For upper-income households, the bull market in stocks through the end of 2021 was far more important than stimulus checks, according to Michael Englund, chief economist of Action Economics in Boulder, Colo. Stocks have fallen this year at the same time as fiscal stimulus has waned and interest rates have risen. Given all those factors, “I’m assuming we’re near bottom for consumers’ willingness to spend more than they earn,” Englund told me.
David Levy, the chairman of the Levy Center, wrote in his organization’s November report that it’s “misguided” to think that the savings built up during the pandemic will be available to support spending if the economy deteriorates. Much of the money has been absorbed into long-term savings or used to pay down debt and is therefore no longer available as “extra spending money with a hair trigger,” Levy wrote. He wrote that the savings rate could get as high as 7 percent next year, which would be roughly the average of the decade ending in 2019. A spending retreat of that magnitude would cause “serious-to-severe recessionary profit declines,” he wrote.
Concluded Levy: “The reality is that the economy is in a bind without a plausible means of escape.”
The Readers Write
I very much enjoyed the Nov. 18 edition of the newsletter discussing spatial inequality. One way the U.S. might support sluggish regions is through its tax system — an approach Germany, Australia, Canada and India have used to great effect. Lawmakers could, for example, declare that corporations won’t pay federal taxes on profits made in underresourced areas, using a formula which also accounts for wages paid in those areas. While the tax code might not be the first tool people think of when considering regional inequality, it’s a potentially vital one.
Reuven Avi-Yonah
Ann Arbor, Mich.
The writer is a law professor at the University of Michigan specializing in taxation.
Quote of the Day
“In a theater, it happened that a fire started offstage. The clown came out to tell the audience. They thought it was a joke and applauded. He told them again, and they became still more hilarious. This is the way, I suppose, that the world will be destroyed — amid the universal hilarity of wits and wags who think it is all a joke.”
— Soren Kierkegaard, “Either/Or” (1843; edited and translated by Howard V. Hong and Edna H. Hong, 1987)