Economy

Stay informed with free updatesSimply sign up to the More

China’s Politburo said Friday that it would continue to implement “proactive” fiscal policies and “prudent” monetary policies next year, in a bid to bolster domestic demand.
China also pledged to effectively enhance “economic vitality,” to prevent and defuse risks and to consolidate and enhance the upward trend of an ailing recovery in the world’s second-largest economy.
Demand for Chinese goods has fallen this year as global growth slows.

Chinese President Xi Jinping chairs a symposium on advancing the integrated development of the Yangtze River Delta and delivers an important speech in east China’s Shanghai, Nov. 30, 2023.
Xinhua News Agency | Xinhua News Agency | Getty Images

China’s top decision-making body of the ruling Communist Party on Friday said that the country’s fiscal policy “must be moderately strengthened” to stimulate economic recovery, according to state-run news outlet Xinhua.
China’s Politburo said it would continue to implement “proactive” fiscal policies and “prudent” monetary policies next year, in a bid to bolster domestic demand.

Chaired by Chinese President Xi Jinping, the Politburo’s Friday meeting analyzed the economic work to be undertaken in 2024. It pledged to effectively enhance “economic vitality,” to prevent and defuse risks and to consolidate and enhance the upward trend of an ailing recovery in the world’s second-largest economy.
China’s Politburo said that “proactive fiscal policy must be moderately strengthened, improve quality and efficiency, and the prudent monetary policy must be flexible, appropriate, precise and effective.”

Lost momentum

Demand for Chinese goods has fallen this year as global growth slows, stoking concerns about Beijing’s ability to mount a robust post-pandemic recovery. Momentum has taken a hit from a slew of factors, including the country’s beleaguered property market, sluggish global growth and geopolitical tensions.
HSBC Chief Asia Economist Frederic Neumann told CNBC on Thursday that the Chinese economy is unlikely to be bolstered by further fiscal stimulus and still has a “steep hill to climb,” even after a surprise pickup in exports.
Exports in U.S. dollar terms rose by 0.5% year-on-year in November, defying expectations for a 1.1% decline among analysts polled by Reuters. Imports in U.S. dollar terms fell by 0.6% over the 12 months, well below a consensus forecast of a 3.3% increase.

