According to this measure, Mr Subramanian predicted, China would become the world’s most dominant economy by 2020. In the ten years since that forecast, China has faced a trade war with America, its growth has slowed and its currency has suffered bouts of volatility, obliging it to tighten controls on capital outflows. Yet Mr Subramanian’s central prediction has come true. Based on the book’s original formula, China became the world’s most dominant economy last year (see chart). Its growth slowdown has been no worse (so far) than Mr Subramanian expected and the covid-19 pandemic has helped increase its share of global trade.
The U.S. economy caught fire in the spring and it’s still running pretty hot this summer, but a new strain of the coronavirus is threatening to cast a chill over the recovery.
Worries about the so-called delta strain sent a shiver through investors last week after the number of people catching the virus quickly climbed from a pandemic low. The stock market
posted its biggest decline in almost 10 months before recovering and bond yields also fell.
Although the U.S. Covid caseload is still quite low, the delta variant has introduced new uncertainty into the economic outlook and forced households, businesses and government to consider how to respond.
The reaction so far? Not much. Los Angeles County recommended that residents wear masks again, but it’s one of the few governments to do so.
By and large, the delta variant has drawn a wait-and-see reaction. Just look at the stock market. The Dow Jones Industrial Average recovered all of its losses in just a few days and was back at an all-time high.
A chief reason for the optimism, it seems, is that the White House and Federal Reserve will do whatever it takes to keep the economy propped up.
“As long as the government and the Fed keep pumping things up, it is hard to see how the markets can stay down for an extended period,” said chief economist Joel Naroff of Naroff Economic Advisors.
Massive government financial stimulus played a huge role in what’s expected to be a very strong U.S. economic performance in the second quarter. Economists polled by The Wall Street Journal estimate that gross domestic product soared at a 9.1% annual rate in the period stretching from April to June.
That would be one of the strongest American growth rates ever and help compensate for the devastating economic losses early in the pandemic. GDP, the official scorecard for the U.S. economy, will be released on Thursday.
More important, of course, is what happens next. GDP is mostly a look in the rearview mirror.
Other reports next week are likely to show the U.S. sustaining its recent momentum. Consumer spending data and orders for manufactured goods in June are also expected to point to underlying strength in the economic recovery.
Households are spending freely and businesses just can’t keep up with demand. One of their biggest problems is finding enough workers.
What about the delta strain?
So far most people who are catching it are unvaccinated. So-called break-though cases among the vaccinated, meanwhile, are not inducing many severe reactions or deaths.
So it seems the prognosis for broader economy — not to mention the health of the public — is still pretty good with more than 68% of the adult U.S. population having received at least one shot.
Yet if there’s one thing that’s been learned during the pandemic, nothing can be taken for granted. The virus could mutate again, for instance, or individuals, businesses and government could adopt defensive measures that take some steam out of the recovery.
Perhaps the most realistic danger for now is that the delta variant will spread more rapidly around the world and further disrupt global suppy chains that have been strained by the pandemic.
These supply-chain problems — a notable example is a shortage of computer chips — could exacerbate the surge in U.S. inflation this year and further raise costs for consumers and businesses alike.
Already higher inflation is hurting Americans financially and undermining confidence in the recovery. A key inflation report next week, known as the PCE price index, due on Friday, is expected to show another large increase.
The Fed, for its part, is likely to try to reassure consumers and investors next week that the spike in inflation is just temporary after its latest big meeting on the economy. That’s been the Fed’s mantra for months.
Yet the central bank badly underestimated how much prices would rise this year and even some top Fed officials are starting to get worried.
Remarks by President Biden on the Economy – The White House
2:00 P.M. EDT
THE PRESIDENT: Good afternoon. I want to start by thanking the House committees for working hard this week to advance critical components of the economic plan that I’ve put before the Congress.
I know we still have a long way to go, but I’m confident that Congress will deliver to my desk both the bipartisan physical infrastructure plan and the Build Back Better plan that I have proposed.
And I’ve said many times before: I believe we’re at an inflection point in this country — one of those moments where the decisions we’re about to make can change — literally change the trajectory of our nation for years and possibly decades to come.
Each inflection point in this nation’s history represents a fundamental choice. I believe that America, at this moment, is facing such a choice. And the choice is this: Are we going to continue with an economy where the overwhelming share of the benefits go to big corporations and the very wealthy? Or are we going to take this moment right now to set this country on a new path — one that invests in this nation; creates real, sustained economic growth; and that benefits everyone, including working people and middle-class folks?
