Economy

TOKYO (Reuters) – The Bank of Japan’s incoming governor Kazuo Ueda will lead a powerful trio that includes a technocrat who designed yield curve control, and a former banking-sector regulator who can look after the fallout from a future end to low interest rates.As an academic specialising in monetary policy, Ueda will likely focus on timing a smooth exit from yield curve control (YCC) and re-designing what has become a framework difficult to sustain as inflation perks up, analysts say.The government nominees for his two deputies – career central banker Shinichi Uchida and former banking watchdog chief Ryozo Himino – would bring expertise as bureaucrats to work out the details in putting Ueda’s policy ideas into shape.Having spent most of his career drafting monetary policy plans, Uchida has worked closely with deputy governor Masayoshi Amamiya in master-minding many of the BOJ’s policy ideas including YCC, say sources familiar with the matter.Uchida was re-appointed for a rare, second term last year as the BOJ’s executive director, a move seen by analysts as laying the groundwork for a smooth transition in case the top central bank post goes to someone outside the institution.People who know him describe the 60-year-old Uchida as a sharp-minded technocrat who is skilled at designing innovative monetary tools, and worked well with incumbent governor Haruhiko Kuroda as well as his less-dovish predecessor Masaaki Shirakawa.”He’s probably among the best placed to dismantle YCC as he played a key role crafting it,” said one of the sources, a view echoed by two more sources.”As deputy governor, Uchida will probably be the core in monetary policy decisions,” said a former BOJ board member who recently spoke with Uchida.As the sole career central banker in the BOJ’s leadership, Uchida will also oversee an institution with staff of over 4,600 handling a range of operations beyond monetary policy.As former head of the Financial Services Agency (FSA), Himino brings his expertise on financial regulation and overseas contacts cultivated during his stint as an executive at the Financial Stability Board (FSB) – a global body coordinating financial rule-making among Group of 20 major economies.The appointment of Himino suggests the BOJ will put more emphasis in looking at the impact of its ultra-low policy on the banking sector, a contrast to Kuroda’s approach of focusing on the economic benefits of prolonged easing, analysts say.During his stint at the FSA, the 62-year-old Himino worked with the BOJ in designing programmes to prod regional lenders to beef up profitability and combat headwinds from prolonged low rates and a rapidly ageing regional population.”It’s a very powerful trio of technocrats who can get the job done as a team,” said a second source.”With this team, coordination between the BOJ and FSA will strengthen and help enhance Japan’s presence in global discussions on financial regulation.”The two deputy governors will assume their posts on March 20, taking over from incumbents Amamiya and Masazumi Wakatabe. Ueda will join as BOJ governor on April 9. More

Producer prices in the US rose more than expected in January, reinforcing concerns about the stickiness of inflation that may prompt the Federal Reserve to keep interest rates higher for longer to cool the economy.The producer price index, often regarded as a leading indicator of where consumer inflation is headed in several months’ time, rose 0.7 per cent last month from December, the US Bureau of Labor Statistics said on Thursday. That surpassed economists’ expectations for a 0.4 per cent increase.On an annual basis, the PPI, which tracks prices paid to US producers for goods and services, was up 6 per cent from a year ago. That marked a moderation from 6.5 per cent in December, but came in well above market forecasts for 5.4 per cent. The PPI figures come days after consumer price data showed inflation slowed only slightly in January. Recent jobs growth and retail sales have also been resilient despite the Fed’s efforts to cool the economy with high interest rates, which it this month raised to a range of 4.5 per cent to 4.75 per cent.Almost a fortnight ago, a blockbuster non-farm payrolls report showed the US economy added more than half a million jobs in January and the unemployment rate fell to a 53-year-low of 3.4 per cent. Days later, Fed chair Jay Powell warned rates might have to be raised higher than investors expected because the strong labour market meant it could take longer for inflation to return to the central bank’s 2 per cent target.Prior to the release of the jobs data at the start of February, futures markets expected the central bank’s key rate to peak just below 5 per cent, and were pricing in two 0.25 percentage point interest rate cuts by the end of the year. Investors now expect that rate to peak around 5.25 per cent, and have roughly even odds of one cut or no cuts by year-end.US stock and government bond markets sold off on Thursday following the PPI data, as well as figures that showed the number of Americans filing for jobless claims last week remained near historical lows.The S&P 500 closed 1.4 per cent lower, having managed on Wednesday to take stronger than forecast retail sales data in its stride. The yield on the interest rate-sensitive two-year US Treasury rose 0.02 percentage points to 4.64 per cent, keeping it close to a three-month high struck in the previous session. “I think Powell put it aptly last week when he said the difference between the Fed’s outlook and the market’s was mainly a difference in how fast each thought inflation would decelerate,” said Guy LeBas, the chief fixed-income strategist at Janney Montgomery Scott. “On the margin, the January CPI tilted the argument slightly in the Fed’s favour and away from the market’s, but only slightly.”Adding to evidence about the strength of the domestic labour market, new applications for state unemployment aid, a proxy for lay-offs, totalled 194,000 in the week ending February 11 on a seasonally adjusted basis. That was down from the revised 195,000 the previous week, the labour department said on Thursday.Weekly jobless claims have remained below 200,000 since mid-January. The last time that applications remained below that threshold for such an extended period was in April 2022.Fed governor Michelle Bowman last week said that even though some components of inflation had moderated, continued labour market tightness was putting upward pressure on inflation.Other parts of the economy are feeling the pinch of higher rates, though. Data on Thursday showed the rate of new home construction in the US fell to the lowest level since the early stages of the Covid-19 pandemic as higher mortgage rates have weakened demand. Separately, an index of manufacturing activity tracked by the Philadelphia branch of the Fed tumbled to a reading of minus 24.3 in February, its lowest level since May 2020.The combination of the producer price and consumer price inflation reports this week “suggests the easy battles against price pressures have been won”, said John Lynch, chief investment officer at Comerica Wealth Management.“The move from 9 per cent to 6 per cent will prove to be much less challenging than the journey from 6 per cent to 3 per cent,” Lynch said of price inflation levels. More

