“So, what did corporations spend their large tax cut on, if not wages or investment? Analysts at the International Monetary Fund find that 80 percent of the corporate tax cuts were repurposed into stock buybacks and dividends, which overwhelmingly benefited wealthy shareholders.16 And Lenore Palladino of the University of Massachusetts Amherst documents that these corporate buybacks and dividends also widened the racial wealth divide, finding that White stock-owners hold $27 for every $1 in corporate equity and mutual fund value held by a Black or Hispanic stock-owner.17
The main effects of the Tax Cuts and Jobs Act were less government revenue and regressive tax cuts for corporations, wealthy shareholders, and executives who bear nearly all the burden of corporate taxes even as the rate changes had little effect on business investment or workers.””
“”Contrary to conventional wisdom, imports are not a drag on the U.S. economy or the price we pay to sell goods and services abroad. In fact, rising imports coincide with stronger economic growth,” Scott Lincicome and Alfredo Carrillo Obregon write in The (Updated) Case for Free Trade, a Cato Institute study published in May. “The payoff to the United States from expanded trade between 1950 and 2016 was $2.1 trillion, increasing GDP per capita by around $7,000 and GDP per household by around $18,000.”
“Higher imports are also correlated with higher private‐sector employment in the United States, as numerous industries and workers depend on trade,” they add.”
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“Could high tariffs and “buy American” policies compel firms to find domestic suppliers? Well, maybe. But foreign sources were chosen for a reason; replacing them with domestic suppliers will require compromises. “Subsidising electric cars assembled in North America will make them more expensive and lower-quality,” The Economist cautioned of protectionist policies. And since politicized policy tends to breed yet more politicization, tariffs and subsidies will inevitably be further burdened with conditions. “The red tape will raise costs to consumers and taxpayers still further.””
“The Buy American program created by the Inflation Reduction Act gives Americans tax credits for purchasing electric vehicles (EVs) manufactured in the United States, Canada, or Mexico. However, these tax credits will not only be paid for by taxpayer dollars, they also stand to ignite a trade war with the European Union.
The majority of EVs are manufactured in China, followed by Germany and the United States. Regarding the minerals used in lithium batteries, the U.S. is at a disadvantage. In 2020, the U.S. ranked 15th in supplying battery materials, with the top three countries being China, Australia, and Brazil. The International Energy Agency notes that “the top three producing nations control well over three-quarters of global output.” Biden’s corporate welfare policy requires batteries to derive 40 percent of their mineral components from a mine in the U.S. or a country with which the U.S. has a free trade agreement. However, only five countries among the top 25 producers of minerals used in EV batteries have a free trade agreement with the U.S.
The U.S. could conceivably increase its mineral output with regulatory reform, says Scott Lincicome, director of general economics and trade policy at the Cato Institute. “The big problem is on the regulatory side, particularly on the permitting side of state-level equivalents….this makes mining and processing rare-earth materials here very difficult.”
The Buy American program also risks trade conflicts. E.U. French President Emmanuel Macron went so far as to say, “We need a Buy European Act like the Americans. We need to reserve [our subsidies] for our European manufacturers.” With the U.S. and Europe trending towards protectionism, Lincicome says restrictions will inherently “reduce adoption and consumption of whatever is targeted.”
Another fear that comes with protectionism is the retaliatory environment it creates. “Protectionism gets nasty, it gets political, and it spirals, and it’s very difficult to stop the cycle,” says Lincicome. Should a trade war begin over EVs, it could expand to other products, driving up prices.”
“Petroleum shipments are still relatively stable for Russia, as nations like China and India have picked up some slack from EU countries weaning themselves off oil, and Russia still has LNG, coal, and nuclear energy to help the economy float, too.
In order to make petroleum products more appealing to customers like India and Indonesia, Russia has offered fairly steep discounts — an average of $30 per barrel — against Brent crude oil, which has also been a benefit for Sri Lanka, Pakistan, Bangladesh, and Cuba, all emerging economies struggling with inflation, as Business Insider reported. Although according to S&P the discounts on Russian crude oil are decreasing, some analysts believe they’ll persist, making Russian crude oil imports highly palatable for poorer countries.”
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“Countries like China, India, and Turkey are proving eager partners for the Russian fuel industry, with Turkey doubling Russian oil imports this year and vying to become a hub for Russian LNG transfers into Europe after damage to the Nord Stream pipelines.”