That’s something we haven’t realized in this country for decades.
The data — (clears throat) — excuse me. The data is absolutely clear. Over the past 40 years, the wealthy have gotten wealthier, and too many corporations have lost their sense of responsibility to their workers, their communities, and the country.
Just look at the facts. CEOs used to make about 20 times the average worker in the company that they ran. Today, they make more than 350 times what the average worker in their corporation makes.
Since the pandemic began, billionaires have seen their wealth go up by $1.8 trillion. That is, everyone who was a billionaire before the pandemic began, the total accumulated wealth beyond the billions they already had has gone up by $1.8 trillion. Simply not fair.
And it’s — how is it possible that 55 of the largest corporations in this country paid zero dollars in federal income taxes? They made over $40 billion in the year 2020, and they’ve paid zero. Think about that. Zero dollars in federal taxes on $40 billion in profits.
How is it possible that the wealthiest billionaires
in the country can entirely escape paying income tax on what they’ve made?
How is it possible for millionaires and billionaires that can pay a lower rate of tax than teachers, firefighters, or law enforcement officers?
Here’s the simple truth. For a long time, this economy has worked great for those at the very top, while ordinary, hardworking Americans — the people who built this country — have been basically cut out of the deal.
And I’ve said this from the time I announced I was going to run: I believe this is a moment of potentially great change. This is our moment to deal working people back into the economy. This is our moment to prove to the American people that their government works for them, not just for the big corporations and those at the very top.
When I was sworn in as President, the nation was struggling to pull out of the worst economic crisis since the Great Depression. Job growth was anemic, with just over 60,000 new jobs per month in the three months before I was sworn in.
Then we went to work and passed the American Rescue Plan back in March. And it worked. It’s still working.
Over the last three months, we’ve been creating, on average, 750,000 new jobs per month. Our economy is growing at the fastest rate we’ve seen in nearly 40 years.
Our recovery is unique in the world. We’re the only developed country in the world whose economy is now bigger than it was before the pandemic.
While this is all good news, I know many Americans are still struggling to make it through each and every day.
For too many, it’s harder and harder to pay the bills — food, gas, rent, healthcare. I get it. We still have a long way to go to get the economy where it needs to be.
As I’ve said for a long time: Coming out of this economic crisis as deep as the one we were in was never going to be easy. But we’re doing it, and we can continue to do it.
COVID, supply chain issues, and bad actors seeking to profit off the pandemic are all contributing to the challenges we’re facing.
That’s why I’ve made getting COVID under control my top priority from my first day as President. Everything — everything, from our public health to our economy, depends on this.
We made enormous progress against the virus through the summer, and now we’ve put ourselves in a strong position to battle this Delta variant. That’s why the actions I proposed on vaccines last week are so critical: from requiring federal workers to get vaccinated; requiring healthcare workers to be vaccinated; requiring employers with over 100 employees to institute vaccine and/or test protocols, calling on — for them to be able to know what their employers — their employees are doing before they walk through the door; calling for vaccine or test requirements to enter big venues; and a whole series of steps I proposed to protect our kids in schools.
Wall Street firms have analyzed the impact of these plans, and they’re projecting that these new requirements will help 12 million more Americans get vaccinated, which will help more businesses stay open and more Americans back to work.
The data shows that the overwhelming majority of Americans agree with my proposal. That’s — there’s no surprise, given that 76 percent of American adults have already gotten at least one shot.
But — but we’re facing a lot of pushback, especially from some of the Republican governors. The governors of Florida and Texas — they’re doing everything they can to undermine the lifesaving requirements that I’ve proposed.
And some of the same governors attacking me are in states with some the strictest vaccine mandates for children attending school in the entire country.
For example, in Mississippi, children are required to be vaccinated against measles, mumps, rubella, chickenpox, hepatitis B, polio, tetanus, and more. These are state requirements.
But in the midst of a pandemic that has already taken over 660,000 lives, I propose a requirement for COVID vaccines, and the governor of that state calls it, quote, a “tyrannical-type move”? A “tyrannical-type move”?
This is the worst kind of politics because it’s putting the lives of citizens of their states, especially children, at risk. And I refuse to give in to it.
These policies are what the science tells us we need to do. They’re going to save lives. And they’ll protect our economic recovery as well, and allow the economy to continue to grow.
We’re also going after the bad actors and pandemic profiteers in our economy. There’s a lot of evidence that gas prices should be going down, but they haven’t. We’ll be taking a close look at that.