US stocks fell on Thursday after the latest evidence of stubborn inflationary pressures in the world’s largest economy fuelled concerns about the Federal Reserve keeping interest rates high to curb price rises.The blue-chip S&P 500 closed down 1.4 per cent, marking its worst day in almost a month, while the tech-heavy Nasdaq Composite lost 1.8 per cent.Those moves in equity markets came after the US producer price index, which tracks wholesale prices, rose at an annual rate of 6 per cent in January, down from 6.2 per cent in December but well above the consensus estimate of 5.4 per cent.Investors have been watching closely for signs of persistent inflation and a still-hot US economy, with recent data already pushing up the level at which interest rates are expected to peak and reducing the number of Fed rate cuts that markets are pricing in for later this year.“Strong producer prices to start the year in January highlight that there remain strong underlying inflationary pressures, particularly due to a still-tight labour market and very strong wage growth over the last few years,” said analysts at Citi.Thursday’s declines followed slight gains in the previous session as investors took in their stride stronger than expected retail sales that were expected to boost corporate earnings.“The difference today is that the narrative has turned towards inflation,” said John Roe, head of multi-asset funds at Legal and General Investment Management. “Positive growth implies a soft landing whereas stubborn inflation points towards a no-landing and the risk of tighter monetary policy.”The dollar index, which measures the greenback against a basket of peer currencies, eased 0.1 per cent. In government bond markets, the policy-sensitive two-year Treasury yield rose 0.02 percentage points to 4.64 per cent, reflecting a fall in price, while the benchmark 10-year yield rose 0.06 percentage points to 3.86 per cent.Europe’s benchmark Stoxx 600 share index and Germany’s Dax both finished 0.2 per cent higher. France’s CAC 40 was a standout performer, rising 0.9 per cent to touch a record intraday high.The UK’s FTSE 100 rose 0.2 per cent to close above 8,000 points for the first time.Some economists are concerned that signs of economic strength will encourage the main central banks to press on with more interest rate increases to stamp out lingering inflation. European Central Bank President Christine Lagarde on Wednesday addressed EU lawmakers and stressed the need for more interest rate rises. Brent crude, the international benchmark, gave up earlier gains to trade 0.3 per cent lower at $85.06 a barrel and WTI, the US benchmark, fell 0.2 per cent to $78.43 a barrel.Hong Kong’s Hang Seng index rose 0.8 per cent, while China’s CSI 300 lost 0.7 per cent. More

