(Bloomberg) — Supply squeezes, labor shortages and a still-spreading coronavirus continue to complicate recoveries in many economies.
A survey of U.S. purchasing managers showed a slower rate of expansion at manufacturers and service providers, while business confidence sagged in Germany. Supply chain challenges also help explain record-low inventories in the U.K.
Virus outbreaks and government restrictions are restraining the rebound in China and Malaysia.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
Personal spending growth moderated in July, reflecting a slowdown in outlays for merchandise, while a closely watched measure of inflation remained elevated.
Business activity continues to downshift, with growth slowing to an eight-month low in August against a backdrop of materials shortages, a lack of labor and an upswing in coronavirus infections, IHS Markit data show.
Germany’s economic recovery is coming under threat from a persistent global supply squeeze and rising Covid-19 infection numbers. A key measure of business confidence in Europe’s largest economy by the Munich-based Ifo institute slipped to 99.4 in August from 100.7 in July. The drop was bigger than economists projected.
U.K. companies grappled with record low levels of stock in August and retail selling prices rose at the fastest pace since November 2017 as increased demand strained employers’ staffing.
The pandemic has pulled the fortunes of British consumers in two different directions, with those who are growing wealthy on properties increasingly living near people who can barely get enough to eat.
China’s economic rebound leveled off in August, suggesting the growth momentum is faltering in the wake of the recent regulatory crackdown, the authorities’ tough response to virus outbreaks, and weak demand at home.
Malaysia leads growth downgrades by economists across Southeast Asia as the delta variant forces countries to reimpose pandemic restrictions.
Afghanistan is sitting on mineral deposits estimated to be worth $1 trillion or more, including what may be the world’s largest lithium reserves — if anyone can get them out of the ground. If things go right, China just might try.
India’s economy held steady in July as waning Covid-19 cases paved the way for a gradual improvement in manufacturing and services activity.
South Korea became the first major Asian economy to raise interest rates, with more hikes in the pipeline as its central bank indicated that financial risks pose a bigger threat to the economy than the latest virus outbreak. Paraguay, Hungary and Iceland also increased borrowing costs this week.
©2021 Bloomberg L.P.
Stagflation rocked the economy before. Is it coming back? – CNN
London (CNN Business)Mention the word “stagflation” to someone who followed the economy in the 1970s, and you can expect a strong reaction.
Catch up on the WSJ’s blockbuster Facebook investigation
Opinion | The Economic Mistake Democrats Are Finally Confronting – The New York Times
The words “supply side” are coded, in American politics, as right wing. They summon the ghost of Arthur Laffer, the history of Republicans promising that cutting taxes on the rich will encourage the nation’s dispirited John Galts to work both smarter and harder, leading economies to boom and revenues to rise. This has made it vaguely disreputable to worry about the supply side of the economy. It’s as if the nonsense of phrenology had made it sordid for doctors to treat disorders of the brain.
But look closely and you can see something new and overdue emerging in American politics: supply-side progressivism.
Many of progressivism’s great dreams linger on the demand side of the ledger. Universal health care promises insurance people can use to buy health care. Food stamps give people money for food. Housing vouchers give them money for rent. Pell Grants give them money for college. Social Security gives them money for retirement. The child tax credit gives them money to care for their children. The minimum wage and the earned-income tax credit give workers more money. A universal basic income would give everyone more money.
This is the driving theory of most of the progressive policy agenda, most of the time: give people money or a money-like voucher they can use to buy something they need or even just want.
I don’t mean, in any way, to diminish the importance of those policies. There is little Democrats could do that will help as many people right now as making the expanded child tax credit permanent. The rumblings that it may be allowed to expire, or restricted only to those who pay federal income taxes, are worrying. If Democrats do nothing else this session, they should delete the expiration date from the biggest anti-poverty legislation they’ve passed since the Great Society.
But progressives are often uninterested in the creation of the goods and services they want everyone to have. This creates a problem and misses an opportunity. The problem is that if you subsidize the cost of something that there isn’t enough of, you’ll raise prices or force rationing. You can see the poisoned fruit of those mistakes in higher education and housing. But it also misses the opportunity to pull the technologies of the future progressives want into the present they inhabit. That requires a movement that takes innovation as seriously as it takes affordability.
