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Date: 2022-07-04 Page is: DBtxt001.php txt00021554
BANKING AND FINANCE
US GOVERNMENT POLICY OPTIONS

Yellen rebrands Biden economic agenda as 'modern supply-side economics'


U.S. Treasury Secretary Janet Yellen addresses the U.S. Conference of Mayors winter meeting in Washington, U.S. January 19, 2022. REUTERS/Jonathan Ernst

Original article: https://www.reuters.com/business/yellen-rebrands-biden-economic-agenda-modern-supply-side-economics-2022-01-21/
Burgess COMMENTARY
I have found Janet Yellen to be very logical and articulate since I became aware of her presence on the public stage some years ago.
In the current panic about massive inflation in the USA and also in other parts of the world, her analysis is going to be important, but so far it is not obvious that it will be the same as my own. Unlike most economists I have spent rather little time in academia but a lot of time in real world crises either in the corporate organization or working with government in very weak countries in crisis. Having no money severely constrains the otions available.
The US does not have this problem at a macro level because of its ability to manipulate money vis the Federal Reserve in all sorts of creative ways. It appears here that Janet Yellen is thinking about addressing some of the real tangible money problems facing the majority of Americans rather than simply addressing the macro situation that has been of undue benefit to those involved in 'high' finance ... and this will be good.
It is important that the fiscal side of monetary policy gets addressed sooner rather than later. This is part ot the Democratic agenda, but not at all on the agenda of McConnell and the opposition Republican party. I am disturbed that most of the talk about recent inflation seems to be based on a lack of appreciation about the difference there is between demand pull inflation and cost push inflation. The inflation of the 1970s was mainly caused by the OPEC oil shock of 1973 and the subsequent massive disruption in the energy industry. The US was hurt more than any other country by the rapidly rising price of oil because its economy is a big user of energy and very inefficient at the same time. Companies lost profitability during the late 1970s, and it was only at the beginning of the 1980s that profits started to recover. Towards the end of the 1980s and the end of the Reagan administration that I started to observe that once again the biggest cost in the American economy was profit. During the 1980s the corporate business community accelerated global outsourcing for lower cost locations overseas while creative financialization also started to take hold.
Over the past 40 years while labor has not been rewarded well, the financial community has achieved record wealth accumulation. For decades there has been growing inequality and it has now become a huge existential crisis and almost nothing of substance has yet been done to address it.
Maybe Biden and Yellen understand this ... but who else does?
Peter Burgess
Yellen rebrands Biden economic agenda as 'modern supply-side economics'

By David Lawder and Andrea Shalal in Macro Matters

January 21, 2022 5:03 PM EST

WASHINGTON, Jan 21 (Reuters) - U.S. Treasury Secretary Janet Yellen on Friday rebranded the Biden administration's economic agenda as 'modern supply-side economics,' using a Reagan-era phrase favored by Republicans to assert that Democrats' spending plans will boost the U.S. economy's productive capacity.

Yellen said in a speech to the World Economic Forum that rather than tax cuts and deregulation, her modernized version seeks to increase labor supply and improve infrastructure, education and research to boost potential U.S. growth and ease inflationary pressures.

'Our new approach is far more promising than the old supply- side economics, which I see as having been a failed strategy for increasing growth,' Yellen said. 'Significant tax cuts on capital have not achieved their promised gains. And deregulation has a similarly poor track record in general and with respect to environmental policies — especially so with respect to curbing CO2 emissions.'

Yellen did not announce any policy shifts as she introduced the concept, which suggests it may be a new tactic to persuade Americans and moderate Democrats in Congress to support the 'Build Back Better' social spending and climate investment plan, which stalled in December.

The new nomenclature emphasizes the administration's efforts to expand the U.S. workforce - a sentiment echoed by President Joe Biden in a speech to mayors on Friday - and increase productivity, forces that could help quell inflationary pressures while supporting a stronger growth rate.

The administration is trying to blunt the political fallout from high inflation that hit 7% last month amid labor, housing and goods shortages, the biggest annual increase in nearly 40 years, and counter claims that further spending would fuel further inflation.

A DIFFERENT SUPPLY SIDE

Yellen's vision of 'supply-side economics' would differ greatly from the 'Reaganomics' version that burst into the mainstream in the 1980s with the election of Ronald Reagan as president.

Then, lower taxes and lighter regulation were touted as the fuel that would make U.S. businesses more competitive and profitable, unleashing capital investment that would 'trickle down' to the wider economy, fueling growth and hiring.

At the same time, Republicans argued, the tax cuts would 'pay for themselves' through turbocharged growth - a phenomenon that has never come to pass.

Yellen argued that the 'supply' needs of the economy center around the availability of labor, which has been constrained by the pandemic and in the view of Democrats by the absence of policies around things like child and elder care that could allow more people to join the workforce.

Yellen identified two years of universal early childhood education and an expanded earned income tax credit as 'core' components of the Build Back Better plan going forward. read more

She added that Republican-passed tax cuts in 2017, rather than encourage investment in the United States, have perpetuated the 'perverse corporate tax incentives' that have encouraged companies to shift productive capacity overseas as countries compete on taxes. The deal for a global 15% corporate minimum tax, which depends on passage of Build Back Better for implementation, would end this 'race to the bottom' she said.

'Modern supply-side economics seeks to spur economic growth by both boosting labor supply and raising productivity, while reducing inequality and environmental damage,' Yellen said. 'Essentially, we aren’t just focused on achieving a high topline growth number that is unsustainable — we are instead aiming for growth that is inclusive and green.'

Reporting by David Lawder and Andrea Shalal; Editing by Jonathan Oatis and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.



The text being discussed is available at
https://www.reuters.com/business/yellen-rebrands-biden-economic-agenda-modern-supply-side-economics-2022-01-21/
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