Martin J. Walsh, a former mayor of Boston, was regarded as an unusually visible labor secretary.Labor Secretary Martin J. Walsh is leaving the Biden administration to become executive director of the National Hockey League Players’ Association, the union announced on Thursday.Mr. Walsh, a former Boston mayor who had led the city’s powerful Building and Construction Trades Council, helped to bolster the Biden administration’s pro-union credentials and usher in a period of more aggressive workplace regulation after the relatively hands-off approach during the Trump administration.Mr. Walsh said in a statement that he would leave the Labor Department in mid-March.Alongside President Biden, who has been more vocal about supporting unions than any other president in decades, Mr. Walsh was arguably the administration’s most visible proponent of unions. He joined Mr. Biden and Vice President Kamala Harris in meeting union organizers at the White House, and he served as vice chairman of an administration task force exploring how the federal government could increase union membership.Although union membership fell to 10.1 percent of the work force last year, the lowest rate on record, the country added nearly 300,000 union members amid a wave of worker organizing at major corporations including Starbucks, Amazon and Apple. (The rate fell because the work force grew even more rapidly.) Mr. Walsh cheered on the trend and warned employers to respect workers’ desire to unionize and refrain from coercive tactics.“As secretary of labor, I don’t appreciate that,” he said in an interview in August, when asked about complaints issued against Starbucks by the National Labor Relations Board. Workers who choose to organize “should be treated fairly and respectfully, not intimidated,” he added. Starbucks has denied violating labor law.Labor Organizing and Union DrivesTesla: A group of workers at a Tesla factory in Buffalo have begun a campaign to form the first union at the auto and energy company, which has fiercely resisted efforts to organize its employees.Apple: After a yearlong investigation, the National Labor Relations Board determined that the tech giant’s strictly enforced culture of secrecy interferes with employees’ right to organize.N.Y.C. Nurses’ Strike: Nurses at Montefiore Medical Center in the Bronx and Mount Sinai in Manhattan ended a three-day strike after the hospitals agreed to add staffing and improve working conditions.Amazon: A federal labor official rejected the company’s attempt to overturn a union victory at a warehouse on Staten Island, removing a key obstacle to contract negotiations between the union and the company.In the Inflation Reduction Act, the major climate and health bill that Mr. Biden signed last year, Mr. Walsh helped push for labor-friendly provisions, including incentives for the owners of clean energy projects to pay wages similar to union rates.When it came to regulation, Mr. Walsh’s approach was most visible in the Labor Department’s response to the Covid-19 pandemic. The Occupational Safety and Health Administration, an agency within the department, had declined to issue a new workplace rule governing Covid-19 under President Donald J. Trump.But Mr. Biden and Mr. Walsh pushed the agency to issue two so-called emergency standards — one outlining the steps employers in the health care industry would have to take to protect workers, and another requiring workers to either be vaccinated against the coronavirus or wear masks and be tested regularly. The Supreme Court blocked the latter rule, though it let stand a provision from another agency that required workers to be vaccinated at facilities that received funding from Medicare and Medicaid.After an executive order from Mr. Biden, the Labor Department also put forth a rule raising the minimum wage for federal contractors last year to $15 an hour. It proposed a rule that would make it more likely for millions of workers in industries like home care, construction and gig work to be classified as employees rather than independent contractors, guaranteeing them a minimum wage and overtime pay, and another that could raise the wages paid to construction workers on federally funded projects.It has recently cited six Amazon warehouses for creating work environments that have high risk for musculoskeletal injuries among workers. Amazon has said the accusations don’t reflect the steps it takes to ensure worker safety..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Ann Rosenthal, a longtime Labor Department lawyer who was at the department during the first year of the Biden administration, said Mr. Walsh was among the most effective of the 13 secretaries she served because of his credibility with unions and other worker advocates, his close relationship with Mr. Biden, and his political instincts and pragmatism. “He really checked all the boxes,” Ms. Rosenthal said.Mr. Walsh’s tenure at the department was not without controversy. Most prominent was the deal he helped broker in September between major freight rail carriers and a dozen unions representing more than 100,000 rail workers. The deal helped to avert a potentially crippling strike before the midterm elections and granted improvements in health benefits and wage increases of nearly 25 percent over five years.But the deal lacked paid sick days, and some workers complained that it did little to ease the grueling, unpredictable schedules that had put stress on their personal lives and health. Although members of four rail unions voted down the deal, the administration urged Congress to mandate the deal in November, and the president signed legislation enacting it. (Last week, one of the carriers, CSX, announced an agreement with unions that would provide four paid sick days a year for about 5,000 workers; a White House spokeswoman said Mr. Walsh had continued to push the rail carriers to offer paid sick leave.)Critics also complained that OSHA under Mr. Walsh didn’t go far enough in protecting workers from Covid-19. They said the agency should have devised regulations that applied to a variety of high-risk industries, such as meat processing, grocery and retail, not just health care. (The department said it had the power to ensure worker safety in these industries through other means, such as a so-called general duty clause.)Other rules, like the independent contractor rule and the one governing construction-worker wages, were proposed but not finalized during the first two years of the Biden administration — a delay that has worried some supporters.And Mr. Walsh and his administration colleagues failed in their efforts to win legislation that would have made it easier for workers to unionize, such as the Protecting the Right to Organize Act, or PRO Act, which would have blocked employers from requiring workers to attend anti-union meetings and made it possible to impose penalties on employers that violated labor law. The House passed the measure, but it stalled in the Senate.The Senate also killed a measure that would have granted consumers a $4,500 incentive to buy electric vehicles assembled at unionized plants in the country.A battery plant in Ohio that is a joint venture of General Motors and the South Korean manufacturer LG Energy Solution recently unionized. But without the kind of legislation that the Senate has balked at, unions face much longer odds in organizing at a proliferation of new battery and electric vehicle plants in the South.Mr. Walsh is a longtime fan of the Boston Bruins and has received political contributions from the hockey team’s owner. The Daily Faceoff, a hockey publication, previously reported on the contributions.The New York Times reported last month that Mr. Walsh was one of several candidates under consideration to replace Ron Klain as Mr. Biden’s chief of staff. That job eventually went to Jeffrey D. Zients. More

