More than a half century after Lyndon Johnson’s war on poverty, President Joe Biden is planning to take on the nation’s enduring challenge of inequality with a mass expansion of government spending and a revamp of the tax code.
The effort, which Biden will start to detail in a speech Wednesday in Pittsburgh, is already proving just as divisive among economists as it is among lawmakers. While right-leaning economists warn about damage to overall growth from higher taxes on companies and the wealthiest Americans, liberals say the “trickle-down” approach of recent decades has failed and it’s time for a new strategy.
The president’s remarks will lay out the infrastructure portion of an overall package expected to total more than US$3 trillion. While social-spending programs will be outlined later in April, the administration’s drive to expand help for the poor will be visible even in infrastructure, through proposals such as the provision of safe drinking water.
“It’s important to acknowledge that we’ve seen decades of this rising economic inequality,” Heather Boushey, a member of the White House Council of Economic Advisers, said last week in an interview with Bloomberg Radio. “The ultimate measure of success of the economy is how well it’s working for people all across these United States.”
For many, it’s not working well. The gaps between the richest Americans and the middle class, along with the lowest-income households, widened in the years before the pandemic struck — even amid the longest U.S. expansion on record. Federal Reserve Chair Jerome Powell is among those agreeing that inequality holds the economy back, something that contributed to the overhaul in long-term monetary policy strategy he’s instituted.
Halting or reversing the trend even with major changes in policy won’t come easily or quickly, economists widely agree.
“You’re turning a supertanker, and it’s taken us a generation and half to get here,” said Brad Delong, an economics professor at the University of California at Berkeley. “But, yes, you can start to turn the supertanker.”
No single statistic captures the problem, but simple dispersions of wealth and income tell a discouraging tale:
- Average incomes for the top 5 per cent of households were quadruple those of the middle fifth of Americans in 1979. That swelled to 5.7 times as much in 2007 and further to 6.6 times by 2018, U.S. Census data compiled by the Tax Policy Center show.
- The net worth of the top 10 per cent of households in 1989 was 9.4 times that of the middle fifth, according to Fed data compiled by the Tax Policy Center. That increased to 13 times by 2007 and 17 times by 2017.
- The share of total income going to upper-income households — defined as double the median level — surged to 48 per cent from 29 per cent from 1970 to 2018, according to the Pew Research Center. Middle-income households’ share of total earnings dropped to 43 per cent from 62 per cent.
Americans have long accepted some level of inequality, given the rationale that it reflects the rewards for hard work, risk-taking and ingenuity. Yet for researchers like John Friedman, an economics professor at Brown University, the problem is not just about outcomes.
“It’s not just that there’s growing inequality from an ex-post perspective, but there’s tremendous inequality of opportunity,” he said.
He points to data showing how children who display similar academic abilities at very young ages, but come from different income and racial backgrounds and varying types of neighborhoods end up with very different outcomes when it comes to incomes and career advancement.
“It’s not just about who’s smart,” Friedman said. “And there’s almost universal agreement that having your life possibilities determined by the accident of your birth is not something we’re OK with.”
But economists are in sharp disagreement on whether Biden’s economic agenda will be well-aimed at addressing inequalities. One example: Biden is expected to propose free tuition at the nation’s community colleges.
Glenn Hubbard, a Columbia University professor who served as chairman of the Council of Economic Advisers under President George W. Bush, has called community colleges “the logical workhorses of skill development.”
But in an interview, Hubbard said the free-tuition idea gets it “exactly backward” by subsidizing the demand for community colleges. He backs a supply-side concept of federal grants to those schools that are contingent on better graduation rates and employment outcomes after graduation.
And that’s not strictly a conservative approach. The proposal’s co-authors included Austan Goolsbee, who served as CEA chair under Democratic President Barack Obama.
There’s a wider divide over Biden’s tax policy.
Higher taxes on companies and the rich will only weaken the dynamic of wealth accumulation that drives investment, which in turn powers economic growth, conservatives argue.
“In this debate, there is a fair element of ‘We just need to punish the rich; they are rich inappropriately,’” said Douglas Holtz-Eakin, president of the American Action Forum, a conservative research group. “With that, it’s hard to get agreement on policy.”
Liberal economists respond unapologetically, that so-called trickle-down economics — where overall economic growth lifts all boats across the income spectrum — just haven’t proved true over the last 40 years.
Spending on investment outside of housing rose an average of 3.4 per cent a year from 2000 through 2019, down from 5.2 per cent the prior two decades and a heady 7.2 per cent in the 1960s — when tax rates were substantially higher.
Companies have the cash to grow, but with wealth and income skewed to the top, “there’s not enough customers to buy the new output,” said Josh Bivens, director of research at the left-leaning Economic Policy Institute.
CANADA STOCKS – TSX ends flat at 19,228.03
* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03
* Leading the index were Corus Entertainment Inc <CJRb.TO>, up 7.0%, Methanex Corp, up 6.4%, and Canaccord Genuity Group Inc, higher by 5.5%.
* Lagging shares were Denison Mines Corp, down 7.0%, Trillium Therapeutics Inc, down 7.0%, and Nexgen Energy Ltd, lower by 5.7%.
* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.
* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.
* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.
* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude fell 0.24%, or $0.15, to $63.05 [O/R]
* The TSX is up 10.3% for the year.
Canadian dollar outshines G10 peers, boosted by jobs surge
By Fergal Smith
TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.
Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.
“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”
Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.
The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.
The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.
Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.
The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.
Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.
(Reporting by Fergal Smith; Editing by Andrea Ricci)
Canadian dollar rebounds from one-week low ahead of jobs data
By Fergal Smith
TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Thursday, recovering from a one-week low the day before, as the level of oil prices bolstered the medium-term outlook for the currency and ahead of domestic jobs data on Friday.
The Canadian dollar was trading 0.4% higher at 1.2560 to the greenback, or 79.62 U.S. cents. On Wednesday, it touched its weakest intraday level since March 31 at 1.2634.
“We have seen partial retracement from the decline over the last couple of days,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
“With oil prices where they are – let’s call WCS still at roughly $49 a barrel – I still think CAD has room to strengthen over the medium term and even over a one-week horizon.”
Western Canadian Select (WCS), the heavy blend of oil that Canada produces, trades at a discount to the U.S. benchmark. U.S. crude futures settled 0.3% lower at $59.60 a barrel, but were up nearly 80% since last November.
The S&P 500 closed at a record high as Treasury yields fell following softer-than-anticipated labor market data, while the U.S. dollar fell to a two-week low against a basket of major currencies.
Canada‘s employment report for March, due on Friday, could offer clues on the Bank of Canada‘s policy outlook. The central bank has become more upbeat about prospects for economic growth, while some strategists expect it to cut bond purchases at its next interest rate announcement on April 21.
On a more cautious note for the economy, Ontario, Canada‘s most populous province, initiated a four-week stay-at-home order as it battles a third wave of the COVID-19 pandemic.
Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year fell 3.3 basis points to 1.469%.
(Reporting by Fergal Smith;Editing by Alison Williams and Jonathan Oatis)