Over the last dozen years, there has been a sea change in how economists view many crucial questions related to deficits, public debt and the long-term payoffs of social spending.
Most Democratic elected officials have embraced this new thinking, and it permeates the Biden domestic agenda. But a handful of Democrats are unpersuaded, holding to a view that was more widespread in the early Obama years, focusing on the risks of debt and spending.
That tension, and how it resolves itself — or doesn’t — will be central to the evolution of the Biden presidency and American economic policy for years to come. On the surface, there is a clash between lawmakers with different political instincts. But there is also a clash over whether a more traditional view will prevail over a newer approach that has become mainstream among economists — especially those who lean left, but with some acceptance among center-right thinkers.
In the older view, it is irresponsible to increase long-term budget deficits because it will curtail private investment and risk a fiscal crisis. Social policies should be seen as a zero-sum trade-off between alleviating poverty and encouraging work. And any major new spending should be coupled with enough revenue-raising measures that the number-crunchers at the Congressional Budget Office conclude the numbers will balance over the next 10 years.
This was the approach that the Obama administration and congressional Democrats took in passing the Affordable Care Act, a process made lengthier and more complex by these self-imposed constraints.
But since those days, the intellectual ground has shifted in important ways.
For one, long-term interest rates have fallen precipitously, even as very large budget deficits have become the norm. That implies the United States can maintain higher public debt than once seemed possible without excessively constraining private investment or facing excessive interest costs. …
Not long ago, research into the trade-offs of welfare spending tended to focus on narrow questions like how much a given benefit might discourage people from working. In the last few decades, researchers have used novel statistical techniques (including those that won a Nobel Prize last week) and rich new sources of data to try to determine what long-term benefits they might offer to the overall economy.
Take, for example, spending that keeps children well-fed and out of poverty, such as school lunch programs and assistance payments to low-income parents. These appear to have long-lasting benefits for future employment and earning power — creating supply-side benefits, or increasing the economy’s overall potential.
“If we give people more resources when they’re young, they can eat better and do better in school, and this could have lasting impacts,” said Hilary Hoynes, a professor at the University of California, Berkeley, and an author of extensive research along these lines. “It doesn’t seem like such a crazy thing to assert, but we had no evidence on that 15 years ago.”
This is part of the thinking beneath major elements of Democratic legislation under consideration, including universal preschool and an extension of a child tax credit. Professor Hoynes said she had received many calls from congressional staff members in the last few years seeking to understand the emerging evidence. …
Fall was meant to mark the beginning of the end of the labor shortage that has held back the nation’s economic recovery. Expanded unemployment benefits were ending. Schools were reopening, freeing up many caregivers. Surely, economists and business owners reasoned, a flood of workers would follow.
Instead, the labor force shrank in September. There are five million fewer people working than before the pandemic began, and three million fewer even looking for work. …
The slow return of workers is causing headaches for the Biden administration, which was counting on a strong economic rebound to give momentum to its political agenda. Forecasters were largely blindsided by the problem and don’t know how long it will last.
Conservatives have blamed generous unemployment benefits for keeping people at home, but evidence from states that ended the payments early suggests that any impact was small. Progressives say companies could find workers if they paid more, but the shortages aren’t limited to low-wage industries.
Instead, economists point to a complex, overlapping web of factors, many of which could be slow to reverse.
The health crisis is still making it hard or dangerous for some people to work, while savings built up during the pandemic have made it easier for others to turn down jobs they do not want. Psychology may also play a role: Surveys suggest that the pandemic led many to rethink their priorities, while the glut of open jobs — more than 10 million in August — may be motivating some to hold out for a better offer.
The net result is that, arguably for the first time in decades, workers up and down the income ladder have leverage. And they are using it to demand not just higher pay but also flexible hours, more generous benefits and better working conditions. A record 4.3 million people quit their jobs in August, in some cases midshift to take a better-paying position down the street. …
I don’t know; perhaps Labor should be ashamed of itself.
Instead, the labor force shrank in September. There are five million fewer people working than before the pandemic began, and three million fewer even looking for work. …
The global economy’s setback from the pandemic is expected to largely stabilize by the end of next year, the Organization for Economic Cooperation and Development said Tuesday, with most major economies returning to a prepandemic growth path by 2025 at the latest.