Rishi Sunak has launched a high-stakes gamble to seal a deal with Brussels over Northern Ireland, making a surprise visit to Belfast as Tory Eurosceptics warned he was going too far to accommodate the EU.The UK prime minister is seeking to win backing from Northern Irish parties for an outline deal with the EU to resolve the two-year old dispute over the region’s post-Brexit trade. Unionists, Conservatives and businesses complain the current arrangements have impeded business with the mainland. Sunak will hold talks in Belfast before heading to Munich on Saturday, where, on the margins of a security conference, he is expected to meet EU leaders to try to settle the damaging Brexit dispute.But he faces a backlash from Eurosceptic Tory MPs if — as expected — the deal on the so-called Northern Ireland protocol leaves EU judges with a role over the region.David Jones, deputy chair of the pro-Brexit Tory European Research Group, said Sunak had not discussed the putative agreement with his group, arguing that giving EU judges any jurisdiction in the UK “would not be acceptable to any other country in the world”.Jones added: “There would be general dissatisfaction with the leadership of the Conservative party, which would not bode well for the leadership.”Sunak acknowledges the risk that senior Eurosceptics — including former prime minister Boris Johnson — could turn on him over an agreement with the EU. He will decide whether to press ahead with the gambit over the weekend, knowing that a deal could enrage some Tory MPs but help to rebuild relations with the EU, Britain’s biggest trading partner.As expectations of a deal grow, Maroš Šefčovič, the European Commission’s Brexit negotiator, is set to meet James Cleverly, foreign secretary, over lunch in Brussels on Friday. Šefčovič will then brief ambassadors from the EU’s 27 member states at a private meeting called at short notice.Sunak hopes to present the deal to his cabinet on Tuesday. Any agreement would need to be backed by EU member nations, but there has been broad support for the changes proposed by the commission. Sunak will first try to sell the deal to the pro-UK Democratic Unionist party in Northern Ireland, which is boycotting the region’s assembly at Stormont in protest at the protocol, as well as meeting other political leaders and business figures.Jones said that unless a deal on the protocol persuades the DUP to return to the power-sharing executive, it will turn out to have been “a futile exercise”.

The British government has expressed confidence the agreement would win the support of the DUP, which has been less exercised than Tory Eurosceptics about the role of EU judges.The outline deal hammered out over months between the UK and the EU seeks to reduce the border frictions at Irish Sea ports on trade between Great Britain and Northern Ireland.It would do so by the creation of a “green lane” for goods intended to remain in Northern Ireland and a “red lane” for those destined for the Irish Republic and the rest of the EU single market, which would still be subject to checks.The EU insists it must have oversight of trade in Northern Ireland, which under the Johnson Brexit deal remained in the single market for goods when the rest of the UK left the bloc.The European Court of Justice, which enforces the rules of the single market, is expected to retain a role, even if both sides will insist most cases will be settled without reference to the justices in Luxembourg.Downing Street said talks with the EU were “ongoing” and that ministers were in contact with stakeholders “to ensure any solution fixes the practical problems on the ground, meets our overarching objectives, and safeguards Northern Ireland’s place in the UK’s internal market”.Political parties were due to meet Sunak on Friday morning with little information about the contents of any deal. “Truthfully, I think it’s still watertight,” said one business leader.“Northern Irish parties are already feeling aggrieved at being sidelined so if it’s a ‘take it or leave it’ message the prime minister is here to deliver, I wouldn’t be surprised if they kick mud and complexity into the mix and send him back with further problems,” said Katy Hayward, a professor at Queen’s College Belfast and an expert on Brexit.“The engagement really needs to happen jointly: UK, EU and all parties,” she said. More