Economists have noted that external demand in China is still relatively weak and warned that policy support that focuses purely on the supply side will likely not be enough to achieve lasting results.
— CNBC’s Elliot Smith contributed to this report. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.US businesses are expected to have added 187,000 jobs in November, a rise on October and another sign of labour market strength that will bolster Federal Reserve officials’ view that interest rates will need to remain high for some time yet. The expected non-farm payrolls figure, based on a Bloomberg poll of economists, would mark a rise from 150,000 in October. The US unemployment rate is expected to remain flat at 3.9 per cent. The Bureau of Labor Statistics will release its data at 8.30am Eastern Time on Friday. While markets are betting the Federal Reserve will start cutting interest rates from their current target range of 5.25 per cent to 5.5 per cent before the middle of the year, central bank officials say cuts remain off the agenda. One of the big reasons why is the labour market has remained resilient despite the Fed having raised rates by 525 basis points since early 2022 in an attempt to quell rampant inflation. Fed chair Jay Powell last week said labour market conditions “remain very strong” despite job openings slowing to a more “sustainable” level. Rate-setters want to see more signs that their restrictive monetary policies are finally beginning to dent wage growth to levels consistent with their goal of keeping inflation steady at 2 per cent.Stephen Stanley, chief US economist at Santander Bank, said: “If you go back to the beginning of this year, the consensus view was that we’d be looking at negative payrolls by the spring. Jobs growth has slowed, but it’s been much more moderate than expected. Even now the numbers are pretty solid.” The November labour market figures are expected to show wages rose 0.3 per cent month on month, and at an annual rate of 4 per cent. “We expect [annual wage growth] to come in somewhere in the high 3 to 4 per cent range,” said Andrew Patterson, senior international economist at Vanguard, an investment manager. “That’s still too high for the Fed’s comfort level.” Rate-setters on the Federal Open Market Committee convene in Washington next week, with a policy announcement due on Wednesday afternoon. Rates are forecast to stay on hold. Leading academic economists polled by the Financial Times believe the Fed will not cut rates until the second half of next year. However, markets are pricing in cuts sooner, with some traders expecting a marked weakening in the jobs market in the coming months to force the central bank to being lowering borrowing costs as soon as March. The resolution of major strikes in the automotive industry and for screenwriters is expected to have provided some of last month’s jobs lift. Some economists expect the detail of the November figures to show some weakening in labour conditions, with the number of workers forced into part-time employment for economic reasons ticking up. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Japanese markets were rocked for a second day by speculation that the country’s central bank will soon scrap its longstanding policy of holding interest rates below zero.But economists warned that it was premature to expect any bold tightening move by the Bank of Japan later this month after fresh government data showed that the economy had contracted more sharply than initially expected in the third quarter. On Thursday, the yen shot to a four-month high of ¥141.6, after Bank of Japan governor Kazuo Ueda said an “even more challenging year” was ahead. On Friday, it pared back some gains to trade around ¥143.The Topix dropped 1.5 per cent while government borrowing costs hit their highest in three weeks as bond prices continued to fall.After Ueda’s remarks, which were made before a meeting with Japanese Prime Minister Fumio Kishida on Thursday, the implied probability of a rate rise when the BoJ holds its next meeting on December 19 rose to 35 per cent, according to Société Générale analysts.Investors were already expecting the BoJ to raise short-term interest rates, which are currently at minus 0.1 per cent, by next spring on the back of rising inflation and signals of further wage increases by Japanese companies. Core consumer prices have exceeded the BoJ’s 2 per cent target since April 2022.In October, the central bank decided to allow yields on the 10-year Japanese government bond to rise above 1 per cent, a step towards ending its seven-year policy of capping long-term interest rates.However, economists said that the central bank was confronting growing headwinds to unwind its easing measures with a stronger yen, a slowing economy and rising bets for less aggressive monetary policy by the Federal Reserve.Japan’s gross domestic product declined 2.9 per cent on an annualised basis in the third quarter, compared with a previously estimated 2.1 per cent contraction, according to revised figures released by the cabinet office on Friday. The reading translated into a 0.7 per cent contraction on a quarterly basis, underscoring a struggling economy as household consumption remained weak. Historically, a stronger yen also weighs on export-dependent Japanese companies by making Japanese goods more expensive for foreign buyers.Masamichi Adachi, chief Japan economist at UBS Securities, said the BoJ would probably be cautious because of the contraction in the Japanese economy and the uncertainty surrounding the US economy and the potential for the Fed’s rate cuts.“Investors seized on [Ueda’s] comments since they wanted volatility and a catalyst to move since they had already expected a strong yen and a weaker dollar,” Adachi said. “But if you look at the macroeconomic conditions, it’s nearly impossible for the BoJ to raise rates in December.”Citigroup economist Katsuhiko Aiba also said he expected the BoJ to maintain its current monetary policy in the December and January meetings.“We believe that termination (of negative interest rates) will be based on economic and price fundamentals and today’s second print for third-quarter GDP provides no justification on fundamental grounds,” Aiba wrote in a report. In addition to the weaker economic outlook, the domestic political situation was also unstable, with rising doubt over whether Kishida can survive an expanding political funding scandal. On Friday, chief cabinet secretary Hirokazu Matsuno said he wanted to continue to serve in his post following media allegations that he did not declare ¥10mn ($69,000) in political donations as part of a wider funding scandal involving factions within the ruling Liberal Democratic party. More

New research argues that the impact of companies maintaining margins by passing on higher prices to consumers should not be overlooked as a contributing factor to inflation.
Researchers say this has made inflation “peak higher and remain more persistent.”
They note that corporate profits are not the sole cause of inflation and did not cause shocks such as that to the energy market, but note that big international energy and food firms have an outsized influence on the wider economy.

