NEW DELHI — India’s economy likely rebounded in the April-June quarter from a deep slump last year helped by improved manufacturing and in spite of a devastating second wave of COVID-19 cases.
Asia’s third-largest economy suffered one of the biggest hits among major economies, contracting 7.3% in 2020/21, after a nationwide lockdown early last year. But the economy has not been as badly affected from the second wave in April-May this year due to less stringent lockdowns by state governments.
However, many analysts say the risk of spiking infections from the Delta variant and the slow pace of vaccinations in some states could hit India’s growth momentum, with the economy unlikely to reach its pre-pandemic level of about $2.9 trillion before the middle of next fiscal year beginning April.
A Reuters survey of 41 economists projected gross domestic product grew 20.0% in the June quarter from a year earlier, versus a record contraction of 24.4% in the same quarter a year earlier.
If the median poll forecast is realized, it would be the fastest growth since the mid-1990s when official quarterly data was available, and up sharply from 1.6% in the previous quarter.
The Reserve Bank of India https://www.reuters.com/world/india/india-keeps-rates-hold-expected-market-eyes-clues-policy-normalization-2021-08-06(RBI), which has kept its monetary policy loose, has forecast annual growth of 9.5% in the current fiscal year, although it has warned about the possibility of a third wave https://www.reuters.com/world/india/indian-states-preparing-next-covid-wave-focus-children-2021-08-19 of the pandemic.
Many sectors like retail, auto sales, farm output, construction and exports have picked up since June, supporting the government’s claim of a fast recovery, but some sectors such as transport, tourism and consumer spending remain weak.
“Nearly one million of about 4 million trucks plying long-distance cargo are still off the road, hit by a closure of many businesses and a recent surge in virus cases in the state of Kerala https://www.reuters.com/world/the-great-reboot/keralas-covid-19-lessons-india-modis-government-2021-08-26 and neighboring Tamil Nadu,” said Anjani Mandal, CEO of Bengaluru-based Fortigo Logistics.
A spike in cases of the more transmissible Delta variant has caused supply chain disruptions for many manufacturers, which could weigh on factory output and add to gloom for an already fragile recovery, he said. Unlike advanced economies, which announced massive stimulus to support consumers, Prime Minister Narendra Modi opted for raising spending on infrastructure, privatization https://www.reuters.com/world/india/india-puts-life-insurance-corps-ipo-fast-track-2021-08-27 of state companies and tax reforms https://www.reuters.com/world/india/india-proposes-refunds-retrospective-tax-disputes-2021-08-05/#:~:text=The%20amendment%20to%20the%20tax,South%20Asian%20economy%2C%20analysts%20said to bolster mid-term growth prospects, while providing free foodgrains to the poor.
“The government’s measures, if successful, could put the economy on a high growth path of 7.5-8% in coming years,” said N.R. Bhanumurthy, vice-chancellor, Bengaluru Ambedkar School of Economics University, while forewarning of short-term risks this year.
($1 = 73.4875 Indian rupees) (Editing by Jacqueline Wong)
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.
Opinion | Do We Need to Shrink the Economy to Stop Climate Change? – The New York Times
This article is part of the Debatable newsletter. You can sign up here to receive it on Tuesdays and Thursdays.
If there is a dominant paradigm for how politicians and economists today think about solving climate change, it is called green growth. According to green growth orthodoxy — whose adherents populate European governments, the Organization for Economic Co-operation and Development, the World Bank and the White House — the global economy can both continue growing and defuse the threat of a warming planet through rapid, market-led environmental action and technological innovation.
But in recent years, a rival paradigm has been gaining ground: degrowth. In the view of degrowthers, humanity simply does not have the capacity to phase out fossil fuels and meet the ever-growing demand of rich economies. At this late hour, consumption itself has to be curtailed.
Degrowth is still a relatively marginal tendency in climate politics, but it’s been attracting converts. In 2019, more than 11,000 scientists signed an open letter calling for a “shift from G.D.P. growth” toward “sustaining ecosystems and improving human well-being.” And in May, a paper published in the journal Nature argued that degrowth “should be as widely and thoroughly considered and debated as are comparably risky technology-driven pathways.”
Here’s a closer look at the debate.
The case for degrowth
Perhaps the most prominent proponent of the degrowth movement is Jason Hickel, an economic anthropologist and the author of “Less Is More: How Degrowth Will Save the World.” Degrowth, as he defines it, “is a planned reduction of energy and resource use designed to bring the economy back into balance with the living world in a way that reduces inequality and improves human well-being.”
His argument against the green growth framework rests on two key premises:
There is no historical evidence that G.D.P. can be completely decoupled from material resource use. In other words, human economies cannot grow infinitely on a planet with finite resources.
G.D.P. can be decoupled from greenhouse gas emissions by replacing fossil fuels with renewable energy, but that decoupling isn’t happening fast enough.
The requisite solution, in Hickel’s view, is to reduce resource and energy consumption, which will make it easier to rapidly transition to renewable energy in the short time humanity has left to avert 1.5 degrees of global warming. But this imperative would not apply equally across the globe:
Climate change is being driven primarily by the cumulative historical consumption of the Global North, so he argues it is incumbent on rich countries to shrink their economies. (The disproportionate responsibility advanced economies bear for climate change is also why Hickel rejects calls for population control in poorer countries as “completely backward”: “We do have a population problem, it’s true,” he said in 2018. “But it has nothing to do with poor countries. The real problem is that there are too many rich people.”)
