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Economic thinking is at a crucial inflection point – Financial Times

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Soaring energy prices have encouraged another form of inflation, this one rhetorical. Comparisons of our current challenges with the world’s economic and political struggles in the 1970s are now a dime a dozen.

The comparisons are apt as far as they go. Oil prices quadrupled in 1973 and doubled again in 1979. While they have “only” about doubled in the last two years, European gas prices have jumped five to 10-fold since before the pandemic. Overall inflation is the highest in decades, and many fear we face a repeat of the 1970s scourge of stagflation.

The similarities end with the effects for political and economic thinking. Once the turmoil of the 1970s had discredited the mixed economies of the postwar era, it paved the way for the market-liberalising transformations pioneered by Margaret Thatcher and Ronald Reagan.

Back then, economic failure produced something approaching a consensus that “government is the problem”, as Reagan put it. But today the opposite is the case. Energy prices, the rising cost of living and worsening tensions in labour relations are fuelling calls for the government to come to the rescue. The economic ailments that in the 1970s led the state to withdraw are today dragging it back where, for almost half a century, it has feared to tread.

The market-friendly governing philosophy that triumphed in the 1980s is on the defensive. Government-administered prices are now the order of the day, from car and heating fuel to electricity and, of course, carbon emissions. The pressure for windfall taxes on fossil fuel companies seems irresistible, and governments across Europe are digging deep into their coffers to help hard-pressed households.

Even direct cash payments to households, with few strings attached or none, are in vogue, in an echo of the North American experiments with universal basic income in the 1970s.

This raises two questions. Why this difference in the political consequences of seemingly similar economic crises? And is today’s turn to a more interventionist state permanent or a flash in the pan?

The simplest answer to the first question is that when things feel intolerable, people blame the status quo and demand change. In the 1970s that meant deregulating a rigid economy. Today it may mean re-regulating an unchained one.

But the return of the state predates today’s sudden rise in inflation and its main causes — the pandemic, energy price jumps and Vladimir Putin’s attack on Ukraine. Confidence in the post-1980 socio-economic model was already fraying under pressure from, as it were, both the past and the future.

The populism of Donald Trump, Brexiters and others (including some on the left) represents a nostalgia for a previous social settlement remembered (rightly) as more controlled and (wrongly) as more prosperous. Meanwhile, the rise of the climate agenda responds to a widely held conviction among voters that current economic arrangements imperil their future.

There are enormous differences between these two stances, of course. For one thing, a decarbonised economy is possible, whereas returning to the 1950s is not. But however realistic their goals, they both presuppose a more interventionist and controlling state.

This helps to explain the changing conceptions of how to run the economy among centrist politicians and the guardians of economic orthodoxy. A greater emphasis on securing social cohesion and actively reshaping the structure of the economy is more than a temporary response to emergencies.

For now, 2022 feels like a 1945 or 1979 kind of moment — a historical hinge point or paradigm shift. Yet the transition to a new economic governing philosophy could still be derailed. The pandemic years made for state interventions unlike any seen in decades — with rapid recoveries in incomes and jobs being proof of their success. But a revisionist view is taking hold that aims to discredit the policies that produced a historically speedy recovery.

In this narrative, the current inflationary surge overshadows the triumph of a labour market that makes it easy to find better jobs. So thoroughly have we forgotten what a good labour market looks like that we risk thinking it is an aberration. Certainly, central bankers have been browbeaten into adopting a more hawkish attitude than is wise.

The current economic debate is about much more than managing cost of living pressures. The question is whether we will finally put the last 40 years behind us and settle on something better.

martin.sandbu@ft.com

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Economy

What is a recession? Your economy questions, answered. – The Washington Post

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The U.S. economy is back in the headlines, with more economists and financial experts warning of an impending downturn at some point in the next year. But what is a recession — and what happens during one?

The answers can be complicated and vague.

“Recessions are notoriously hard to predict in advance,” said Tara Sinclair, an economics professor at George Washington University. “It’s pretty easy to say a recession is coming at some point in the future. … It’s much harder to quantify exactly when, how long and how deep.”

