would boost consumer spending, the year-long spree could result in a hangover. “While our estimates show a soft landing, with a temporary and shallow decline in GDP after the fourth quarter of 2021, the slowdown could be more abrupt and painful than our projections suggest,” said researchers Wendy Edelberg and Louise Sheiner.

Biden faced a two-pronged attack on the pack. On one side were Republicans who, despite pushing for a $ 2.2 trillion increase last year, said they feared the latest version would increase the national debt to dangerous levels.

Within the Democratic camp, some economists, notably Larry Summers, a former Bill Clinton adviser and Harvard president, said it was an overstatement, fearing that something above $ 1 trillion would overheat the economy and trigger spiraling inflation.

Inflation expectations in the US show investors expect an increase from the annual reading of 1.7% in February, but only as high as 2.9% between April and June, before declining to 2.5 % for the rest of the year and 2.2% in 2022.

The head of the US Federal Reserve, Jerome Powell, said last week that a rise in inflation above the 2% target level would be temporary and for that reason could be ignored. If anything, he added, the US economy needed some inflation after more than 10 years without any.

The moderately rising prices were an indication of economic health and should be welcomed, he added, which is the way a central banker applauds the package and tells people not to panic over some of the side effects, such as the surge. of interest rates, the corollary of rising inflation.

In the most restricted parts of the world, the prospect of overheating is a distant dream. European Union countries have struggled to boost their vaccination programs and a € 740 billion (£ 635 billion) stimulus will take effect there more slowly, probably in two years.

Even the UK, which is catching up with the US in vaccination rates and expects to see a quick recovery from June, has allowed fears of high debt and inflation to cloud its stimulus plans.

Fortunately, the Biden plan, like many of his policies, extends beyond the borders of the United States and will lift all ships.

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