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“Even with the Nord Stream 1 pipeline out of commission — and setting aside the transfers to China, now Russia’s biggest natural gas buyer — European countries are importing record amounts of Russian LNG at market prices, according to Bloomberg. France has purchased about 6 percent more Russian LNG between January and September of this year than it did all of last year; Spain has already broken its record for Russian LNG imports this year, and Belgium is on track to do the same.
The stakes for natural gas imports are somewhat different than they are for Russian petroleum, in a number of different ways; for one, the EU hasn’t imposed sanctions against it as it has against petroleum products, though the bloc does intend to eliminate its reliance on Russian fossil fuels by 2027. Second, Russia has already used Europe‘s reliance on its natural gas as a weapon; Russia cut access to many European countries which refused to pay for LNG in rubles, and cut total output to Europe by 60 percent in June and by 80 percent in July, Reuters reported last month.”
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“Russia continues to invest heavily in its nuclear technology, and nuclear facilities in many nations are dependent on Russian technology and cooperation to function, even if they’re not directly importing Russian nuclear fuel, according to a report by Robert Ichord for the Atlantic Council.”
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“Russia has several illicit strategies to evade western sanctions on its energy products and financial system. Because these transactions are, by their nature, often difficult to track, it’s hard to know how effective and how widespread they are — not to mention how much the Russian economy is benefiting from them.”
“The American Rescue Plan, intended to stimulate the economy from the effects of the pandemic, was a massive spending package that passed in March 2021. The legislation included $1,400 checks for individuals, expansions to unemployment insurance and child tax credit benefits, and hundreds of billions in aid to state and local governments.
For months, economists have debated the American Rescue Plan’s impact on inflation. While many economists agree that the stimulus law did worsen inflation by giving people more money to spend, they continue to disagree about the extent. The debate is, in part, about what else might be to blame in the United States and globally. Inflation started shooting up in early 2021 after the package passed and has remained stubbornly high since. But even without the stimulus, inflation would have increased. The coronavirus led to factory shutdowns around the world, shipping backlogs, and labor shortages, all of which have strained supply chains and pushed prices higher.
The disagreement essentially boils down to economists’ views on how pandemic-related factors independent of the stimulus, such as a shift to working from home, have contributed to inflation and how unique inflation has been in the United States compared to other countries.”
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“Increased housing costs have been a big driver of inflation — shelter is the largest component of the Consumer Price Index and makes up about 30 percent of overall inflation as measured by the index. Dean Baker, a senior economist and co-founder of the liberal-leaning Center for Economic and Policy Research, argued that new research on housing inflation helped support the idea that price gains were mostly driven by a mass shift to remote work and not the stimulus package. As people shifted to remote work, housing prices went up, and those prices in turn pushed overall inflation higher.
An analysis published by the Federal Reserve Bank of San Francisco on September 26 examined the rapid rise in housing prices and whether remote work, or other factors like fiscal stimulus, led to the increase. The authors — Augustus Kmetz, John Mondragon, and Johannes Wieland — wrote that as more people started working remotely, they sought out additional space at home. That resulted in a spike in housing demand and helped lead to a surge in prices.
The researchers estimated that remote work resulted in house prices rising by about 15 percent from November 2019 to November 2021, which accounts for more than 60 percent of the overall increase in house prices.
“It means we can’t blame the stimulus. Clearly that added to it,” Baker said. “But the main story there is this big switch to working from home.””
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“Holtz-Eakin said it was clear that the package significantly drove up inflation and pointed to research from the Federal Reserve Bank of San Francisco, which published an analysis in March that found that “fiscal support measures designed to counteract the severity of the pandemic’s economic effect” could have “contributed to about 3 percentage points of the rise in U.S. inflation through the end of 2021.”
The analysis — which was written by Òscar Jordà, Celeste Liu, Fernanda Nechio, and Fabián Rivera-Reyes — found that the United States’ “core” inflation, which strips out volatile food and energy prices, rose more quickly in 2021 compared to the average rate of core inflation of other wealthy countries. Compared to the other countries — Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Sweden, and the United Kingdom — the United States injected more fiscal stimulus into its economy.
“The difference is really the stimulus in the US,” Holtz-Eakin said.