The first problem is explored in “Cost Disease Socialism,” a new paper by the center-right Niskanen Center. “We are in an era of spiraling costs for core social goods — health care, housing, education, child care — which has made proposals to socialize those costs enormously compelling for many on the progressive left,” Steven Teles, Samuel Hammond and Daniel Takash write.
There are sharp limits on supply in all of these sectors, either because regulators make it hard to increase supply (zoning laws make it difficult to build new housing), because training and hiring workers is expensive (adding classrooms means adding teachers and teacher aides, expanding health insurance requires more doctors and nurses), or both. “This can result in a vicious cycle in which subsidies for supply-constrained goods or services merely push up prices, necessitating greater subsidies, which then push up prices, ad infinitum,” they write.
The paper is largely an appeal to Republicans to rethink their approach. Instead of focusing on “backward-looking deficit reduction strategies based on budgetary gimmicks or dead-on-arrival cuts to existing entitlements,” the authors urge conservatives to tackle costs directly. Too often, Republican proposals to cut government spending are just shell games that shift costs onto individuals. The conservative enthusiasm for moving Medicare beneficiaries onto (often more expensive!) private plans “risks being little more than an accounting trick — a purely nominal change in ‘who pays’ that would do little to address the underlying sources of cost growth.” Preach!
It would be nice to have the Republican Party the Niskanen Center imagines, one more focused on making a decent life affordable than on making vaccination optional, and I wish it well in its effort to white paper it into existence. For now, though, it’s Democrats who are starting to take supply-side concerns seriously.
But before we get to that, I want to widen the definition of “supply,” a dull word within which lurks thrilling possibilities. Supply-side progressivism shouldn’t just fix the problems of the present, it should hasten the advances of the future. A problem of our era is there’s too little utopian thinking, but one worthy exception is Aaron Bastani’s “Fully Automated Luxury Communism,” a leftist tract that puts the technologies in development right now — artificial intelligence, renewable energy, asteroid mining, plant and cell-based meats, and genetic editing — at the center of a post-work, post-scarcity vision.
“What if everything could change?” he asks. “What if, more than simply meeting the great challenges of our time — from climate change to inequality and aging — we went far beyond them, putting today’s problems behind us like we did before with large predators and, for the most part, illness. What if, rather than having no sense of a different future, we decided history hadn’t actually begun?”
Bastani’s vision is bracing because it insists that those of us who believe in a radically fairer, gentler, more sustainable world have a stake in bringing forward the technologies that will make that world possible. That is a political question as much as a technological one: Those same technologies could become accelerators of inequality and want if they’re not embedded in thoughtful policies and institutions. But what Bastani sees clearly is that the world we should want requires more than redistribution. It requires inventions and advances that render old problems obsolete and new possibilities manifold.
Climate change is the most pressing example. If the Biden administration gave every American a check to transition to renewables, the policy would fail, because we haven’t built that much renewable capacity, to say nothing of the supply chain needed to deploy and maintain it. In a world where two-thirds of emissions are now coming from middle-income countries like China and India, the only way for humanity to both address climate change and poverty is to invent our way to clean energy that is plentiful and cheap, and then spend enough to rapidly deploy it.
Or take health care. House and Senate Democrats are squabbling over dueling policies to let Medicare set the prices it pays for drugs. Europeans and Canadians pay far less for the same prescription drugs that we buy, and so House Democrats want to let Medicare set the prices of at least some drugs at 120 percent what our peer countries pay. Senate Democrats, according to STAT, seem to be moving toward directing Medicare to set prices based on what the Veterans Health Administration pays, which is lower than before but still higher than abroad. (It’s darkly comic that neither chamber has simply taken the position that Americans shouldn’t pay more than Canadians for prescription drugs.)
The counterargument here is frustrating, but important. Yes, Americans overpay compared to peer countries for drugs. But truly curing, managing or preventing disease is of extraordinary value to humanity. Pfizer and Moderna will make billions from their coronavirus vaccines, but they’ve created trillions of dollars in economic value by unfreezing economies, to say nothing of the lives saved. It is true that European countries free-ride off the high cost we pay for drugs, because it’s the U.S. market that drives innovation. But that doesn’t mean we’d be better off paying their prices, if that meant new drug development slowed. We don’t just want everyone to have health insurance in the future. We want them to be healthier; freed from diseases and pain that even the best health insurance today cannot cure or ease.
