$1.9 trillion. Biden’s proposed American Rescue Plan (ARP), which if passed by Congress would see an injection of $1.9 trillion into the US economy, would constitute a “huge fiscal experiment”, with government borrowing and spending ($1.9 trillion is around 8.9% of US GDP) on a scale unseen since WW2. The package includes $2000 cheques being sent to most American households.
Economists’ support. The proposals have attracted a wide range of support in academia. Indeed, support for ARP unites the unlikely pairing of Paul Krugman and Kenneth Rogoff, who have previously disagreed bitterly over the economics of austerity.
~~Opposition. Some high profile economists, including former Obama advisor Lawrence Summers and former Bundesbank head Axel Weber, have argued that the plan would risk large inflationary pressures - though it is worth noting that the latter has a history of being extremely hawkish on inflation (e.g. calling for monetary policy tightening in the Eurozone in 2011). Olivier Blanchard defended concerns over the ARP for the Peterson Institute, while asserting that he still believed in the need to “go big” on fiscal policy.
Inflationary risk? In response to Summers and others’ concerns around inflation (above), Head of the IMF Research Dept Gita Gopinath has argued that “structural factors and central bank liquidity limit inflation risks”. Additionally, Wall Street’s investment banks are “increasingly saying that concerns about runaway inflation are misplaced” (Business Insider).
The politics of stimulus. Paul Krugman has highlighted that Biden’s proposals are “overwhelmingly popular” with both Democrat and Republican voters, despite otherwise deep partisan divisions and efforts by Republican lawmakers to discredit the stimulus package. Additionally, Krugman’s analysis highlights the political risks of undershooting, including undermining trust in the state to deliver security.
Implications for macroeconomics. The outcome of the ARP Act, if passed, would have enormous implications for debates over macroeconomic policy around the world. In recent years, the economic consensus has shifted decisively in favour of fiscal policy (see Lord Skidelsky in Project Syndicate and our overview of macroeconomic policy debates in 2021). If Biden’s “huge fiscal experiment” is successful, we might expect it to further strengthen the case for fiscal spending and against austerity. On the other hand, if it does stoke inflation or fail to create jobs rapidly enough, or if money is perceived to have been ‘wasted’, this is likely to strengthen the arguments of fiscal conservatives everywhere.
~~Europe needs stimulus. The FT Editorial Board, on the other hand, has called for the Eurozone to follow Biden’s lead and “go big” on fiscal policy, arguing that the Eurozone’s deeper recession both increases the need for stimulus and undermines the risk of inflation.
~~A new fiscal framework. The debate in the EU is now over the entire fiscal constitution of the EU, in which the Stability and Growth Pact limits deficit spending. Over a hundred civil society leaders and academics have written to EU leaders calling for a review of economic governance, arguing that the bloc’s current fiscal framework is “the exemplar of irresponsibility”.
British debate. In the UK, the American Rescue Plan has inspired calls for the Government to “Boost it like Biden”. IPPR has highlighted that the UK faces a deeper recession than the US, but is planning to spend far less as a proportion of GDP on stimulus - and has called for planned spending to be increased 4x to match American ambition. (See FT coverage here)
Investment. A major difference between the IPPR proposals and the Biden plan is the former’s inclusion of public investment spending - while the Biden plan focuses entirely on Covid-19 relief and support for businesses and households.
Weekly Updates
Digital platforms and competition policy
Facebook in Australia. Facebook blocked the sharing of news in and from Australia in response to the country’s proposed media law, which would charge the tech giant for journalism shared on its platform.
~~"A fig leaf for crony capitalism": The Adam Smith Institute’s Sam Bowman has criticised the law as an “unjustified”, “punitive link tax” for the New Statesman.
~~Worrying implications: Marietje Schaake, international policy director at Stanford University’s Cyber Policy Center, acknowledged Australia’s approach as “imperfect” but contrasted Facebook’s reaction with its inaction elsewhere and argued “the continuing controversy reminds us that when democratically elected leaders challenge certain business models, it can often be for good reason.”
Uber and the gig economy. Commenting on the Supreme Court ruling that Uber drivers are workers and not self-employed and therefore have access to holiday pay and the minimum wage, the FT’s Editorial Board argued that the Uber judgement is set to reshape the gig economy, as companies may no longer be able to profit from grey areas in employment law. (BBC coverage here, GMB union video here)
Momentum grows for regulation. Shoshana Zuboff, Harvard professor and Author of Surveillance Capitalism spoke to Channel 4s Krishnan Guru-Murphy on how big tech platforms are a threat to democracy, viewing the Facebook debacle as a ‘wake-up call’ for regulators.
~~UK antitrust investigations. Andrea Coscelli, Chief Executive of the Competition and Markets Authority said the UK watchdog plans to mount a number of probes into Big Tech firms including Google and Amazon in the coming months. Julian Knight, the UK Chairman of the DCMS Committee said “Facebook’s actions in Australia should be of great concern in the UK at a time when our own government is bringing forward legislation to regulate social media companies.”
~~International cooperation. The FT’s Editorial Board explained how an approach to regulating the growing power of tech companies - “which have become quasi-utilities” - will require international structures to combine legal and regulatory tools on tax, competition, copyright, privacy and data protection standards.
ICYMI: A House of Representatives antitrust subcommittee published a landmark, 449-page report investigating Amazon, Apple, Google and Facebook, alleging all four platforms of abusing monopoly or substantial power. (FT coverage here).