LONDON — Major companies in the energy and food sectors amplified inflation in 2022 by passing on greater cost increases than needed to protect margins, according to a new report.
British think tanks the Institute For Public Policy Research and Common Wealth said in a report Thursday that big firms made inflation “peak higher and remain more persistent,” particularly within the oil and gas, food production and commodities sectors.

“We argue that market power by some corporations and in some sectors – including temporary market power emerging in the aftermath of the pandemic – amplified inflation,” the report said.
The author’s analysis of financial reports from 1,350 companies listed in the U.K., U.S., Germany, Brazil and South Africa found nominal profits were on average 30% higher at the end of 2022 than at the end of 2019.
This does not necessarily mean that overall profit margins have risen, but it does mean that higher prices have been shouldered by consumers, the authors said.
“Companies with (temporary) market power seemed to be able to protect their margins or even reap ‘excess profits’, setting prices higher than would be socially and economically beneficial,” they wrote.
The report stresses that corporate profits were not the sole driver of inflation and did not cause the energy market shock following Russia’s invasion of Ukraine in February 2022. But the report authors argue that so-called “market power” has not been sufficiently captured in the current debate around the causes of inflation, particularly when compared with the impact from the labor market and rising wages.

“In an energy shock scenario, if costs were equally shared between wage earners and company owners, one would expect the rate of return to fall as firms do not increase prices fully to make up for higher costs, and wage earners do not fully keep up with inflation. But this is not what happened. A stable rate of return – for example, as seen in the UK – suggests pricing power by firms, which allowed them to increase prices to protect their margins,” it said.
It identified Shell, Exxon Mobil, Glencore and Kraft Heinz as among the firms that saw profits “far outpace” inflation.
Glencore declined to comment when contacted by CNBC. The other companies did not respond.
Inflation began a steady march higher in mid-2020 amid a host of factors including global supply chain constraints, volatile food production conditions, tight labor markets, pandemic stimulus measures and the Russia-Ukraine war.
The impact of so-called “greedflation,” or companies raising prices more than needed to protect margins from higher input costs and market movements, has been contested.
Several analysts, along with policymakers including European Central Bank President Christine Lagarde, have cited the issue as a potential contributing factor to inflation.
But what constitutes “greedflation” is not an exact science. This year, the boss of U.K. supermarket giant Tesco suggested that some food producers may be raising prices more than necessary and fueling inflation, a claim that was strongly denied by the industry.
A blog posted by economists at the Bank of England in November found “no evidence” of a rise in overall profits among companies in the U.K., where they say prices have risen alongside wages, salaries and other input costs, with a similar picture in the euro zone.
“However, companies in the oil, gas and mining sectors have bucked the trend, and there is lots of variation within sectors too – some companies have been much more profitable than others,” they wrote. More