But Josh Bivens, the director of research at the left-leaning Economic Policy Institute, said that inflation has been ubiquitous “across every advanced economy” since the pandemic began and he didn’t believe the American Rescue Plan was a major contributor to inflation. An analysis published in August by Bivens, Asha Banerjee, and Mariia Dzholos examined the United States’ core inflation from December 2020 to May 2022 and compared it to core inflation in other Organization for Economic Cooperation and Development (OECD) countries. To calculate the rate of acceleration in each country, the researchers took the difference between the “post-pandemic” core inflation and the “pre-pandemic” core inflation using data from 2018 and 2019.
The researchers found that the acceleration in the United States’ core inflation was “on the higher side” but was “far from the top” and not that far above the average for all other OECD countries. All but one OECD country saw an acceleration in core inflation, the researchers found. For example, Canada’s core inflation grew at a slightly slower rate compared to the United States, but Portugal’s sped up faster, according to the analysis.”
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“Bivens also pointed to the Federal Reserve Bank of San Francisco’s research on housing inflation and said that price gains in the United States were mostly driven by pandemic-related events that would have occurred without the stimulus — like supply chain disruptions and increased demand for housing. And although he said he believed the American Rescue Plan had inflationary impacts, the trade-off was necessary to stave off higher unemployment numbers.”
“Headlines bemoaning shortages of everything from PlayStations and Care Bears to medical devices are no longer a daily occurrence. Just six vessels were waiting to dock at the ports of Los Angeles and Long Beach on Tuesday — a tiny fraction of the 109 that were stuck outside the San Pedro Bay back in January. Meanwhile, the cost of sending a 40-foot shipping container from Asia to the West Coast is now under $3,000, far below last year’s high of more than $20,000.
Still, the structural problems that enabled many of the delays, price hikes, and shortages over the past few years haven’t gone away. Shipping prices have not quite returned to their pre-pandemic levels, truck drivers are still in short supply, and some in the logistics industry are already predicting that there will be problems during the upcoming holiday season. More broadly, the capitalist system responsible for manufacturing and delivering goods throughout the world has not been “fixed.” In fact, it remains as vulnerable to disruption as ever. Consumers are still seeing widespread inflation, not only for energy and food but also for products that often depend on Pacific shipping routes, including apparel and new vehicles, according to the consumer price index summary published by the Bureau of Labor Statistics last week.
“If the supply chain is a patient coming into the ER, then it’s not bleeding to death anymore,” said Daniel Maffei, the chair of the Federal Maritime Commission. “But there are still a lot of issues with the supply chain. Some of them and maybe even the bulk of them predate Covid.””
“The US is currently projected to hit its existing debt ceiling sometime in 2023, according to the Bipartisan Policy Center. While raising the ceiling should be relatively straightforward, it’s become a contentious process — and an opportunity for the minority party to extract policy concessions or score political points. Both parties have used debt ceiling increases to their advantage, but Republicans have done so much more frequently in recent years.
In 2011, for example, Republicans balked on suspending the debt limit and refused to move forward until President Barack Obama agreed to key spending cuts, concessions they ultimately secured. The US got so close to default that year, however, that Standard and Poor’s downgraded the country’s credit rating.
Political experts note that this disagreement marked one of the first times it seemed like lawmakers were actually willing to go over the edge, despite the economic chaos that could ensue. Were the US to actually default, that would likely downgrade the dollar and lead to a recession.
While a default has never happened, Republicans’ behavior in 2011 — and their current rhetoric — suggests that they’re more open to the possibility and taking such fights to that point.
Democrats, including in the White House, are reportedly considering preempting this worst-case scenario by tackling the debt ceiling this winter, according to Axios. The White House has denied that such conversations are happening.
There are also still questions about what a debt ceiling bill could look like. While some lawmakers including Sen. Jeanne Shaheen (D-NH), and a group of prominent House Democrats, have expressed support for doing away with the debt ceiling altogether, others, like Biden and Sen. Bernie Sanders (I-VT), have opposed taking this route. That’s likely because such talks still offer an opportunity to evaluate spending, and because it could be a useful tool for Democrats should the GOP hold the White House and Congress.
In lieu of getting rid of the debt limit altogether, there’s been growing pressure on Democrats to consider increasing it to such a high value that there isn’t likely to be a standoff over the issue in the short term.”