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Why The Biden Pandemic Stimulus Bill Won’t Help The Economy – Forbes

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President Biden’s proposed stimulus/relief bill won’t help the economy, though it may help some at the expense of others. Neither cold logic nor the numbers support the idea that an additional $1.9 trillion of federal spending will provide any impact to the overall economy.

For the logical experiment, begin with the sectors that are sub-par now: leisure and hospitality, which includes restaurants, bars, hotels, theaters, professional sports, museums and so forth. How much federal money would induce my neighbors and me to go out to dinner? Unless our governor is bribed to allow restaurants to re-open, no amount of money will do the trick. That pretty much holds true for all other weak parts of the economy.

In addition to leisure and hospitality, school employment is down, both for public and private education. Many teachers are working remotely thanks to Zoom and other platforms, but the unused buildings don’t need janitors and the cafeterias don’t need cooks and servers. New federal money won’t will get the schools to reopen.

Some weakness occurs in other industries, but mostly that’s attributable to leisure and hospitality and education. Wholesale trade is down, for example, but that sector includes the people who sell paper products to restaurants and schools. Stimulus won’t get those sectors to expand.

That’s the logical story. The numbers reach the same conclusion through a different path, described recently by Larry Summers. Let’s assume that stimulus would get those activities going, or some substitutes. That is, with enough federal stimulus the unemployed waiters, hotel clerks and school janitors would find work elsewhere. How much stimulus would that take? Even that question assumes that everyone were willing to shift quickly, for a temporary new opportunity. But let’s make the assumption.

At the end of 2020, the economy was running about $0.7 trillion per year short of its potential. Potential GDP is a clear concept, though roughly estimated. The concept is how much our country would produce at full employment of people who wanted to work, and full utilization of factories and offices. Full employment does not mean zero unemployment; rather it means that the time it takes someone to find a job is normal. Similarly, it does not assume that every factory is running three shifts, but that they are running at normal pace, accounting for occasional shutdowns for maintenance and upgrades. The actual estimate is soft but unlikely to be grossly wrong.

So we ended 2020 with a $0.7 trillion shortfall from GDP potential. Then at the end of December, Congress passed and President Trump signed $0.9 trillion of stimulus. That happened too late to affect our final GDP report, so it’s all going into 2021. Consider this: a gap of $0.7 trillion was countered with $0.9 trillion of stimulus in December, and now we are considering another $1.9 trillion.

How will that money be spent? Most discussions focused on $1400 checks, Additional payments to unemployed people, state and local governments and for child care round out the large categories. Most people will use the payments to pay down debt and increase their bank balances—which are already very high. In fact, people in poorer zip codes are now spending much more than they spent a year ago, at the economic peak before Covid-related layoffs and lockdowns. There are some individuals in need of relief, but many laid-off workers received extra unemployment insurance payments that boosted their take-home pay above working wages.

If most people tried to spend their stimulus money, we’d all be fighting to purchase the same things. We’re pretty much producing at full capacity for the open part of the economy, such as grocery stores and online gear. Computer chip shortages plague electronics and automobile producers, illustrating the limits of our productive capability.

Eventually, pushing too much money into people’s hands—when productive capacity cannot match the spending—will prove inflationary. Early signs in inflation may show in 2021 and be clearly evident by the end of 2022 and certainly by 2023. At some point government debts come due, so if people have not paid for the stimulus through inflation reducing the value of their assets, then higher tax rates and higher interest rates will take a toll on the public.

The bottom line for the economy with the stimulus bill is no noticeable change in total spending, production and employment until Covid dies out, and then too many dollars chasing too few goods and services.

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B.C. economy set to grow in 2021, 2022, forecast suggests – News 1130

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VANCOUVER (NEWS 1130) – B.C.’s economy is looking up — at least for now — according to a new forecast.

Central 1 suggests the provincial economy is going to grow by 4.2 per cent this year and by 4.5 per cent in 2022.

Exports and the demand for housing are expected to be the main drivers as economies around the world bounce back from the impacts of the COVID-19 pandemic. Vaccine rollout and development are also expected to help shape the provincial growth.