This article is an on-site version of our Unhedged newsletter. Sign up here to get the newsletter sent straight to your inbox every weekdayGood morning. Say what you will about the finance industry, there is one thing it can do well: stitch together barely related, marginally relevant buzzwords when naming a new product. Behold the BTC Private Credit Fund LP, billed as the “first bitcoin private credit fund”. As far as we can tell, the fund — a standard bitcoin lending operation — has nothing to do with private credit as that term is generally understood. But how, you may be asking yourself, can a self-respecting piece of financial marketing in 2023 not include a reference to AI? Well, BPCF has that box checked by having OpenAI CEO Sam Altman as a backer. What a time to be alive. Email us: [email protected] and [email protected] interview: Claudia Sahm Claudia Sahm is, perhaps to her chagrin, best known for creating the eponymous Sahm rule, a recession marker developed as part of a discussion of economic stabilisation payments to individuals. She is almost as well known for taking a contrarian view of the policy response to the coronavirus pandemic. She argued early on that the bulk of the post-pandemic inflation was driven by supply constraints that would pass, and urged policymakers not to overreact. Below she offers views on whether the inflation fight is won, productivity, consumer sentiment, the Phillips curve and much else. Her comments have been edited for brevity and clarity. Unhedged: Have we landed softly?Claudia Sahm: The soft landing is not here yet. But it is in the bag. Barring an unforeseen massive disruption, we are landing this plane. Now, there’ll be some turbulence as we approach the runway. I fully expect we’re going to have some disappointing reads on inflation. To me, a soft landing is 2 per cent inflation or spitting distance, say under 2.5 per cent, while unemployment stays low, right around 4 per cent or below. We’ll have it next year. You can see the landing strip. Unhedged: It’s true, unemployment’s great. The most relevant signals of inflation are within spitting distance of 2 per cent. But no matter how you cut it, wage growth is around 4 per cent. Is that a potential problem?Sahm: I have not, and do not now, subscribe to the view that the inflation we have been living through since 2021 is primarily demand-driven, like Larry Summers and my friend Jason Furman did. Those folks thought we put too much money into people’s pockets and there was too much pent-up demand. If you were in that camp, you thought we needed to jack up rates and see wage growth come down. Wages are rising at a pace that’s better than before the pandemic, which was a very good time for the economy, but we’ve moved out of the very acute labour shortages. And obviously, we want to get workers off the sidelines. To do that, you’re going to have to pay them more! I look at inflation and say that’s because of disruptions from Covid and the war in Ukraine. And because those will eventually work out in some way, inflation will come down. That leads to very different policy prescriptions to fight inflation. And it leads to very different views on the things like whether the $1.9tn American Rescue Plan was a good idea; or whether waiting to raise rates was a good idea. If it’s all demand, then you’ve got to destroy demand. But I don’t think it’s all demand.On wages, too, we have seen some good productivity numbers. If you’re more productive, you get paid more. And that’s coming after the crap productivity growth we had after the Great Recession. If we’re getting better productivity growth, we should not be using pre-pandemic wage growth as the baseline. Unhedged: What do you think is driving that bump in productivity? Sahm: Productivity is extremely hard to measure and the data is noisy. So we won’t know for sure for a while. But we have people who now work from home and some really crappy jobs are getting automated away. Maybe AI helps make workers more effective. The other piece is that business fixed investment has been really solid in this recovery, contrary to what happened after the Great Recession. We’re seeing R&D, we’re seeing capital investments. Doing business investment is the gift that keeps on giving. It shows up in GDP when it happens, and then it gives workers or businesses the tools or knowledge they need to produce in the next round, and the round after that. The Holy Grail in macro would be to get another quarter of a percentage point in trend growth. That really adds up. Unhedged: You had a recent Substack post called “I was right”, arguing that the US pandemic fiscal response was largely successful. But if the policy was so good, why are Americans so grouchy about it? Why is consumer sentiment so bad?Sahm: I spent a lot of time thinking about why people are so gloomy. The unemployment rate is low and wage growth is good, but on the other hand inflation has been high. But both were worse in the 1970s, when consumer sentiment was similarly bad. Most Americans are financially better off [than before the pandemic] — whether that’s measured by jobs, wages, wealth or debt. Before the pandemic, a lot of people did not have a financial cushion; now they do. Debt burdens are at record lows.This is not about economics. When I put my economic adviser hat on, I need to know that, because then I won’t use the