Environment and Climate change
Greening steel: Think tank Common Wealth’s interactive report on “Securing a future for a green UK steel industry” offers a blueprint for ambitious transformation of this critical sector in advance of COP26.
~~Cross-party support: The report is backed by an impressively broad coalition, including Ed Miliband, Green New Deal UK’s Fatima Ibrahim, Community Union’s Roy Rickhuss CBE and Conservative MP Miriam Cates (see her article here).
Ending the “senseless and suicidal” war on nature. The UN Environment Programme’s first synthesis report’s recommendations include replacing GDP with alternative measures of progress that reflect the value of nature, echoing the Dasgupta Review. (Guardian coverage here)
~~See our previous Digest analysing the debate around the Dasgupta Review, a landmark report on the relationship between economics and the protection of nature.
EAC prioritises green recovery. The Environmental Audit Committee published a report on how to ‘grow back better’ after Covid-19, calling on the government to ‘frontload’ its investment in areas such as energy efficiency, the circular economy, climate adaptation and nature recovery to counter rising unemployment by creating green jobs.
~~Greening the tax system. The Chair of the EAC, Philip Dunne talked to BusinessGreen about the need for 'a tax system fit for net zero Britain'.
Tax international flights. A group of climate finance experts proposed charging levies on international transport to provide a steady stream of finance for poorer countries' decarbonisation and climate change adaptation plans. (Guardian coverage here)
OECD calls for carbon pricing. The outgoing head of the OECD called for attaching environmental conditions to bailouts and “put a big fat price on carbon”.
~~Calculating the social cost of carbon. Nicolas Stern and Joseph E. Stiglitz proposed guidelines for calculating the ‘social cost of carbon’, concluding: “The Biden administration must put a high enough price on carbon pollution to encourage the scale and urgency of action needed to meet the commitments it has made to Americans and the rest of the world”.
Citizen involvement in addressing the climate crisis. IPPR’s first Citizens’ Climate Panel proposed 32 recommendations for local and national action on climate change, including carbon taxes, ‘green bonds’, increased government spending and localisation of decision making power to secure a just transition. (Business Green coverage here)
Conservative lobby for opening Cumbrian coal mine. 40+ Conservative MPs wrote a letter to lobby Cumbria County Council to ignore advice by the Climate Change Committee and open the controversial coal mine. The ECIU’s Richard Black explained their rationale in a Twitter thread, criticising the ‘deeply disingenuous’ move.
Local economies
Just transition for London. IPPR collaborated with London Citizens on an extensive listening campaign to discern what Londoners want to see from a #NetZero capital. The report suggested the next Mayor of London should focus on delivering well paid green jobs, securing warmer homes and reducing fuel poverty.
Empty retail space. Property Adviser Altus Group found almost 15 million square feet of empty retail space is on the market following the decline of the high street shopping. The FT suggested many sites could be repurposed, but “many are likely to languish, with no economically viable alternatives use, unless local councils or the government intervene”.
Planning reform. Policy Exchange released Strong Suburbs, a report “enabling streets to control their own development” by reforming England’s planning system, through ‘street votes’; a way to let local communities vote on their design and density rules. The ASI’s Sam Bowman wrote a Twitter thread on the proposals here.
Poverty and inequalities
Call for new Beveridge report following rise in destitution. NIESR’s research for Channel 4’s Dispatches showed the number of British households plunged into destitution has more than doubled in the last year, with disproportionate impact on regions such as the North-West of England - leading “senior figures” to call for a new Beveridge report to review support for the poor.
Wealth inequality. Analysis from Tax Justice UK found that a group of 1600 ultra-wealthy individuals in London had made £9 billion from capital gains in 2019, a billion more than the entire population of the north of England.
~~Tax reform. Robert Palmer, TJUK's Director, blamed "a flaw in our tax system, which allows people earning capital gains to pay much lower levels of tax than those working for their living" and argued "if the chancellor is serious about ‘levelling up’, he must end this loophole.” (Times)
Gaps in support. Analysis from the Standard Life Foundation found half of those excluded from government support lost at least a third of their total household income during the pandemic, 5 times more than the rest of the UK.
Gender pay gap reporting. Mind the Pay Gap campaign launched a petition with the TUC to call on the Government to reinstate the enforcement of gender pay gap reporting by large companies. Gender pay gap reporting was scrapped in 2020 by Liz Truss and the EHRC due to businesses facing ‘unprecedented uncertainty and pressure’.
Race and class. Halima Begum, CEO of Runnymede Trust, spoke to BBC news about recognition of ethnicity as a risk factor in vulnerability to covid and drew attention to structural inequalities - mainly race and class - to account for the disproportionate impact of Covid-19 in minority groups.
Who’s responsible for the deaths? PIRC’s Alice Martin explored the data gaps in reporting workplace transmission of Covid-19, arguing for mandatory company disclosure of all cases and fatalities to prepare for a future public inquiry into UK covid deaths, where corporate accountability isn’t overlooked.
10 years of hollowing out the benefits system.Analysis from NEF found that government cuts to social security over the last decade have pushed 1.5 million more people into poverty than the previous system would have done.
Rent debt crisis. A joint statement by Citizen’s Advice, the Big Issue, Joseph Rowntree Foundation, Shelter and others called for a targeted financial package to help renters pay off arrears accrued over the pandemic and improvements to social security to avoid rising homelessness.
