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November 29, 2021

US inflation becomes a political pawn – leading macroeconomic influencers

Republicans target Biden and Democrats over inflation, calling it a political gold mine to overthrow the latter in the next campaign.

Economists believe that besides blocking President Biden’s social safety net and climate action plan, the Republicans are now proposing plans that will not just fuel the pandemic but sell out the middle class to the rich.

Paul Krugman

Paul Krugman, economist and distinguished professor of economics at the Graduate Center of the City University of New York, and a columnist for The New York Times, shared an article on the Republicans using inflation against the Biden administration and the Democrats to take back Congress in their next campaign. Citing a disagreement to the passing of the $1.68tn social safety net legislation, Republicans ideas either revolve around alleviating inflation or those ineffective in addressing the cause of increased costs or in lifting the economy out of the pandemic.

Economists believe that blocking the second bill would do little to address the issue of high elevation, as government needed to slash spending across the board. The surge in inflation in the US has been a result of the global supply chain crisis, shift in consumer behaviour, and the stimulus packages introduced by first the then-President Trump and later by Biden to keep businesses and households afloat during the Covid-19 pandemic.

John Cochrane, a professor of economics and finance at the University of Chicago and a senior fellow at the Hoover Institution at Stanford University, further explained that loosening shipping and trucking regulations were reasonable targets for reducing inflation, but ending Covid restrictions and vaccine mandates and reforming unemployment insurance and domestic energy production were neither related to nor contributed to a quick reduction in costs.

John Van Reenen

John Van Reenen, economist and Ronald Coase School Professor at the London School of Economics and the Gordon Y. Billiard Professor of Management and Economics at the Massachusetts Institute of Technology, shared an article on the Covid-19 pandemic changing the shape of the workforce and not unemployment.

According to the Resolution Foundation, a British think tank, there have been major shifts in the labour market participation post pandemic with many younger women taking up jobs, while a growing number of older workers and men have been pushed out of the labour force altogether.

Reports also suggest that unemployment in the UK has been only 0.3 percentage points higher than it was at the beginning of the Covid crisis. On the contrary, the number of inactive people, which includes people not working or looking for work, increased by 586,000 since the Covid-19 outbreak in March 2020. This number is expected to be far higher than the migrant workers who left the UK workforce during the pandemic.

Diane Coyle

Diane Coyle, economist and former advisor to the UK Treasury and the vice-chairman of the BBC Trust, retweeted an article shared by the Centre for Economic Performance (CEP) at the London School of Economics, on how economists like Paul Johnson have revealed that self-employed individuals in the UK have been the worst hit by the pandemic with almost 30% struggling to pay bills.

Experts claim that the self-employed have not been financially stable over the past couple of years, and the pandemic has revealed that they were worse off by the end of this summer. On the eve of the Covid crisis, the self-employed accounted for one in seven of the UK workforce, a number which has doubled since a generation ago. Additionally, growth in self-employment accounted for one-third of the growth of all the employment growth in the decade after the financial crisis.

The Institute for Fiscal Studies further reveals that while employees’ suffered a stagnation in their earnings for years, the self-employed have been far worse. Their income levels have been falling dramatically in the years prior to the pandemic.

 

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