sentiment data. It hurts me, because people called the Great Recession before the forecasters did. Sentiment started falling before GDP ever did. Danny Blanchflower had all this research on sentiment, and what a great forecast of recession it was, calling for a recession towards the end of 2021. I didn’t agree because the labour market recovery was gaining steam. Going into 2022, it became clear it wasn’t a recession. And at some point, I realised these [sentiment] data are basically useless to me.Unhedged: So you’re saying you don’t quite know what it is, but it isn’t the economy.Sahm: Yeah. I’ve gone through different hypotheses. I think it fundamentally has some relationship back to Covid. Shutting the economy down, sending people home, a deadly virus we didn’t understand — it broke people. Now we have the war in Ukraine. The most optimistic thing I can say is that bad sentiment is related to Covid and Ukraine, and once we get to the other side, that disconnect will close. It just takes time. The questions about the economy or people’s finances are so fundamental to their lives that if you’re angry and scared about one thing, like Covid, you’re going to be angry and scared about your finances, no matter what your bank account says.There was a recent analysis in the FT, finding that the big gap between US sentiment and the economy wasn’t there for other countries. Those countries had a really hard time with the pandemic, too. Which makes me think it has something to do with processing the pandemic and lockdowns in a highly charged political environment during an election year.Unhedged: You’ve called for banning the Phillips curve, the economic model positing a trade-off between inflation and unemployment. Now that we have a bit more hindsight, what’s your retrospective on the Phillips curve in this cycle? And if we ban the Phillips curve, what replaces it? Sahm: This fundamentally goes back to a view about how much of inflation is demand versus supply. If you think it’s demand-driven inflation, you can fight that with the Fed’s tools. But how do you know how much monetary tightening to do, how much unemployment you need to get inflation down? So then you march off to the Phillips curve. There are more sophisticated versions of the Phillips curve that incorporate supply shocks. No one brought those out. The versions of the Phillips curve that were brought out in policymaking circles went back to the 1950s or 1960s — essentially just inflation versus unemployment. The Phillips curve was used by the same people denouncing the American Rescue Plan to make statements like, “We need five years of 6 per cent unemployment.” But it goes back to why did inflation spike, demand or supply? It’s clear now who was right: it was largely supply. It was completely valid to argue in 2021 that when inflation took off, it was demand. The American Rescue Plan was big, it came after two very big fiscal relief packages and the Fed had been adamant about not raising rates. But the fact this year that inflation has notably come down and unemployment has stayed low only happens if it was mostly supply-driven.In terms of what other model to use, backing off from the Phillips curve would have been a good idea. And then the thing that economists need to think harder about is how we think about supply shocks. Most of the effort in macroeconomic research goes into thinking about demand disruptions. The [industry gold standard] New Keynesian dynamic stochastic general equilibrium model has wedged into it a Phillips curve that can do supply shocks. But we don’t really know how to calibrate [these sorts of models].A lot of this is art, not science. The academic stuff looks like science, but what actually is useful in the real world is much more judgment-based. But you ought to have tools that at least don’t do damage. The Phillips curve has done damage. Unhedged: There’s a lot of worry now about excessive debt and deficits. Olivier Blanchard is saying we need to get r minus g, the real interest rate paid on debt minus the growth rate, on a sustainable trajectory. What’s your perspective on debt sustainability? Sahm: First off, Olivier is adorable, what a great way to frame it. My view is that it’s completely misguided to have a discussion about the size of the federal debt. The entire conversation about r minus g, while maybe useful for macroeconomists to think about, ignores that it matters what we spend on. If we are on a path for higher productivity growth after the pandemic, the American Rescue Plan, the infrastructure act, the Chips act, the Inflation Reduction Act — they all get a piece of that pie. Unhedged: Folks like Olivier are worried that if long rates are now higher, there’s simply less capacity to spend money the right way, because more of the budget is going to be spent on interest payments.Sahm: The way I’d frame it is that the stakes are higher and higher for doing spending in a responsible way. If the government is spending in a way that is targeted and effective, say, at raising productivity, that’s money well spent. I would never want to say that spending will “pay for itself”, because that claim has a very dubious history. And yet if you do it right, it does, at least to some extent. The other piece is getting into the weeds of what the federal debt is: social security and Medicare. If you do not do something to pull in those