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Why America's economy may still need trillions of dollars – CNN

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A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

London (CNN Business)News that prices for American consumers are rising at the fastest rate in three decades has spooked investors and economists, piling pressure on President Joe Biden and the Federal Reserve to respond more aggressively.

What’s happening: Biden and his team are now steeling themselves for high inflation to persist into 2022, a problem for Democrats ahead of next November’s midterm elections. Senior Fed official Richard Clarida has indicated that if inflation stays elevated, the central bank could opt to hike interest rates next year.
Inflation is currently “much more than a moderate overshoot” of the Fed’s 2% target, he said earlier this week. “I would certainly not consider a repeat performance a policy success,” he continued.
Larry Summers, an economist who served in both the Obama and Clinton administrations, has been sounding the alarm on inflation for months.
“I think that the policymakers in Washington, unfortunately, have almost every month been behind the curve,” Summers told CNN on Wednesday.
But not everyone thinks the Fed and the Biden administration need to change course dramatically. In fact, former Fed economist Claudia Sahm, a Summers critic, believes that America’s economy still needs trillions of dollars in additional stimulus.
I asked her a few questions about this week’s inflation data and the subsequent debate. Our Q&A has been condensed and lightly edited for clarity.
What’s the big picture takeaway from the latest inflation data, in your view?
Big price increases in October, on top of higher-than-normal inflation since the summer, are unambiguously bad for consumers. But Covid, not inflation, is the problem. The rise and fall of cases throughout the pandemic has created immense disruptions in our economic and everyday lives.
What does a 6.2% annual increase in the Consumer Price Index say about the narrative that inflation is transitory?
The view that inflation would step back down this year was always based on the view that the pandemic would recede. Covid is still here, and as recently as a few months ago, it surged due to the Delta variant. Global supply chains are a mess, largely due to an insufficient global health response. There are no signs that the price increases due to Covid-related factors are spreading into other prices. Transitory means short-lived. As with the pandemic itself, we have been promised that it would get better soon, and it takes longer.
A number of other economists are pointing to rising rents as one example that price increases are broadening. Do you disagree with this assessment?
I disagree. House prices increased more slowly than usual during the pandemic due to eviction moratoriums, mortgage forbearance, and people waiting to move. The faster house price inflation now is basically a “getting back to normal.” That normal is not good, but it is what we had before Covid.
Should the Fed stay the course? Or might it need to move faster?
The Fed decided to reduce the pace of asset purchases by $15 billion in November and December and then reevaluate at their next meeting. The world is changing quickly, and it is appropriate for them to get more data before deciding on the pace after that.
What should the response be in Congress and/or from the Biden administration? What are the implications for Biden’s $1.9 trillion Build Back Better social spending package?
Congress needs to pass the Build Back Better legislation immediately. It is an investment in our children, low-wage workers, education, health care and fighting climate change. A half a year of higher-than-normal inflation is not a reason to squander this opportunity to act.

Two more big companies want to split themselves up

This week could mark the end of an era for more than one iconic conglomerate.
The latest: Japan’s Toshiba outlined plans on Friday to break up into three independent companies, a pitch that involves spinning off its energy and infrastructure business as well as its device and storage business.
The proposal follows a campaign by activist shareholders and a strategic review in the wake of a corporate governance scandal.
Toshiba (TOSBF) said Friday that it saw splitting the company as the best path forward.
“The decision allows each business to significantly increase its focus and facilitate more agile decision-making and leaner cost structures,” it said in a statement.
The move by the 146-year-old conglomerate comes just days after General Electric said it would split into three separate public companies, spinning out its aviation, healthcare and energy businesses.
Step back: What’s driving these storied conglomerates to try to dissemble themselves? One factor is the market, which currently favors streamlined operations over sprawling empires.
Another is the role of more aggressive activist shareholders, who build up stakes and then lobby for companies to make large structural changes.
There’s more: Johnson & Johnson (JNJ) announced Friday that it’s planning to split into two public companies, spinning off its division that sells Band-Aids and Tylenol. Shares are up 4% in premarket trading.
I’m also keeping an eye on Shell (RDSA), which is being lobbied by the hedge fund Third Point to separate its legacy fossil fuel business from its push into renewables. The company has rejected this proposal. But could other shareholders take Third Point’s side?

North American companies are racing to order robots

The companies rushing to meet surging demand for goods while struggling to fill open positions are in a bind. Increasingly, they’re turning to a new solution.
According to the Association for Advancing Automation, or A3, strong sales of robots over the summer brought the total number of orders in North America to 29,000 units so far this year. That’s the highest level on record.
Breaking it down: The number of units sold is up 37% from the same period in 2020 and trumps the previous high set in 2017 by nearly 6%.
“With labor shortages throughout manufacturing, logistics and virtually every industry, companies of all sizes are increasingly turning to robotics and automation to stay productive and competitive,” A3 President Jeff Burnstein said in a statement.
The group said it wasn’t just carmakers placing orders. Nearly two-thirds of sales came from non-automotive industries, including metals and food and consumer goods.
Big picture: A3 advocates for the benefits of automation, arguing it makes workplaces safer and frees up people for more rewarding roles. Even if that’s true in the long run, it could seriously shake up the job market in the immediate term — another way in which the post-pandemic economy could look very different.

