11/26/2021 - economy-and-finance

United States: debate for the greatest official intervention in the economy

By dario epstein

United States: debate for the greatest official intervention in the economy

The U.S. President, Joe Biden, began to implement a political agenda that, in such a way, could implya structural change in the United Statesfrom America. Basically,the trasfondo of the discussion is the role and size of the state. Understanding that when the state advances, there is room for the private sector.

In this context, the Congressmust treat four laws before the end of the year, all directly related to the 2022 budget, including the suspension or increase of the country's indebtedness level (“debt ceiling”), as well as two bills flying near $5 billion over the next 10 years to an economy that already shows incipient inflationary alerts. This happens in a year when, following the pandemic, the budget deficit is approximately $3 billion.

The two most urgent bills must be treated and approved before the end of the year, since they depend on the proper functioning of the country. Both were treated at Congress in September without success, but a small extension was agreed that delayed a few weeks its final approval.

The first of these two projects isthe limit at the level of indebtedness of the countrywhich today is in $28 billion. Indebtedness rises to cope with expenditure already incurred; not future. The debate on the level of U.S. debt occurs very often and always both parties negotiate concessions to finally increase. During the last week of September, Congress dealt with the details of a new limit, butThere was no agreement.

Not having been approved a “parche” for $480,000 million new debt, the countrywould have fallen in default on October 18.

The second bill isthe financing of the Central Government. This financing is related to future expenditure on the fiscal period of 2022, which began on 1 October. Not counting on an approved budget,the government cannot operate by shutting it down, except for certain essential services. This discussion also occurs every year and it is no wonder that the public administration ceases to operate until expenditure is approved. The last closure of the administration occurred in 2019 and lasted 29 days. In early October, both parties negotiated a “parche” to fund for a time limited to public administration and avoid the so-called “shutdown”.

Although Democrats have majority in both chambers,for now, there are no votes, especially in the Senate where two Democrats, Kyrsten Sinema of Arizona, and Joe Manchin of West Virginia, have already announced that they will not vote with their party. Both represent historically republican states and wish the White House to considerably reduce the size of new expenses proposed by the president.

The other two projects Biden seeks to approve this year are the infrastructure package and the so-called “Build Back Better” (or rebuild better). It is estimated that the infrastructure bill will cost $1.2 billion for five years and that of rebuilding $3.5 billion for ten years. Together they form the basis of President Biden's economic agenda whichseeks to change structurallyto the United States of America.

The infrastructure packageAim to improve country connectivityTo drive stronger economic growth and cymbronazo test. Airports, highways, bridges, telecommunications and ports are part of the investments the White House seeks to make. There is also a plan forReduce the amount of cars for combustionproduced by electrics and incentives for the purchase of more ecological vehicles. The Senate, with the help of 19 Republicans, has approved the bill and now expects the Lower House of its consent. However, a twenty of Democratic representatives do not want to approve and argue that the most ambitious and controversial Build Back Better plan must be approved before.

The United States Congress will soon meet again to treat one of the most extensive and transformative economic laws since President Roosevelt's "New Deal" in the 1930s. President Biden and his economic team are about to learnif Americans are willing to accept a more government interventionist role in the economyand especially in their lives.

The US$3.5 billion that the White House seeks to “invert” in the U.S. structural transformation, with the “Rebuild Better” plan, focuses on a long list of social policies and programs ranging from free education, healthcare, housing and climate change. Includes programmeswill change the country's energy matrixFor the benefit of the creation of new industries related to renewable energy. It also proposes free university education for two years in state institutions, universal pre-school education, expansion of the public health system, price control of medicines, 12 weeks paid for absence by maternity and paternity as well as investments in sustainable real estate developments.

Of course, any increase in public expenditure should be presented with its counterpart:How will it be financed? More taxes? Or will the economic goodness of the plan allow itself to be self-financed in time through greater growth, greater employment and greater recovery?

In addition to economics, a key theme is put on the table: what is the role of the State in society and the economy in general. The size and scope of these projects are accompanied by a substantial increase in regulations (and taxes) and state control in the lives of Americans and their companies.

Are the US prepared and able to become a more social-democratic “European” country, more state-dependent and highly regulated?

And this leads us to a key point: But that we will treat you in another article.

Column previously published in Clarín.

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dario epstein

dario epstein

Hi, it's Darius. National Public Accountant, MBA from University of Michigan, USA. Specialist in the capital market. Mainly a beak and shovel borer.

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