expenses, you’re done. That’s a very difficult, delicate conversation. The stakes are higher to spend money well. The stakes are very high to make those entitlement programs cost-effective and well-designed. You can almost cut the whole rest of the budget and you still would have questions about debt sustainability and higher interest rates.I don’t know that Olivier would disagree with me that entitlement programmes need to be addressed. But as macroeconomists, we’re not setting up a framework that really pushes policymakers to think in those terms. We just say, “It’s too big!”There is a corollary to [the damage done by macroeconomists relying on the Phillips curve model to analyse inflation] within the debt sustainability debate. The profession got burned, and rightly so, for Greece. The Reinhart-Rogoff argument [that debt-to-GDP ratios over 90 per cent hurt growth] ended up being very bad advice. Macroeconomists need to learn that big numbers aren’t enough. Policymakers need better guidance.Unhedged: As the author of the Sahm rule, you’ve made the point over and over again that it’s not a rule of nature. Still, financial markets will always want a recession forecasting rule. This time, the inverted yield curve didn’t seem to work. Now the Sahm rule is getting attention. Would you suggest Wall Street use a different rule?Sahm: No, I won’t give them that. The market is looking for something to predict a recession. The Sahm rule has never been that. It was meant to send out fiscal transfers [as automatic stabilisers]. The typical predictors, like the yield curve and sentiment, have not performed well. You have to go back to 1947 to find a time where we had two consecutive quarters of GDP decline outside of a recession. And we had that last year. Everything is haywire! Rely on the rules of thumb at your peril. Right now, everyone wants some kind of certainty or comfort or guidepost. You ain’t getting it.One good readChris Giles on the size of China’s economy.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, hosted by Ethan Wu and Katie Martin, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youSwamp Notes — Expert insight on the intersection of money and power in US politics. Sign up hereChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Argentina’s new president, the self-styled anarcho-capitalist Javier Milei, takes on one of the world’s toughest economic challenges on Sunday.The country is a big food exporter and used to be one of the wealthiest nations in the developing world, but decades of mismanagement have wrecked the economy and created a web of artificial price and exchange rate controls that have produced huge distortions.A libertarian economist whose beloved pet dogs are named after ideological heroes such as Milton Friedman, Milei campaigned on promises of taking a chainsaw to the state, closing down the central bank and replacing the peso with the US dollar. But he has made a dramatic shift towards moderation since winning the election.As Milei’s first day in office approaches, what are the main economic challenges that he will inherit?Chronic overspendingAt the root of Argentina’s problems is the government’s chronic overspending. The size of the state has almost doubled over the past two decades, with the government expanding the public sector payroll, handing out hefty fuel and electricity subsidies and boosting welfare programmes.Public sector employment rose 34 per cent between 2011 and 2022, while private sector jobs increased only 3 per cent in the same period, according to a report by the IERAL think-tank. This has led to continual budget deficits of more than 4 per cent of gross domestic product, despite tax levels that are well above the Latin American average.Decline in the pesoWith the country cut off from borrowing on international capital markets since its ninth sovereign default in 2020, the current Peronist government has resorted to printing money to help fund the deficit. The money supply has exploded and the value of the peso has collapsed. Tight controls on foreign exchange have prompted a flourishing black market in the dollar and encouraged exporters to hoard goods, rather than ship them at artificially low official exchange rates. Argentina’s net international reserves are now negative, according to most economists.Stubborn inflationThe collapse in the peso’s value has fuelled inflation, which is now among the highest in the world. JPMorgan expects Argentina’s annual inflation to reach 210 per cent by the end of this year and warns that it is likely to rise further in the first half of next year — which could put it on a par with levels in Sudan and Zimbabwe. The central bank’s reference interest rate has shot up to 133 per cent to compensate depositors for rampant inflation.Rising liabilitiesTo soak up a large overhang of pesos in domestic markets, Argentina’s central bank has been issuing short-term interest-paying notes on local money markets. Those liabilities are more than 20tn pesos — nearly three times the monetary base — and generate hefty interest payments to the banks that hold them.After a markets crisis in 2018, Argentina’s previous centre-right government turned to the IMF for a record-breaking bailout. It still owes the fund $43bn from that rescue, making it the biggest debtor to the Washington-based organisation. Argentina in 2020 also restructured $65bn of debt owed to private sector creditors. The IMF estimates that Argentina’s total foreign currency sovereign debt is $263bn.Cultural money habitsArgentines hold large amounts of dollars in cash within the country, as the US currency is widely used for savings and big transactions, such as property purchases. Central bank chief Miguel Pesce estimated in 2021 that Argentines held $200bn in cash within the country, which he said was 10 per cent of all US dollars in circulation in the world. A draft bill in Argentina’s Senate last year estimated that its citizens held another $418bn in mostly undeclared assets abroad.Argentine President-elect Javier Milei, his sister Karina Milei and members of his delegation pose for a photo as they leave the Eisenhower Executive Office Building at the White House complex More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.In psychology, for someone to shift away from an undesired behaviour there are two separate requirements. First, they need the self-awareness to recognise the issue. Second, they need the self-management skills to act on that knowledge. Having the former without mastering the latter is arguably worse than having neither: painful awareness of a flaw extending into perpetuity.If we swap people for countries and personal flaws for societal ills, I fear America may be in just this predicament when it comes to income disparities.There are fierce debates over exactly how much US income inequality has grown in recent decades, but what is not in doubt is that inequality is wider in the US than in other developed countries. The average American agrees, with one in five describing the US income distribution as “very unfair”, higher than the share in any other wealthy western country.But according to a fascinating new working paper, while Americans may recognise their country’s problem with inequality, they have less desire for something to be done about it than their counterparts elsewhere in the west. More striking still, being shown how wide national inequalities are has no impact on US desire for the gaps to be narrowed — in fact, if anything it reduces appetite for redistribution. In other western countries that same prompting results in more calls for redistribution.The study, led by Pepper Culpepper, professor of government and public policy at Oxford’s Blavatnik School of Government, looked at the US, UK, Australia, France, Germany and Switzerland. In these countries, people were given a news article that used inequality data to argue that the economic system in their country was rigged. Outside the US, reading the article reliably increased beliefs that society is divided into haves and have-nots, which in turn boosted support for redistribution. In the US, it did neither.Why the exceptionalism? I think there are two dynamics at play. The first is what I call the two sides of the American dream. Data show that Americans see themselves as more upwardly mobile than people from other western countries (in reality the inverse is true), and are more likely to say hard work is essential for getting ahead in life. These are aspirational, meritocratic beliefs, but the flip side is that Americans are also the most likely to say low-income people need to pull themselves up by their bootstraps.If Americans view extreme incomes with more aspiration than anger relative to their counterparts in other countries, this could explain reactions to the inequality article. If seeing inequality can equate to seeing opportunity, the American dream makes US society more tolerant of large disparities.The second dynamic, highlighted by Culpepper and his co-authors, is Americans’ distrust of government, and in particular their belief that government is inefficient.It’s more than 42 years since Ronald Reagan told Americans in his 1981 inauguration speech that “government is not the solution to our problem; government is our problem” — and it appears the nation took his words to heart.While Americans are the most likely to say income inequality in their country is unfair, fewer than half see this as the government’s responsibility to address. This compares with two-thirds or more in the UK, France and Germany. Where other societies see inequality as something that is done to people and must be tackled by helping them, Americans see it as something that people are responsible for themselves.The tragedy here is that the American dream continues to fail so many. The US struggles with more extreme poverty than any of the five countries with more collectivist attitudes. According to the International Social Survey Programme, Americans are the most likely to say they have to skip meals because there is not enough money for food. This finding is corroborated by the latest Programme for International Student Assessment (PISA) results which found one in eight US children skip meals at least once a month.All this speaks to one of the fundamental tensions within US society: are extreme wealth and extreme hardship two sides of the same coin? A culture of aspiration and individual responsibility doubtless drives entrepreneurialism and wealth generation, but it also appears to engender apathy towards inequality and especially towards government intervention, leaving the poorest to fend for [email protected], @jburnmurdochVideo: How Biden’s Inflation Reduction Act changed the world | FT Film More