Taxpayers in this country also have paid for extraordinary effort to keep our country going over the past year or so.
Unlike the last administration, which resisted oversight and allowed taxpayers to be victimized by fraud, we’re working hard to protect vulnerable Americans from having their identities stolen — as a consequence of their unemployment check stolen as well.
And we’re going offer organized criminal — we’re going to go after organized criminals that defraud America or misuse COVID funds.
Look, we’re also taking a closer look at places in our economy where fewer and fewer corporate giants are controlling more and more of the marketplace in the area that they work.
Just look at agriculture and the food industry. A very small number of giant corporations now dominate the market, which gives them the ability to drive up prices because they face so little competition.
As we work to build healthier competition in our economy and crack down on bad actors, the American Rescue Plan, which we passed in March, is still working to give hardworking Americans — hardworking people some relief.
One of the best examples of that relief is the expansion of the Child Tax Credit, which, in effect, is essentially a historic tax cut for families with children.
Just yesterday, 39 million working moms and dads got their direct payment. That money is going to help cover groceries, the mortgage, new pairs of shoes — all the things that kids need. It’s a tax cut for working families.
So, we’re working to provide as much relief as we can right now to American families. But here’s the truth: Yes, the pandemic has caused a lot of economic problems in the country, but the fact is our economy faced challenges long before this pandemic struck. Working people were struggling to make it long before the pandemic arrived.
Big corporations and the very wealthy were doing very well before the pandemic. That’s why I’ve said — starting back in my campaign for president — that it’s not enough just to build back; we have to build back better than before. And that’s how it all begins.
Big corporations and the super wealthy have to start paying their fair share of taxes. It’s long overdue.
I’m not out to punish anyone. I’m a capitalist. If you can make a million or a billion dollars, that’s great. God bless you. All I’m asking is you pay your fair share. Pay your fair share just like middle-class folks do. But that isn’t happening now.
Today, in this country, right now, the top 1 percent, for example, evade an estimated $160 billion in taxes that they owe each year. Not new taxes, taxes that they owe.
And the way it works is this: If you’re a typical American — like I suspect most of the press people sitting in front of me here — you pay your taxes. Why? Because you get a W-2 form. It comes in the mail every year.
The IRS gets that information as well. Your taxes get deducted from your paycheck, and you pay what is owed beyond that. That’s why about 99 percent of working people pay the taxes they owe.
But that’s not how it works for people with tens of millions of dollars. They play by a different set of rules. And they’re often not employees themselves, so the IRS can’t see what they make and can’t tell if they’re cheating.
That’s how many of the top 1 percent get away with paying virtually nothing. It’s estimated by serious economists that that number is about $160 billion collectively owed each year that doesn’t get paid. It’s not an even playing field. My plan would help solve that. For example, it would give the IRS the resources it needs to keep up with the lawyers and accountants in the super — of the super-wealthy.
It would ask just for two pieces of information from the banks of these folks: that amounts — the amounts that come into their bank accounts and what amounts go out of their bank accounts, so that the wealthy can no longer hide what they’re making and they can finally begin to pay their fair share of what they owe.
That isn’t about raising their taxes. It’s about the super-wealthy finally beginning to pay what they owe — what the existing tax code calls for — just like hardworking Americans do all over this country every Tax Day.
Look — and like I said just a few minutes ago, 55 of the most profitable corporations in America paid zero in federal income taxes on what amounted to $40 billion in profit. Not a penny. That’s not right. And my economic plan will change that. Not punish anybody, just make them pay their fair share.
But my Republican friends in Congress don’t want to change the law. So, what are they doing? They’re attacking me and my plan — which is fine. But if we’re going to have a debate, let’s have an honest debate.
My Republican friends are attacking my plan, saying it’s “big spending.” Let me remind you, these are the same folks who just four years ago passed the Trump tax cut totaling almost $2 trillion in tax cuts –- a giant giveaway to the largest corporations and the top 1 percent. And listen to this: Almost none of that $2 trillion tax cut was paid for. It just ballooned the federal deficit.
In fact, the unpa- — unpaid bills ranked up — racked up by the last administration are projected to increase the national debt by more than $8 trillion over time.
What I’m proposing is totally different from that approach for three reasons:
First, my plan is paid for. It’s fiscally responsible, because our investments are paid for that by making sure that corporations and the wealthy Americans pay their fair share.