Up next

Warby Parker reports results before US markets open.
Also today: The latest data on the number of Americans quitting their jobs, which has been at a record high, posts at 10 a.m. ET.
Coming next week: US President Joe Biden and Chinese President Xi Jinping are expected to hold a virtual summit on Monday, the first such meeting between the leaders of the world’s two largest economies.

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Economy

Britain's economy went into recession last year, official figures confirm – The Globe and Mail

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People walk over London Bridge, in London, on Oct. 25, 2023.SUSANNAH IRELAND/Reuters

Britain’s economy entered a shallow recession last year, official figures confirmed on Thursday, leaving Prime Minister Rishi Sunak with a challenge to reassure voters that the economy is safe with him before an election expected later this year.

Gross domestic product shrank by 0.1 per cent in the third quarter and by 0.3 per cent in the fourth, unchanged from preliminary estimates, the Office for National Statistics (ONS) said on Thursday.

The figures will be disappointing for Mr. Sunak, who has been accused by the opposition Labour Party – far ahead in opinion polls – of overseeing “Rishi’s recession.”

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“The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1 per cent,” said Martin Beck, chief economic adviser at EY ITEM Club.

“However, an acceleration in momentum this year remains on the cards.”

Britain’s economy has shown signs of starting 2024 on a stronger footing, with monthly GDP growth of 0.2 per cent in January, and unofficial surveys suggesting growth continued in February and March.

Tax cuts announced by finance minister Jeremy Hunt and expectations of interest-rate cuts are likely to help the economy in 2024.

However, Britain remains one of the slowest countries to recover from the effects of the COVID-19 pandemic. At the end of last year, its economy was just 1 per cent bigger than in late 2019, with only Germany faring worse among Group of Seven nations.

The economy grew just 0.1 per cent in all of 2023, its weakest performance since 2009, excluding the peak-pandemic year of 2020.

GDP per person, which has not grown since early 2022, fell by 0.6 per cent in the fourth quarter and 0.7 per cent across 2023.

Sterling was little changed against the dollar and the euro after the data release.

The Bank of England (BOE) has said inflation is moving toward the point where it can start cutting rates. It expects the economy to grow by just 0.25 per cent this year, although official budget forecasters expect a 0.8-per-cent expansion.

BOE policy maker Jonathan Haskel said in an interview reported in Thursday’s Financial Times that rate cuts were “a long way off,” despite dropping his advocacy of a rise at last week’s meeting.

Thursday’s figures from the ONS also showed 0.7 per cent growth in households’ real disposable income, flat in the previous quarter.

Thomas Pugh, an economist at consulting firm RSM, said the increase could prompt consumers to increase their spending and support the economy.

“Consumer confidence has been improving gradually over the last year … as the impact of rising real wages filters through into people’s pockets, even though consumers remain cautious overall,” Mr. Pugh said.

Britain’s current account deficit totalled £21.18-billion ($36.21-billion) in the fourth quarter, slightly narrower than a forecast of £21.4-billion ($36.6-billion) shortfall in a Reuters poll of economists, and equivalent to 3.1 per cent of GDP, up from 2.7 per cent in the third quarter.

The underlying current account deficit, which strips out volatile trade in precious metals, expanded to 3.9 per cent of GDP.

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How will a shrinking population affect the global economy? – Al Jazeera English

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Falling fertility rates could bring about a transformational demographic shift over the next 25 years.

It has been described as a demographic catastrophe.

The Lancet medical journal warns that a majority of countries do not have a high enough fertility rate to sustain their population size by the end of the century.

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The rate of the decline is uneven, with some developing nations seeing a baby boom.

The shift could have far-reaching social and economic impacts.

Enormous population growth since the industrial revolution has put enormous pressure on the planet’s limited resources.

So, how does the drop in births affect the economy?

And regulators in the United States and the European Union crack down on tech monopolies.

The gender gap in tech narrows.

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John Ivison: Canada's economy desperately needs shock treatment after this Liberal government – National Post

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Lack of business investment is the main culprit. Canadians are digging holes with shovels while our competitors are buying excavators

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It speaks to the seriousness of the situation that the Bank of Canada is not so much taking the gloves off as slipping lead into them.

Senior deputy governor, Carolyn Rogers, came as close to wading into the political arena as any senior deputy governor of the central bank probably should in her speech in Halifax this week.

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But she was right to sound the alarm about a subject — Canada’s waning productivity — on which the federal government’s performance has been lacklustre at best.

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Productivity has fallen in six consecutive quarters and is now on a par with where it was seven years ago.

Lack of business investment is the main culprit.

In essence, Canadians are digging holes with shovels while many of our competitors are buying excavators.