But the rebound could be delayed if the pandemic drives a retreat from globalization, the organization said, as governments and business leaders begin to question whether global supply chains have been stretched too far. And governments must begin taking action to reduce the towering amounts of debt left behind by stimulus measures.
“Long-run scenarios assume no lingering growth effects” on the global economy beyond 2022, the organization said in a new report on the fiscal outlook through 2060. But that could turn out “to be an optimistic assumption if, for instance, the pandemic ushers in a de-globalisation trend.” …
The global economy’s setback from the pandemic is expected to largely stabilize by the end of next year, the Organization for Economic Cooperation and Development said Tuesday, with most major economies returning to a prepandemic growth path by 2025 at the latest. …
Businesses of all sizes have been facing delays, product shortages and rising costs linked to disruptions in the global supply chain. The pandemic has starkly revealed the dependence that Western nations in particular have on foreign supplies as diverse as medical equipment and semiconductors.
Policymakers in the United States, Europe and other nations are increasingly examining whether production should be brought back home to address national security and public health concerns.
But such a shift, should it take hold, could wind up hurting economies more than it helps.
“We’re seeing warning signs about globalized production from Covid, the supply chain crisis and also Brexit, which is adding more barriers and more production at home,” said Bert Colijn, a senior economist at ING Bank.
“But it’s a very efficient process that’s been set up, and taking production back to your own country is something that would likely result in a loss of productivity and competitiveness,” he said.
An earlier study by the organization found that re-localizing a production process that is spread across different countries, known as a global value chain, would make those countries less exposed to foreign shocks, but also less efficient and less able to cushion shocks through trade.
Reshoring production could jeopardize productivity and raise costs, said the organization, which concluded that the case for making economies less interconnected was “weak.” …
The global economy’s setback from the pandemic is expected to largely stabilize by the end of next year, the Organization for Economic Cooperation and Development said Tuesday, with most major economies returning to a prepandemic growth path by 2025 at the latest. …
Businesses of all sizes have been facing delays, product shortages and rising costs linked to disruptions in the global supply chain. The pandemic has starkly revealed the dependence that Western nations in particular have on foreign supplies as diverse as medical equipment and semiconductors. …
One day before a mob of former President Donald J. Trump’s supporters stormed the Capitol, Stephen K. Bannon, a former top adviser to Mr. Trump, made a prediction to listeners of his radio show.
“Now we’re on, as they say, the point of attack — the point of attack tomorrow,” Mr. Bannon said on Jan. 5 as he promoted a plan hatched by Mr. Trump and far-right Republican lawmakers to try to overturn President Biden’s victory the next day, when Congress would meet to formalize the election results. “It’s going to kick off. It’s going to be very dramatic.”
It is because of comments like that, which foreshadowed the violence that played out during the Capitol riot, that the House committee investigating the assault is interested in questioning Mr. Bannon. But the former counselor to Mr. Trump has refused to cooperate with the inquiry, citing the former president’s claim of executive privilege.
The panel was set on Tuesday to recommend charging Mr. Bannon with criminal contempt of Congress for defying its subpoena, sending the matter to the House, which is expected to approve the move and hand the matter over to the Justice Department for prosecution. …
In a report recommending the House find Mr. Bannon in contempt, the committee repeatedly cited comments he made on his radio show on Jan. 5 — when Mr. Bannon promised “all hell is going to break loose tomorrow” — as evidence that “he had some foreknowledge about extreme events that would occur the next day.” …
“It’s not going to happen like you think it’s going to happen,” Mr. Bannon told his audience on Jan. 5. “It’s going to be extraordinarily different. And all I can say is: Strap in.”
Robert J. Costello, Mr. Bannon’s lawyer, has informed the committee that his client would not comply, citing Mr. Trump’s directive for his former aides and advisers facing subpoenas to invoke immunity and refrain from turning over documents that might be protected under executive privilege. …
Under federal law, any person summoned as a congressional witness who refuses to comply can face a misdemeanor charge that carries a fine of $100 to $100,000 and a jail sentence of one month to one year.
I propose that they offer Manchin and Tester ten-cents on the dollar for the reserves. That’s what this is all about, and the value will only go down from here on.
In re Sinema; I propose they offer to pay for 30 yrs of therapy.
The Biden administration and congressional Democrats are moving toward dropping their push to raise corporate and individual income tax rates to pay for their sprawling domestic policy bill, instead drafting a plan that includes new ways to tax the wealthy and multinational corporations, according to people familiar with the discussions.