Second, we’re not going to raise taxes on anyone making under $400,000. That’s a lot of money. Some of my liberal friends are saying it should be lower than that. But only corporations and people making over $400,000 a year are going to pay any additional tax.
And third, not only will no one making under $400,000 see their taxes go up, the middle class are going to going to get some tax cuts — some breaks.
My plan benefits ordinary Americans, not those at the top who don’t need the help. It’s a historic middle-class tax cut, cutting taxes for over 50 million families.
My Republican friends are making a different choice though. They’d rather protect the tax breaks of those at the very top than give tax breaks to working families. It’s that simple.
But let me ask you this: Where is it written that all the tax breaks in the American tax code go to corporations and the very top? I think it’s enough. I’m tired of it.
For me, it’s pretty simple: It’s about time working people got the tax breaks in this country. That’s what my plan does.
But here’s what it also does: By asking big corporations and the very wealthy to pay their fair share, it makes it possible to invest in America, to invest in the American people.
According to leading economists — forecasters like Moody’s and major international financial institutions — my plan will create — make us — create jobs, make us more competitive, and grow our economy and lessen — lessen, not increase — inflationary pressure.
I don’t know if it’s been handed out today, but, by the way, 15 Nobel laureates in economics released a letter yesterday arguing that exame [sic] — that exact same point.
They said, and I quote — and this is from 15 Nobel laureates in economics — quote, “Because this agenda…” — the one I’m talking about, mine — “Because this agenda invests in long-term economic capacity and will enhance the ability of more Americans to participate productively in the economy, it will ease long-term inflationary pressures.” It will ease it.
Let me highlight just a few provisions of my plan. I know this is long, and I apologize, but it’s important, I think.
My plan lowers the cost of daycare and childcare and eldercare for families and [has] the added benefit of allowing millions of people, mostly women — who are not able to go back to work because of very young family members or elderly people they’re taking care of — allow them to go back to work. It’s estimated in the millions that can’t go back.
It lowers healthcare premiums for millions of families. It lowers prescription drug costs by giving Medicare the power to negotiate lower drug prices. And it strengthens Medicare by adding dental, vision, and hearing coverage for — if you’re on Medicare.
It also extends the tax cut for families with kids that we passed in the American Rescue Plan in March.
All of this will mean thousands of dollars in savings for the average American family on some of the toughest and most important bills they have to pay every month.
My Republican friends talk a lot about inflation, but if you want to talk about actually lowering the cost of living for people in this country, my plan does just that.
By strengthening the capacity of our economy, it will also reduce inflationary pressures over the long run.
Here’s something else my plan does: It confronts the crisis of extreme weather events that we’re seeing all around us and around the world — but just here in America. We see it everywhere. We know it’s real.
In just the past few weeks — and there’s more to come — I’ve seen the destruction of hurricanes in Louisiana, where winds got up to a hundred- — gusts of 179 miles an hour; the deadly toll from flooding in New York, where 20 inches of rain, and New Jersey, more than 11 inches of rain in some areas.
More than 5 million acres of our lands and communities have burned to the ground in wildfires just this year alone. That’s more than the size of the entire state of New Jersey burned to the ground. When I was out in California, I flew over some of these areas.
In addition, there’s a severe drought in the West and the Midwest.
There’s a blinking code red out there for the nation. We can’t wait to act.
Extreme weather, just last year, cost the American public $99 billion in damage — $99 billion in damage last year. And unfortunately, we’re likely to break that record this year.
And the evidence is overwhelming that every dollar we invest in resilience saves six dollars down the road — when the next fire doesn’t spread as widely or the power station holds up against the storm.
We need to rebuild with resilience — with resilience in mind — so roads are built higher; levees are built more — made more strong — stronger; transmission lines are better protected, and so much more.
You know, I hope we’re past debating climate change in this country. Now we have to act, and we have to act fast. And my plan does that.
Let me end with this. This pandemic has been God-awful
for so many reasons: the lost lives — as I said, over 660,000; the jobs, the businesses lost; the lost time in school for our kids.
But it does present us with an opportunity: We can build an economy that gives working people a fair shot this time. We can restore some sanity and fairness to our tax code. We can make the investments that we know are long overdue in this nation.
That’s exactly what my bipartisan infrastructure plan does — I should say, our bipartisan infrastructure plan does: investments in roads, bridges, highways; clean water in every home and every school; universal broadband; quality and affordable places for families to live.