That retrenchment, in turn, would create space in the global carbon budget for poorer countries to continue growing, which they still need to do to lift their populations out of poverty.
Critics of degrowth have analogized the project to economic austerity or forced recessions, which tend to cause broad-based suffering and worsen inequality. But those negative effects, Hickel says, are merely the predictable disaster that ensues “when growth-dependent economies stop growing.”
Degrowth, by contrast, calls for a different kind of economy altogether, one that could improve people’s livelihoods despite a reduction in aggregate activity: It seeks to scale down “ecologically destructive and socially less necessary production” (such as S.U.V.s, weapons, beef, private transportation, advertising and consumer technologies that are designed to obsolesce) while expanding “socially important sectors” like health care and education.
Among the policies Hickel proposes to create such an economy are shortening the workweek, introducing a job guarantee with a living wage, shifting workers out of declining industries and the decommodification of goods like housing that people need to live dignified lives.
‘A fantasy that distracts us from real efforts to save the planet’
In a recent newsletter, the economist Noah Smith took degrowth’s main arguments to task in a defense of green growth:
First, he says economic growth can, in fact, be decoupled from resource use: “We can keep raising everyone’s standard of living without exhausting the planet’s resources. Because growth doesn’t just mean using more and more stuff; instead, it can mean finding more efficient ways to use the stuff we have.” (Hickel dismisses the claim as a hypothetical.)
Second, and more directly pertinent to climate change, Smith says that decoupling G.D.P. from greenhouse gas emissions is not just possible, as many degrowthers acknowledge, but already happening: Since 2005, 32 countries, including the United States, have managed to do it, according to the Breakthrough Institute.
Smith agrees with Hickel, though, that emissions decoupling isn’t happening fast enough. The question, then, is whether degrowthers offer the correct prescription for reaching carbon neutrality on a shorter timetable.
My colleague Ezra Klein doesn’t think so. The unacceptably slow pace of the transition to renewable energy, he argued on a recent podcast, is a political problem, not a technological one. And on the politics, degrowth is a much tougher sell than green growth.
The degrowth movement is “attacking the flaws of the current strategy as not moving fast enough when the impediments are political, but then not accepting the impediments to its own political path forward,” he said. “I think that if the political demand of the movement becomes you don’t get to eat beef, you will set climate politics back so far, so fast, it would be disastrous. Same thing with S.U.V.s. I don’t like S.U.V.s. I don’t drive one. But if you are telling people in rich countries that the climate movement is for them not having the cars they want to have, you are just going to lose.”
This is an argument Hickel takes seriously:
New York magazine’s Eric Levitz agrees that “Americans might well find themselves happier and more secure in an ultra-low-carbon communal economy in which individual car ownership is heavily restricted, and housing, health care, and myriad low-carbon leisure activities are social rights.” But, he adds, “nothing short of an absolute dictatorship could affect such a transformation at the necessary speed. And the specter of eco-Bolshevism does not haunt the Global North. Humanity is going to find a way to get rich sustainably, or die trying.”
Forgetting about growth
At the moment, degrowth has no mass constituency. But some of its animating ideas are nonetheless exerting an influence on political economic thought — particularly the critique of G.D.P. growth as the lodestar of human progress.
“Even within mainstream economics, the growth orthodoxy is being challenged, and not merely because of a heightened awareness of environmental perils,” John Cassidy wrote in The New Yorker last year. “After a century in which G.D.P. per person has gone up more than sixfold in the United States, a vigorous debate has arisen about the feasibility and wisdom of creating and consuming ever more stuff, year after year.”
What’s the alternative? Kate Raworth, an English economist, has identified one option: “doughnut economics.” In Raworth’s view, 21st-century economies should abandon growth for growth’s sake and make it their goal to reach the sweet spot — or the doughnut — between the “social foundation,” where everyone has what they need to live a good life, and the “environmental ceiling.”
“The doughnut model doesn’t proscribe all economic growth or development,” Ciara Nugent explains in Time. “But that economic growth needs to be viewed as a means to reach social goals within ecological limits, she says, and not as an indicator of success in itself, or a goal for rich countries.”
Raworth’s ideas have had real-world impact: Last year, during the first wave of the pandemic, Amsterdam’s city government announced it would aim to recover from the crisis by adopting the precepts of “doughnut economics.” A year before that, Prime Minister Jacinda Ardern of New Zealand announced her country would prioritize its residents’ welfare and happiness over G.D.P. growth.
Even in the United States, which has embraced no such policy, G.D.P. growth has slowed in the past two decades, largely because of falling birthrates and a switch in spending patterns from goods to services.
That hasn’t solved the problem of America’s addiction to fossil fuels, of course. “Yet the sorts of policies on offer from degrowth advocates — like universal basic services and shorter working hours — could help address some of the long-standing ills now afflicting a wide range of economies,” Kate Aronoff writes in The New Republic. “Rather than chasing an increasingly far-off goal by trying to coax forth elusive corporate investment with giveaways, governments could start planning for what a fairer lower growth, lower carbon future might look like.”
Do you have a point of view we missed? Email us at email@example.com. Please note your name, age and location in your response, which may be included in the next newsletter.
“Can we live within environmental limits and still reduce poverty?” [Development Policy Review]
“Green growth vs degrowth: are we missing the point?” [OpenDemocracy]
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