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Fiscal stimulus mitigated loss of income in the US: UNCTAD

Fiscal stimulus packages have mitigated the loss of income in the United States, highlighted the United Nations Conference on Trade and Development (UNCTAD).

At first, the US economy experienced a less brutal contraction than expected in mid-2020.

On the fiscal side, aid packages were larger than expected and managed to mitigate income losses.

From UNCTAD’s perspective, monetary policy remained expansionary and, more importantly, the Fed ruled out any early interest rate hikes, even if inflation exceeds its 2 percent target.

Coupled with the initial advance in vaccine approval and the stock market boom (driven by losing monetary policy and driven by strong earnings from big tech companies), these actions resulted in a rapid recovery in aggregate revenue in the second half of 2020, albeit unevenly and more to the benefit of the rich, raising concerns about a K-shaped recovery, even from the newly appointed Secretary of the Treasury.

Income

For this year, UNCTAD expects expansion to continue, assuming that the new Administration’s $ 1.9 trillion package will generate strong job creation, increased consumer confidence and significant investment in productive capacity.

More specifically, cash transfers, expanded unemployment benefits, and tax and mortgage deferrals will help keep consumer spending momentum.

Investment and employment programs will increase both capacity and demand.

But the Administration’s approach to reducing economic inequalities will be critical to achieving a broad-based recovery.

“Income inequality accelerated dramatically last year due to record financial incomes and significant job losses in low-wage sectors,” UNCTAD said as part of its report entitled “Out of the frying pan… Into the fire”.

An increase in the federal minimum wage in the United States would be an important step in reversing this setback and the preceding four decades of greater inequality.

Estímulo fiscal en algunos países desarrollados, estimado sobre el período entre el tercer trimestre de 2020 y el cuarto trimestre de 2021 (porcentaje del PIB).

At the same time, UNCTAD added, capital spending was driven by residential construction in late 2020 and there should also be a rebound in 2021 as stocks are replenished.

 

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