Brad DeLong: Worthy reads on equitable growth, July 7-12, 2021

Worthy reads from Equitable Growth:

1. A very nice and very fair discussion of what the risks of a medium-run inflationary spiral of any serious magnitude actually are in the United States. Read Francesco D’Acunto and Michael Weber, “A temporary increase in inflation is not a long-run threat to U.S. economic growth and prosperity,” in which they write: “After a decade of below-target rates of inflation … the incipient economic recovery in the United States from the coronavirus recession is suddenly turning the tables on the debate. … In May 2021, the Consumer Price Index registered inflation running at 5 percent, the highest reading in a decade for this broad measure of prices—so high that some observers worry about strong and sustained inflation and reference the stagflationary period of the 1970s. At the same time, the Federal Reserve is largely downplaying these concerns, so much so that in late June, Fed Chair Jerome Powell argued before Congress that ‘it is very, very unlikely’ that the United States will face strong inflationary pressures going forward. Prolonged periods of high inflation do have direct and immediate effects on the macroeconomy and also the potential for more subtle effects of further increasing economic inequality and crimping more sustainable and more equitable growth. … What should policymakers really expect to happen to inflation over the next 2 to 5 years? The answer is important, as the Biden administration and the U.S. Congress debate the merits of the proposed infrastructure packages to address fragilities in the U.S. economy and move it toward more stable and sustainable economic growth. … We need to stress that the recent 5 percent inflation rate appears much less concerning once we account for … the base rate effect. … Policymakers should expect more moderate Consumer Price Index inflation readings going forward. But there still remain four very relevant potential drivers of inflation over the next 2 years: Demand pressures. Supply chain disruptions. Labor market pressures. Inflation expectations. We’ll examine in this column the extent to which these four factors might or might not be relevant.”

2. Antitrust reform is on the table in the United States. It is not clear to me what a “whole government” approach is, exactly. And it is not clear what serious impact agencies other than the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission can have. So I am anxious to learn more, and to watch this to see how it evolves. Read Bill Baer, Jonathan B. Baker, Michael Kades, Fiona M. Scott Morton, Nancy L. Rose, Carl Shapiro, and Tim WU, “Restoring Competition in the United States,” in which they write: “The incoming administration and the 117th Congress present an important opportunity to rethink fundamental questions surrounding U.S. antitrust laws and their enforcement. Growing market power across the United States disrupts the operation of free and fair markets, and harms consumers, businesses, and workers. Market power indirectly exacerbates inequality and compounds the harms of structural racism. Addressing this problem requires action across the federal government. This report calls for the next administration to seek new antitrust legislation, revitalize antitrust enforcement with a focus on strengthening deterrence, and commit to a ‘whole government’ approach to competition policy.”

Worthy reads not from Equitable Growth:

1. When there is only one institution that is even semi-competent and semi-functional, people tend to load all kinds of tasks onto it. Read Adam Tooz,” Climate crisis offers way out of monetary orthodoxy,” in which he writes: “On July 8th the European Central Bank announced the results of the Monetary Policy Strategy Review initiated by its president, Christine Lagarde. … Lagarde shepherded the ECB’s General Council into unanimous agreement on a terse statement about the bank’s policy regime. … It is 18 years since the bank last conducted a strategic review. … All over the world central bankers have been forced to become crisis-fighters. They face deflationary headwinds which invert the terms of the economic-policy debate that in the 1980s spawned the model of independent central banks. Whether in the advanced economies or emerging markets, central banks now engage in policies, such as large-scale asset purchases, once considered anathema. On top of that, over the last ten years social inequality and climate change have been thrust to the forefront of central-bank policy. Against this backdrop, in the United States the Federal Reserve launched a policy review which concluded in August 2020, leading to a redefinition of its inflation target. This spring the Bank of England was told to focus on climate change. In 2018 the Reserve Bank of New Zealand, once the paradigm of the single-minded, inflation-targeting central bank, had full employment added to its objectives; in February 2021 house-price stability was also inserted. In March 2020 the Reserve Bank of Australia decided to follow the Bank of Japan in adopting ‘yield-curve control’, capping the growth of medium-term borrowing costs. We are in a period of unprecedented experimentation in central-bank policy.”

2. Cutting corporate taxes did not boost investment in the United States. Thus there is no reason to think that raising them will retard investment in the United States. Read Daniel N. Shaviro, “Taxing Multinational Corporations,” in which he writes: “Proponents of the 2017 Tax Cut and Jobs Act (TCJA) argued at the time of its enactment that cutting the United States corporate tax rate from 35 percent to 21 percent would spur investment in the United States, particularly by multinational corporations. … There is an emerging consensus that the reduction of the corporate tax rate from 35 percent to 21 percent in the 2017 Tax Cut and Jobs Act fell well short of raising investment to the extent the law’s proponents had advocated. In addition, the TCJA appears to have resulted in a substantial reduction in government revenue. The disappointing investment and revenue response to the TCJA reflects some important features of the current tax and economic environment; among these is companies’ ability to earn high profits in a country through valuable intellectual property (IP) that need not be generated in that country. … The Biden Administration’s 2021 tax proposals offer two main responses to the concern that increasing taxation of the foreign source income of multinational corporations based in the United States will lead to a reduction in their investments. First, the Biden Administration plan aims to strengthen the existing anti-inversion rules. … Second, it aims, by multiple means … to reduce tax competition between countries and increase the extent to which they instead cooperate towards ensuring that highly profitable multinational companies will pay significant taxes somewhere.”

July 12, 2021


Brad DeLong


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