For nearly two years, the U.S. economy has notched blockbuster gains, with millions of new jobs and wage hikes adding to the streak of good news. Families and businesses were flush with cash, which they used to buy houses, cars, electronics and other big-ticket items. That extra spending — combined with lingering supply chain shortages and delays from the pandemic — helped drive up prices and contributed to the highest inflation in 40 years.

Now policymakers are trying to tackle some of those skyrocketing prices with higher interest rates. They’re hoping that by making it more expensive for families and businesses to borrow — for investments, homes and cars, for example — that demand for those things will go down. The question is whether they will be able to slow things down just enough, without sending the country into a recession.

Here, we answer some common questions on economic downturns and how they affect Americans.

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Ontario premier Ford vows to rebuild economy, unveils new Cabinet – Reuters.com

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OTTAWA, June 24 (Reuters) – Doug Ford took the oath of office for a second term as the premier of Canada’s most populous province on Friday with a promise to build highways and homes, and rebuild Ontario’s economy.

Ford’s right-leaning Progressive Conservatives returned to power with a sweeping victory in a provincial election on June 2, winning 83 seats in the 124-seat legislature.

He unveiled a larger 30-member Cabinet, moving former solicitor general Sylvia Jones to role of minister of health and deputy premier, while keeping Peter Bethlenfalvy in post as the debt-laden province’s finance minister.

Ford said he had an “ambitious plan” for his second stint, as his government faced challenges posed by inflation rates hitting a nearly 40-year high in Canada.

“That plan starts with rebuilding Ontario’s economy,” Ford said at his swearing-in ceremony.

He reiterated pledges made in the lead-up to the election, including new spending on highways, transit and the auto sector.

“We’re investing to connect every part of our auto supply chain … the cars of the future will be built right here, Ontario, from start to finish,” Ford said.

Ontario, home to just under 40% of Canada’s 38.2 million people, is Canada’s manufacturing heartland. It is also one of the world’s largest sub-sovereign borrowers, with publicly held debt in excess of C$400 billion ($309.6 billion).

Ford also pledged to address soaring home prices in the province by building more affordable housing.

Canada’s national housing agency projects Ontario to be one of the worst affected by a housing shortage over the next decade. Provincial capital Toronto is already one of the most expensive cities to live in globally.

“Too many families are frozen out of the housing market … we need to build more attainable homes,” Ford said.

($1 = 1.2921 Canadian dollars)

(This story was refiled to fix typo in headline)

Reporting by Ismail Shakil in Ottawa

Our Standards: The Thomson Reuters Trust Principles.

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Economy

Northern Shootout's return provides a big boost to Orillia's economy – CTV News Barrie

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The return of an annual slo-pitch softball event marks the unofficial start of summer in Orillia.

The Northern Shootout is back for its 13 edition after a pandemic-driven hiatus.

The tournament consists of 78 men’s, women’s and co-ed teams from Ontario and Quebec and promises a big boost to the economy in the city.

“Especially after two years of pandemic restrictions,” said Mike Ladouceur, City of Orillia. “This helps our tourism recover, puts heads in beds, hotels are filled, restaurants filled, this is really the big event that begins our summer of events.”

Organizer Mike Borrelli said the tournament has grown to become one of the biggest in Canada.

“We’re pretty much at capacity for participants. We can’t accommodate anymore,” he added. “We’re using the other diamonds, we got all the diamonds in Orillia, and we’re using the Rama diamond, so if we had more diamonds, we could accommodate more teams.”

The owners of Adovo Pizza in Orillia say the increase in tourism has done wonders for their business this year.

This being the first big event of the season, they’re excited to welcome so many people into the city.

“Everyone has just been waiting to get out,” said Adam Zimmerman, co-owner. “Especially for sporting events and vendors, have a cold beer. There’s nothing wrong with it.”

The tournament culminates with an annual home run derby, which organizers said typically draws 1,200 fans to watch.

Sixteen participants will compete to walk away with a championship belt.

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