To this, progressives will note that pharmaceutical companies pump money into me-too drugs, spend gobsmacking amounts on advertising and administration, and make billions and billions in profits. And they’re right. It’s ludicrous to say that the pharmaceutical system we have now is oriented toward innovation. It’s oriented toward profit — sometimes that intersects with innovation and sometimes it doesn’t.
Too often, though, progressives let their argument drop there. They need to take the obvious next step: We should combine price controls with new policies to encourage drug development. That could include everything from more funding of basic research to huge prizes for discovering drugs that treat particular conditions to more public funding for drug trials. Years ago, Bernie Sanders had an interesting proposal for creating a system of pharmaceutical prizes in which companies could make millions or billions for inventing drugs that cured certain conditions, and those drugs would be immediately released without exclusive patent protections. Focusing on the need to make new drugs affordable while ignoring the need to make more of them exist is like trimming a garden you’ve stopped watering.
But this is a lesson progressives are, increasingly, learning. This is clearest on climate. Much of the spending in the Biden agenda is dedicated to increasing the supply of renewable energy and advanced batteries while building the supply of carbon-neutral transportation options. Democrats have realized that markets alone will not solve the climate crisis. And the same is true for much else on the progressive docket.
In a blog post, Jared Bernstein, a member of President Biden’s Council of Economic Advisers, and Ernie Tedeschi, a senior policy economist for the council, framed the Biden agenda as “an antidote for inflationary pressure” because much of it expands the long-term supply of the economy.
“The transportation, rail, public transit, and port investments will reduce efficiency-killing frictions that keep people and goods from getting to markets as quickly as they should,” they wrote. “The child and elder care investments will boost the labor supply of caretakers. The educational investments in pre-K and community college will eventually show up as higher productivity as a result of a better-educated work force.”
A list like this could go on. It’s not clear whether it’ll be in the reconciliation bill, for instance, but Biden has proposed an expansive plan to increase housing supply in part by pushing local governments to end exclusionary zoning laws. And in California, that’s exactly what’s happening, as I wrote a few weeks back. A decade ago, progressives talked often of making housing affordable, but they didn’t talk much about increasing housing supply. Now they do. That’s progress.
I don’t think these various policies have cohered into a policy faction, a way progressives think of themselves, at least not yet. But I’d like to see that happen. Political movements consider solutions where they know to look for problems. Progressives have long known to look for problems on the demand-side of the economy — to ask whether there are goods and services people need that they cannot afford. That will make today fairer, but to ensure tomorrow is radically better, we need to look for the choke points in the future we imagine, the places where the economy can’t or won’t supply the things we need. And then we need to fix them.
Swedish Economy Can Withstand Surging Energy Prices, Lofven Says – BNN
(Bloomberg) — The Swedish economy is robust enough to withstand the effects of the energy crunch that has gripped Europe and filtered into Scandinavia, Swedish Prime Minister Stefan Lofven said.
“We have a very, very strong economy,” Lofven said in an interview in New York on Sunday. “If we have dramatically higher prices in the long term that will affect consumption, but I don’t think we’re there.”
Sweden’s debt to gross domestic product ratio has held below 40% even during the Covid-19 crisis and remains one of the lowest in Europe. That measure is set to fall to about 35%, Lofven said.
Natural gas prices in Europe have more than tripled this year, sparking fears of surging inflation across the continent and even prompting the U.K. government to hold emergency talks with power suppliers.
While natural gas isn’t widely used in Sweden, it has spurred a jump in other energy costs, which have historically been among the lowest in the region. Consumer prices climbed more than expected in August, and Swedbank AB warned last week that inflation could reach the highest level since the global financial crisis in 2008.
One simple solution, according to Lofven, is to produce more power. The country normally has an annual surplus of about 25 terawatts that it sells to Europe — hydro power accounts for the biggest proportion of Sweden’s electricity production, followed by nuclear. By 2040, it plans to double electricity output from current levels, he said.
The current crisis reinforces the need for the European Union to work out how best to produce more electricity in the longer term, according to Lofven, who said last month he was stepping down as prime minister.
“We need to watch out,” he said. “The whole European Union needs to think this through.”
©2021 Bloomberg L.P.
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