COVID, inflation and supply-side economics: what will happen?

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If you’re a Brit, suddenly a few mid-afternoon keggers at Prime Minister Boris Johnson’s office during the depths of COVID doesn’t seem like such a terrible thing.

What if Boris Johnson had lied about it? Lies are the currency of the ugly new world we live in, who cares? And if you’re busy partying, it leaves you with less time to bring down your country’s economy.

This is what the new British Prime Minister did just three weeks after taking office. In his first budget, Truss dropped the 45% tax rate on those earning more than $163,000, announced an expensive program to help homeowners pay for heating, and relied on the bond market to fund everything.

The bond market, how to say, didn’t react well to this fiscal stance, but just knocked the piles out of the government bond market and forced the Bank of England to step in and buy government papers then that no one else would.

Borrowing money to pay tax cuts for the wealthy, while still spending lavishly, was once known as Reaganomics. Instead of paying home heating bills, the 1980s government spent heavily on the military, but that was the only material difference.

The myth is that the wealthy, relieved of heavy tax burdens, will invest in research and development, machinery and technology, giving birth to great new industries that provide jobs for the little ones.

The reality is that the rich are investing the extra cash in exotic instruments like the credit default swaps that led to the global financial meltdown of 2008, and the hedge funds that are dumping operating companies for a quick profit before send them to bankruptcy.

Republican politicians never seem to understand that Reaganomics – i.e. supply or trickle-down – doesn’t work, and pledge to campaign for tax cuts for the wealthy. But bail house pros remember it vividly, hence their terrified response to Truss’ budget.

To make this even more disconcerting, Britain’s inflation rate is 10%, and of course tax cutting, borrowing money and programmatic spending are all forms of economic stimulus, which will throw oil on an existing fire. By bailing out the government while simultaneously raising interest rates, the Bank of England is pressing as hard as it can on the brakes and the gas. We’ll see how it works.

In America, meanwhile, Democrats have learned that you can’t pump trillions of dollars of fuel into the economy without setting a fire. Who knew? Yet some economists had come to the conclusion that spending and the resulting debt no longer mattered, especially in a nation that essentially serves as the world’s Monopoly money banker.

This economic theory, too, turned out to be wrong. There comes a time when filling public bank accounts with cash becomes counterproductive. Also, keep in mind that the Democrats were about to spend billions of dollars more than they actually did. West Virginia Sen. Joe Manchin, who just six months ago was the villain of villains, might have saved his party a far bigger inflationary headache than it already has. Is it too early to talk about apologies?

The big big caveat to any discussion of the economy today is COVID. Inflation has hit the whole world, and in many countries it is much worse than our 8.3%. This seems to suggest that supply chain issues created the shortages that drove up prices – not to mention Putin’s disastrous war, which amplified every conceivable negative trend.

Economists are nothing if not a confident bunch (experience might suggest otherwise), but for the first time in memory, there seems to be genuine bewilderment about what’s next. If you’re the cautiously optimistic type who believes that history will be a guide, you put the odds of a recession at around 50-50, with higher unemployment to come, as well as somewhat offsetting lower prices. by higher interest rates.

These rates will make it harder to buy a home, but the recent price spike has made them out of reach anyway. No harm no fault. The stock market, meanwhile, is in for one of those once-in-a-lifetime buying opportunities that, by 2040, will have created a new crop of 401(k) millionaires. Nothing seems so offbeat that one bubble or another is ripe to burst.

In the past 18 months, nothing that we expected economically has happened. We thought COVID would cause a major global crisis. We thought people would end up without work, with nothing to spend. Thanks to stimulus, changing consumer habits and remote working, that hasn’t happened.

So who knows, in this particular economic environment, Reaganomics may even work. There is a first time for everything.

Tim Rowland is a columnist for the Herald-Mail.

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