… The plan the White House and leading congressional Democrats are discussing is built around a range of other revenue raisers to which Ms. Sinema appears to be open. They include increased I.R.S. efforts to collect taxes owed by corporations and high earners, and increased taxes on the income that multinational companies operating in the United States earn overseas, which many Democrats calculate could raise at least $1 trillion over a decade, combined.
Democrats are also exploring a tax on billionaires’ wealth and on corporate stock buybacks …
Democrats’ Divide: Should Obama-Era Economic Ideas Prevail in 2021?
NY Times – Neil Irwin – October 19
In the older view, it is irresponsible to increase long-term budget deficits because it will curtail private investment and risk a fiscal crisis. Social policies should be seen as a zero-sum trade-off between alleviating poverty and encouraging work. And any major new spending should be coupled with enough revenue-raising measures that the number-crunchers at the Congressional Budget Office conclude the numbers will balance over the next 10 years.
This was the approach that the Obama administration and congressional Democrats took in passing the Affordable Care Act, a process made lengthier and more complex by these self-imposed constraints.
But since those days, the intellectual ground has shifted in important ways.
For one, long-term interest rates have fallen precipitously, even as very large budget deficits have become the norm. That implies the United States can maintain higher public debt than once seemed possible without excessively constraining private investment or facing excessive interest costs. …
Not long ago, research into the trade-offs of welfare spending tended to focus on narrow questions like how much a given benefit might discourage people from working. In the last few decades, researchers have used novel statistical techniques (including those that won a Nobel Prize last week) and rich new sources of data to try to determine what long-term benefits they might offer to the overall economy.
Take, for example, spending that keeps children well-fed and out of poverty, such as school lunch programs and assistance payments to low-income parents. These appear to have long-lasting benefits for future employment and earning power — creating supply-side benefits, or increasing the economy’s overall potential.
“If we give people more resources when they’re young, they can eat better and do better in school, and this could have lasting impacts,” said Hilary Hoynes, a professor at the University of California, Berkeley, and an author of extensive research along these lines. “It doesn’t seem like such a crazy thing to assert, but we had no evidence on that 15 years ago.”
This is part of the thinking beneath major elements of Democratic legislation under consideration, including universal preschool and an extension of a child tax credit. Professor Hoynes said she had received many calls from congressional staff members in the last few years seeking to understand the emerging evidence. …
The Economic Rebound Is Still Waiting for Workers
Blame Labor? Laughable . . . That is like claiming they get paid too much.
I don’t know; perhaps Labor should be ashamed of itself.
Instead, the labor force shrank in September. There are five million fewer people working than before the pandemic began, and three million fewer even looking for work. …
the labor force shrank in September
Global economic growth will stabilize next year, but supply chain shock remains a risk
NY Times – October 19
The global economy’s setback from the pandemic is expected to largely stabilize by the end of next year, the Organization for Economic Cooperation and Development said Tuesday, with most major economies returning to a prepandemic growth path by 2025 at the latest.
But the rebound could be delayed if the pandemic drives a retreat from globalization, the organization said, as governments and business leaders begin to question whether global supply chains have been stretched too far. And governments must begin taking action to reduce the towering amounts of debt left behind by stimulus measures.
“Long-run scenarios assume no lingering growth effects” on the global economy beyond 2022, the organization said in a new report on the fiscal outlook through 2060. But that could turn out “to be an optimistic assumption if, for instance, the pandemic ushers in a de-globalisation trend.” …
In other news…
House Panel Poised to Recommend Contempt Charge Against Bannon
Hmmm. So, January 6 was all just ‘for show’, a demonstration
of sorts, and – since it didn’t exactly work, or turn out as hoped,
it should all just be forgotten & erased from the history books
as if it never happened. Maybe it will work better the next time.
I think I’m waiting for the ‘Forgive & Forget’ speeches
from Mitch McConnell & Kevin McCarthy first.
Then, we’ll see.
I propose that they offer Manchin and Tester ten-cents on the dollar for the reserves. That’s what this is all about, and the value will only go down from here on.
In re Sinema; I propose they offer to pay for 30 yrs of therapy.
Vaguely related…
Democrats Back Away From Raising Tax Rates to Pay for Agenda Responding to concerns from Senator Kyrsten Sinema
(So says the NYT.)