“Improved business conditions, rising exports and stronger commodity prices will drive a strong rebound in non-residential investment as firms begin to spend after holding back during the early stages of the pandemic,” says Bryan Yu, Central 1 chief economist. “For example, growth of more than 10 per cent is expected for machinery and equipment and building investment this year.”

However, while some sectors are expected to rebound, Central 1 notes the hospitality and “other face-to-face” sectors will likely take a longer time to recover fully.

According to the economic analysis, B.C. has regained close to 90 per cent of the jobs that were first lost when the health crisis began.

Despite this gain, jobs in the tourism and related sectors continue to be at levels far lower than before the pandemic.

“An improved labour market since the spring provides a solid launchpad for employment growth this year,” says Yu. “Average employment is forecast to rise 4.7 per cent, with growth sliding to 3.2 per cent in 2022.”

While Central 1 forecasts growth for 2021 and 2022, its analysis suggests there will be a drop to below three per cent in 2023.

Read the full report:

Central 1 BC economic forecast

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Economy

B.C. economy set to grow in 2021, 2022, forecast suggests – News 1130

Published

 on


VANCOUVER (NEWS 1130) – B.C.’s economy is looking up — at least for now — according to a new forecast.

Central 1 suggests the provincial economy is going to grow by 4.2 per cent this year and by 4.5 per cent in 2022.

Exports and the demand for housing are expected to be the main drivers as economies around the world bounce back from the impacts of the COVID-19 pandemic. Vaccine rollout and development are also expected to help shape the provincial growth.

“Improved business conditions, rising exports and stronger commodity prices will drive a strong rebound in non-residential investment as firms begin to spend after holding back during the early stages of the pandemic,” says Bryan Yu, Central 1 chief economist. “For example, growth of more than 10 per cent is expected for machinery and equipment and building investment this year.”

However, while some sectors are expected to rebound, Central 1 notes the hospitality and “other face-to-face” sectors will likely take a longer time to recover fully.

According to the economic analysis, B.C. has regained close to 90 per cent of the jobs that were first lost when the health crisis began.

Despite this gain, jobs in the tourism and related sectors continue to be at levels far lower than before the pandemic.

“An improved labour market since the spring provides a solid launchpad for employment growth this year,” says Yu. “Average employment is forecast to rise 4.7 per cent, with growth sliding to 3.2 per cent in 2022.”

While Central 1 forecasts growth for 2021 and 2022, its analysis suggests there will be a drop to below three per cent in 2023.

Read the full report:

Central 1 BC economic forecast

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Economy

B.C. economy set to grow in 2021, 2022, forecast suggests – News 1130

Published

 on


VANCOUVER (NEWS 1130) – B.C.’s economy is looking up — at least for now — according to a new forecast.

Central 1 suggests the provincial economy is going to grow by 4.2 per cent this year and by 4.5 per cent in 2022.

Exports and the demand for housing are expected to be the main drivers as economies around the world bounce back from the impacts of the COVID-19 pandemic. Vaccine rollout and development are also expected to help shape the provincial growth.

“Improved business conditions, rising exports and stronger commodity prices will drive a strong rebound in non-residential investment as firms begin to spend after holding back during the early stages of the pandemic,” says Bryan Yu, Central 1 chief economist. “For example, growth of more than 10 per cent is expected for machinery and equipment and building investment this year.”

However, while some sectors are expected to rebound, Central 1 notes the hospitality and “other face-to-face” sectors will likely take a longer time to recover fully.

According to the economic analysis, B.C. has regained close to 90 per cent of the jobs that were first lost when the health crisis began.

Despite this gain, jobs in the tourism and related sectors continue to be at levels far lower than before the pandemic.

“An improved labour market since the spring provides a solid launchpad for employment growth this year,” says Yu. “Average employment is forecast to rise 4.7 per cent, with growth sliding to 3.2 per cent in 2022.”

While Central 1 forecasts growth for 2021 and 2022, its analysis suggests there will be a drop to below three per cent in 2023.

Read the full report:

Central 1 BC economic forecast

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Source link

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