And we can invest in our people — giving our families a little help with their toughest expenses, like daycare, childcare, eldercare, prescription drugs, healthcare, preparing our young people to compete against any country in the world with preschool and community college.
We can confront this crisis of extreme weather and climate change, and not only protect our communities but create new opportunities, new industries, and new jobs.
In short, this is an opportunity to be the nation we know we can be — a nation where all of us — all of us, not just those at the top — are getting a share of the benefits of a growing economy in the years ahead.
Let’s not squander this moment trying to preserve an economy that hasn’t worked too well for Americans for a long time.
Let’s not look backward, just trying to rebuild what we had. Let’s look forward, together, as one America — not to build back, but to build back better.
Thank you all very much. And God bless you all. May God protect our troops. Thank you.
2:22 P.M. EDT
India's Record Run in Stocks Is Raising Risks for Economy – BNN
(Bloomberg) — A pick-up in consumer demand, record-low interest rates and improving prospects for the manufacturing sector will probably fuel the rally in Indian stocks, even as the dizzying pace of gains increases risks for the economy.
These are the conclusions of new research from Bloomberg Intelligence and Bloomberg Economics after the NSE Nifty 50 Index climbed 130% to a record from lows touched in March 2020, supported by the central bank’s liquidity injections, millions of new retail investors, and the regulatory crackdown in China. The rally has added roughly 1 percentage point to GDP growth each quarter since October-December.
“The case for India’s equities remains structurally positive, we believe, amid resurgent consumer demand, manufacturing in a ‘China Plus One’ world, regulatory overhaul and the trajectory of monetary and fiscal policy,” Gaurav Patankar and Nitin Chanduka, analysts with Bloomberg Intelligence, wrote in a note.
However, the sharp run-up in gains has increased the economy’s vulnerability to a market setback. The Nifty is now trading at 22.2 times estimated 12-month earnings, well above its five-year average of 18.5. By comparison, the MSCI Emerging Markets Index is trading at a multiple of 12.7.
A retreat for the Nifty, trading at about 35% above its historical trend level, would reduce GDP by 1.4% in the same quarter of the shock and by 3.8% over the following year, Ankur Shukla, an economist with Bloomberg Economics, wrote in a separate note.
“The higher stocks climb, the greater the risks to the economy if they correct — an important consideration at a time when the Federal Reserve is weighing the timing of tapering stimulus,” Shukla said.
©2021 Bloomberg L.P.
Is China already the world's most dominant economy? – The Economist
IN 2010, WHEN President Barack Obama welcomed his Chinese counterpart to a summit in Washington, DC, he greeted him with a handshake and a swift, shallow dip of the head. The image of America’s president bowing before China made an arresting cover photo for the book “Eclipse”, published the following year. The book, written by Arvind Subramanian of the Peterson Institute for International Economics, a Washington-based think-tank, predicted that China would soon come to dominate the world economy and that America could do precious little about it. Your correspondent once included the cover image in a presentation at the Central Party School in Beijing. It caused quite a frisson.
To gauge a country’s economic “dominance” Mr Subramanian combined its share of world trade, net capital exports and global GDP (measured at both market exchange rates and purchasing-power parities, which try to correct for international differences in the price of similar goods). He gave each attribute a weight loosely based on the IMF’s formula for allocating votes to its members. His index, he argued, successfully captured Britain’s economic hegemony in 1870, its rivalry with Germany in 1913 and its eclipse by America in the subsequent decade.
Mr Subramanian successfully predicted how his own index would evolve. But does his index successfully capture economic dominance? Other authors have included wealth, GDP per person and other proxies for economic sophistication, as well as scale. (Our favourite index of a country’s global influence, put together by Francesc Pujol of the University of Navarra, counts the number of times a country appears in the charts of The Economist.) These measures give America a bigger edge.
For the sake of tractability, Mr Subramanian’s measure gives every dollar of exports equal weight. But some of America’s high-tech exports appear to give it an economic “chokehold” over China that is worth more than their market value. Mr Subramanian thought that China’s growing share of GDP and trade could soon elevate its currency into a rival to the dollar. But China’s yuan has made little headway. That is partly because China has tightened capital controls, a possibility that Mr Subramanian acknowledged. But he thought that if China clung to such controls it would be to keep the yuan cheap (by preventing capital inflows) not to prop the yuan up (by deterring capital outflows). Still, given the sorry record of most economic predictions, the book’s author deserves a handshake and a bow. ■
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This article appeared in the Finance & economics section of the print edition under the headline “The Thales of economics”
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