International Economics: IB Economics

Joseph Stiglitz paints a picture of an American recovery with above average inflation but suggests that we should welcome this - it's an essential part of the recovery - and not fear it - because we've got the monetary tools required to ensure that it doesn't get out of hand. 

And he might well add that it might be a good thing, in allowing developed world governments to reduce the real value of the debt associated with the recent spending on the pandemic.

Indeed, he argues that a much bigger threat is likely to come from the overly hasty withdrawal of coronavirus relief, and the associated effects this might have on the lowest earners, and on aggregate demand.

It seems that if the UK suuports President Biden's attempts to enforce a global minimum level of corporation tax, there could be a sizeable fiscal dividend for both the EU and the UK, with large companies seeing a substantial rise in their tax liabilities. 

What's not to like? Unless, of course, multinationals increasingly headquarter in Ulan Bator, or similarly far-flung places...

The latest US inflation figures have seen inflation pick up from 2.6% last month to 4.2% this - and sparked fears of a sustained period of inflation for some.

The Fed, however, is more sanguine, arguing that inflation will, temporarily, be high as a result of some things fall out of the twelve month rolling average, and other things pass through, and some of this may be attributed to President Biden's stimulus package. 

It's very much one of these pivotal moments - which way is inflation headed, and if it remains above the Federal Reserve's target, to what extent is this problematic in the present circumstances?

The Observer take on the first 100 days of Bidenomics: presumably a B, or a B+. There's agreement over the need for a fiscal stimulus, but a degree of confusion because it seems difficult to reconcile increased government spending with shrinking the budget deficit in the longer-term. 

However, the general direction of travel has been well-received in this instance. 

Tax changes afoot in the US, with Joe Biden planning to reverse the cuts to the marginal rate of tax for the highest earners, returning the rate to 39.6% from 37%, and doubling capital gains tax from 20% to 39.6% too.

The aim is to provide the government with more revenue, and not affect families who earn less than $400,000 per year. The downsides? The effect of the capital gains tax increase on incentives for entrepreneurship and investment. However, these strike me as overplayed - can you really empirically argue that if you give the rich money they exclusively use it in an economically beneficial fashion, but that if you gave the same sum to the poor they'd fritter it away?

And so it begins - as I said it would - Ireland becomes the first country to come out and state that it's not going to comply with the President Biden initiated moves to raise the rate of corporate taxation, arguing that as a sovereign nation such a move will cost it 20% of its tax revenues.

The problem is that even though Ireland's headline rate of corporation tax is 12.5%, because the global tax system hasn't kept pace with digital innovation, the effective rate of tax faced by companies like Apple is less than 1%. 

Economic theory is sometimes a good way of understanding the world at large, you know...

The BBC does economic history, looking at how Joe Biden's $2tn infrastructure compares to the New Deal, especially the Works Progress Administration and the Federal Highway Act, 1956. 

It's fascinating and helps put the current plan in context, and helped shape modern America.  

The move towards a minimum level of corporate taxation has been mooted by President Biden, and is, in part, seen as a response to the coronavirus pandemic.

However, will Britain sign up to this scheme: if so, what are the prospective benefits and costs of doing so?

Really interesting opinion piece from Larry Elliott suggesting that Joe Biden's fiscal stimulus package represents more than a simple policy intervention designed to help the US recover from the coronavirus pandemic.

He thinks that it is part of a more concerted move towards increased state involvement in the economy, and less concern about the budget balance. I'm not convinced yet.

This sort of thing is one of the key tenets of so-called Modern Monetary Theory, which argues that economies with monetary sovereignty are able to print money to finance increased expenditure without triggering inflation, so long as they respect the productive capacity of their economies. 

Reuters provides further commentary on Joe Biden's American Jobs Plan, something he referred to as the largest investment in American infrastructure since the Second World War. 

Phillip Inman writes about the global implications of President Biden's fiscal stimulus package, suggesting that its effects go well beyond bolstering the US economy and will actually serve to help prop up global growth too. 

To what extent is Joe Biden's trillion dollar stimulus package redolent of FDR's New Deal? This article investigates, and looks to draw parallels, although with typical hyperbole, it also talks about "his legacy". His only been in the job two months.

A glance across the pond, with Joseph Stiglitz looking at Joe Biden's $1.9 trillion fiscal stimulus package and suggesting that whilst it's not perfect, it contains many elements that make it essential, and that it should help speed the American recovery. 

The Guardian provides a guide to the ongoing negotiations surrounding the implementation of a minimum global corporation tax, and the implications of this move. 

Its seems that Joe Biden is out to sell his fiscal stimulus package, and he's gone on the offensive arguing that the richest Americans need to pay their fair share.

Expect a more progressive US tax system in the months ahead. 

Really interesting editorial arguing that while President Biden's green revolution is welcome, he needs to go beyond focusing on the domestic agenda and look at ways to ensure that the poorest nations in the world can draw on US help in order to meet their climate change targets, rather than relying on private finance. 

More on Joe Biden's pledge to halve US carbon emissions by 2030 in response to the threats posed by climate change. 

It really is a remarkable turnaround in the face of the previous four years. 

Rarely in this life do turkeys vote for Christmas - so when the global shipping industry is calling for a new global carbon tax, you have to wonder why - not least because shipping isn't included in the Paris climate change agreement. 

However, the UN body responsible for regulating the seas, the International Maritime Organisation (IMO), is targeting cuts in greenhouse gas emissions by 2050.

Some see the role of the Biden administration in the US, in signalling a willingness to tackle climate change more generally, may have driven this change.  

Robert Reich rejoices in President Biden's pro-active approach to industrial policy - in actually appearing to have one. He argues that an appropriate industrial policy focused on meeting society's needs rather than those of big business is just what is required to foster a quick recovery from the pandemic. 

Of course, the question is - who determines what society's needs are? 

Could an unintended consequence of President Biden's expressed desire to amend global corporate tax rules so as to establish a minimum level be lower levels of US investment in Ireland?

Certainly it seems likely: Ireland's current corporate tax rate of 12.5% is one of the lowest, if not the lowest in the developed world and it has attracted a lot of inward investment, particularly from the tech sector. 

Will Hutton writes in the Observer about Joe Biden's American Jobs Plan, arguing that such a sizeable fiscal stimulus represents a return to traditional left-wing values for the Democrats and perhaps an example for other left-leaning parties to follow. 

Robert Reich writes about how the intellectual tide has changed with Bidenomics marking the end of the laissez-faire, libertarian Reaganomics, and suggesting that the United States will be all the better for it. We shall see.  

Joe Biden's massive fiscal stimulus programme has passed through Congress meaning that most Americans are going to receive a one-off payment of $1,400, and that unemployment benefits is going to stay at $300 per week until September.

It represents a massive injection into the economy, and if it can help promote recovery, as you would expect it to, via the multiplier effect, then all will be well. The potential downside is that some fear inflation - although I'm not convinced - and that it's come at high political cost. That said, if it works, it will strengthen his hand substantially given the extent of Republican opposition to the bill.

The case for fiscal stimulus is laid out here - in the context of the US - is it a good thing? And is it sufficient?

Or is it too much? And will it lead to inflation? 

Larry Elliott thinks aloud.