“You’ve seen those signs that say, ‘in emergency, break glass.’ Well, it’s time to break the glass,” Rogers said.

She was explicit that government policy is partly to blame, pointing out that businesses need more certainty to invest with confidence. Government incentives and regulatory approaches that change year to year do not inspire confidence, she said.

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The government’s most recent contribution to the competitiveness file — Bill C-56, which made a number of competition-related changes — is a case in point. It was aimed at cracking down on “abusive practices” in the grocery industry that no one, including the bank in its own study, has been able to substantiate. Rather than encouraging investment, it added a political actor — the minister of industry — to the market review process. The Business Council of Canada called the move “capricious,” which was Rogers’s point.

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While blatant price-fixing is rare, the lack of investment is a product of the paucity of competition in many sectors, where Canadian companies protected from foreign competition are sitting on fat profit margins and don’t feel compelled to invest to make their operations more efficient. “Competition can make the whole economy more productive,” said Rogers.

The Conservatives now look set to make this an election issue. Ontario MP Ryan Williams has just released a slick 13-minute video that makes clear his party intends to act in this area.

Using the Monopoly board game as a prop, Williams, the party’s critic for pan-Canadian trade and competition, claims that in every sector, monopolies and oligopolies reign supreme, resulting in lower investment, lower productivity, higher prices, worse service, lower wages and more wealth inequality.

(As an aside, it was a marked improvement on last year’s “Justinflation” rap video.)

Williams said that Canadians pay among the highest cell phone prices in the world and that Rogers, Telus and Bell are the priciest carriers, bar none. The claim has some foundation: in a recent Cable.co.uk global league table that compared the average price of one gigabyte, Canada was ranked 216th of 237 countries at US$5.37 (noticeably, the U.S. was ranked even more expensive at US$6).

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Williams noted that two airlines control 80 per cent of the market, even though Air Canada was ranked dead last of all North American airlines for timeliness.

He pointed out that six banks control 87 per cent of Canada’s mortgage market, while five grocery stores — Sobeys, Metro, Loblaw, Walmart and Costco — command a similar dominance of the grocery market.

“Competition is dying in Canada,” Williams said. “The federal government has made things worse by over-regulating airlines, banks and telecoms to actually protect monopolies and keep new players out.”

So far, so good.

The Conservatives will “bring back home a capitalist economy” — a market that does not protect monopolies and creates more competition, in the form of Canadian companies that will provide new supply and better prices.

That sounds great. But at the same time, the Conservative formula for fixing things appears to involve more government intervention, not less.

Williams pointed out the Conservatives opposed RBC buying HSBC’s Canadian operations, WestJet buying Sunwing and Rogers buying Shaw. The party would oppose monopolies from buying up the competition, he said.

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The real solution is to let the market do its work to bring prices down. But that is a more complicated process than Williams lets on.

Back in 2007, when Research in Motion was Canada’s most valuable company, the Harper government appointed a panel of experts, led by former Nortel chair Lynton “Red” Wilson, to address concerns that the corporate sector was being “hollowed out” by foreign takeovers, following the sale of giants Alcan, Dofasco and Inco.

The “Compete to Win” report that came out in June 2008 found that the number of foreign-owned firms had remained relatively unchanged, but recommended 65 changes to make Canada more competitive.

The Harper government acted on the least-contentious suggestions: lowering corporate taxes, harmonizing sales taxes with a number of provinces and making immigration more responsive to labour markets.

But it did not end up liberalizing the banking, broadcasting, aviation or telecom markets, as the report suggested (ironically, it was a Liberal transport minister, Marc Garneau, who raised foreign ownership levels of air carriers to 49 per cent from 25 per cent in 2018).

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The point is, Canada has a competition problem but solving it requires taking on vested interests. Conservative Leader Pierre Poilievre has indicated he is willing to do that, calling corporate lobbyists “utterly useless” and saying he will focus on Canadian workers, not corporate interests.

“My daily obsession will be about what is good for the working-class people in this country,” he said in Vancouver earlier this month.

Even opening up sectors to foreign competition is no guarantee that investors will come. There are no foreign ownership restrictions in the grocery market (in addition to the five supermarkets listed above, there is Amazon-owned Whole Foods). When the Competition Bureau concluded last year that there was a “modest but meaningful” increase in food prices, it recommended Ottawa encourage a foreign-owned player to enter the Canadian market. It was a recommendation adopted by Industry Minister Francois-Philippe Champagne, to no avail thus far.

But it is clear from the Bank’s warning that the Canadian economy requires some shock treatment.

Robert Scrivener, the chairman of Bell and Northern Telecom in the 1970s, called Canada a nation of overprotected underachievers. That is even more true now than it was back then.

It’s time to break the glass.

jivison@criffel.ca

Get even more deep-dive National Post political coverage and analysis in your inbox with the Political Hack newsletter, where Ottawa bureau chief Stuart Thomson and political analyst Tasha Kheiriddin get at what’s really going on behind the scenes on Parliament Hill every Wednesday and Friday, exclusively for subscribers. Sign up here.

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