The US economy is making a comeback: 2022 promises to be bright for America

West Virginia’s Appalachian state is one of the poorest in America and relies heavily on coal mining for its prosperity and energy needs.

It was in this state that John F Kennedy, armed with a pile of cash, first staked his presidential credentials, persuading an electorate dominated by Protestant evangelicals that it was possible for an Irish Catholic to win the White House.

Six decades later, West Virginia is in need of an upgrade more than ever, with 19% of its population living in extreme poverty, some in tar paper cabins in the hollow of the hills. The death rate exceeds the birth rate.

Biden bouncing? Arguably, the economic renaissance is more of a consequence of its predecessor’s tax cuts for businesses and entrepreneurs.

Despite its economic woes, West Virginia is politically deeply conservative and one of the first states to turn Republican red in a general election.

But one of its senators, Joe Manchin, is a fiscally conservative maverick Democrat who single-handedly is turning the tide against Joe Biden’s presidency.

At the heart of Biden’s election platform was a ‘Build Better’ pledge, an echo of Boris Johnson’s slogan as the election winner.

After initially supporting the US economy through Covid-19 with cash giveaways, which put thousands of dollars in purchasing power in the hands of every US citizen, Biden planned to change the US in the traditions of the Democratic precursors of Franklin D Roosevelt’s “New Deal”. and “Great Society” by Lyndon Johnson.

This forced Biden to mobilize the narrow Democratic tenure in the Senate, where his majority depends on the casting vote of Vice President Kamala Harris.

All he needed was for a Democratic senator to walk the talk and side with the Republicans to throw in the trash the centerpiece of the $ 1.3 trillion infrastructure and social reform bill. Biden’s pounds sterling.

This is precisely what Manchin did when he told the White House that he could not vote for the spending program, which would send an already swelling federal budget deficit into the stratosphere and add to a rate of surprising inflation.

Ironically, updating the crumbling US infrastructure of poorly maintained bridges, rusty railroads and crumbling highways would have benefited West Virginia, as would four weeks of paid family medical leave and an extension. tax credits for households with children.

Biden's majority in the Senate depends on the casting vote of Vice President Kamala Harris (pictured)

Biden’s majority in the Senate depends on the casting vote of Vice President Kamala Harris (pictured)

But Manchin couldn’t bring himself to vote for a bill that also invested heavily in tackling climate change – the enemy of coal king – and higher taxes on entrepreneurship and corporations. “I cannot go on with this bill,” the senator told right-wing Fox News. “I tried everything humanly possible. “

In terms of immediately supporting the U.S. economy, instead of contributing to longer-term productivity gains, the infrastructure and accompanying social legislation were likely unnecessary when they bit the dust in December.

However, the rapid spread of Omicron across the continental United States may well change the US economic outlook and lead to rethinking of the White House and Capitol Hill if the abrupt resumption of the pandemic is halted.

So far, everything has been fine, with the Conference Board’s trade forecast group reporting that confidence was still up in mid-December.

But this investigation will not fully reflect the dangerous Covid infection rates currently reported in the United States.

Before Omicron, the US economy looked in great shape with production rising at an annualized rate of 7 percent in the last quarter of the year.

At the end of December 2021, GDP appeared to be higher than in the same quarter of 2019 and ahead of all other advanced economies except Australia, which is endowed with abundant natural resources.

The main concern on the horizon has been inflation, with economists divided over whether the 6.2 percent consumer price hikes are a temporary phenomenon or a reappearance of the 1980s.

Nobel laureate Paul Krugman, writing in his New York Times column, is among those who believe the inflation hawks are overreacting and a little inflation, above the consensus target of the central bank by 2%, is good for growth.

The danger, in his view, is descending too hard – as Fed Chairman Paul Volcker did in the early 1980s – causing a deep recession and unemployment that took many years to eradicate. .

The United States happens to have almost the opposite problem now.

Private sector forecasters were forecasting 4.5% annual growth for 2021 before the collapse of Build Back and the emergence of Omicron.

As a result, the forecast is lowered by up to one percentage point.

Before Omicron, the US economy looked in great shape with production rising sharply at an annualized rate of 7 percent in the last quarter of the year

Before Omicron, the US economy looked in great shape with production surging sharply at an annualized rate of 7 percent in the last quarter of the year

That would let production increase by an even more than a respectable 3.5 percent. The Build Back Better Act probably wouldn’t have made a big difference in its first year anyway.

With a focus on infrastructure, it was intended to fuel productivity and production in the medium to long term, leaving a lasting legacy for Biden’s first and perhaps only term.

The most troubling issue for the Federal Reserve, the US central bank, is the job market.

Unemployment fell rapidly as the country emerged from the pandemic with an unemployment rate of 4.2% (in November) but still above the pre-pandemic level of just 3.5%.

The mystery of the US job market is now known as the “Great Resignation”.

These are the roughly 5 million American citizens who were previously employed but who voluntarily withdrew from the workforce.

As in the UK, some of these people decided that they were quite able to survive on their income and savings.

Others take the opportunity to start their own business, respecting the country’s entrepreneurial traditions. One consequence is that the ratio of vacancies to unemployed people is at an all time high.

Labor shortages pushed hourly labor costs up 6% in the third quarter. It is this trend that worried the Federal Reserve the most.

For many American consumers, who spend a lot on services, labor costs are the biggest driver of price increases.

To make economic sense, rising wage levels would have to match productivity gains, but so far that doesn’t seem to be happening.

Despite all the headwinds – from Omicron, political deadlock and skyrocketing profits – the United States has come back with a vengeance and no longer appears to be losing its advantage over China, as it was before the pandemic.

The scale of the expansion of the United States has seen foreign companies focus their foreign investments on America when previously they could have looked to the Pacific and Europe.

In addition, American consumer demand, driven in part by helicopter money pouring into people’s bank accounts, has sucked in scarce manufactures and materials, adding to supply problems elsewhere in the world.

Biden may find it difficult to change the political direction of crude American capitalism with a more interventionist approach, but despite Omicron he is presiding over an economic renaissance.

This is arguably a consequence of the tax cuts by Donald Trump’s much ridiculed predecessor for businesses and entrepreneurs.

This is something the chatty classes prefer not to say.

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