The producer price index rose 0.7% in January, higher than the 0.4% estimate.
Excluding food and energy, core PPI increased 0.5%, compared with expectations for a 0.3% increase.
In other economic data, jobless claims edged lower to 194,000, below the estimate for 200,000. Also, the Philadelphia Fed’s manufacturing index plunged to -24.3, far beneath the -7.8 estimate.

Inflation rebounded in January at the wholesale level, as producer prices rose more than expected to start the year, the Labor Department reported Thursday.
The producer price index, a measure of what raw goods fetch on the open market, rose 0.7% for the month, the biggest increase since June. Economists surveyed by Dow Jones had been looking for a rise of 0.4% after a decline of 0.2% in December.

Excluding food and energy, the core PPI increased 0.5%, compared with expectations for a 0.3% increase. Core excluding trade services climbed 0.6%, against the estimate for a 0.2% rise.
On a 12-month basis, headline PPI increased 6%, still elevated but well off its 11.6% peak in March 2022.
Markets fell following the release, with futures tied to the Dow Jones Industrial Average down about 200 points.
While the PPI isn’t as closely followed as some other inflation metrics, it can be a leading indicator as it measures the first price producers get on the open market.
The PPI increase coincided with a 0.5% jump in the January consumer price index, which measures the prices consumers pay for goods and services. Together, the metrics show that while inflation appeared to be subsiding as 2022 came to a close, it started the year off with a pop.

Economists are attributing the January inflation increase primarily to some seasonal factors as well as payback from previous months that showed more muted price rises. An unseasonably warm winter may have played some part as well, while fuel prices, which are volatile, also jumped during the month.
A report Wednesday showed that consumer spending more than kept pace with inflation, as retail sales increased 3% for the month and were up 6.4% from a year ago.
In other economic data Thursday, the Labor Department reported that jobless claims edged lower to 194,000, a decline of 1,000 and below the Dow Jones estimate for 200,000. Also, the Philadelphia Federal Reserve’s manufacturing index for February plunged to -24.3, well below the -7.8 estimate.
Fed policymakers are focusing intently on inflation, so the January numbers are unlikely to sway them from their stance that, while progress is being made, no letup is likely.
“My expectation is that we will see a meaningful improvement in inflation this year and further improvement over the following year, with inflation reaching our 2% goal in 2025,” Cleveland Fed President Loretta Mester said in a speech Thursday morning. “But my outlook is contingent on appropriate monetary policy.”
Markets expect the Fed to increase interest rates a few more times this year, according to CME Group data, with the final, or “terminal,” rate ending around a range of 5.25%-5.5%, from its current 4.5%-4.75%.
The higher PPI reading came amid a 5% rise in energy costs but a 1% decline in food. The final demand index for goods climbed 1.2%, the biggest one-month increase since June. About one-third of that rise came from the gasoline index gaining 6.2%.
The services index rose 0.4%, pushed by a 0.6% increase in prices for final demand services less trade, transportation and warehousing. Another big factor came from a 1.4% advance in the index for hospital outpatient care.

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Rioters incited by President Donald Trump breach the Capitol building in Washington on January 6 2021 © New York Times/Redux/eyevineWhen Karl Marx was forecasting revolution in the British Museum Reading Room in the 1860s, he relished the idea that capitalism was prone to recurrent crises that would ultimately bring down the state. What he did not anticipate was how the growth of democracy over the next century and a half would manage and mitigate those crises, developing a symbiotic relationship in which capitalism provided the prosperity while democracy set the rules and created a shared interest in the outcome.It is not too much of a stretch to see Martin Wolf, the FT’s chief economics commentator, as a modern Marx. He, too, is an economist forever looking for the bigger political and social picture, as well as for the crises that may shape it. But unlike Marx, he does so without relish. And in his fine new book, The Crisis of Democratic Capitalism, his principal concern is with democracy rather than capitalism.Or, rather, it is with the way in which, he fears, capitalism may be undermining, or even destroying, the democracy that for so long has saved it from itself. There is nothing new in worrying about democracy, nor about capitalism. But, to borrow a phrase from the 2011-12 euro sovereign debt crisis, Wolf’s fear is that this once productive pairing might now have trapped itself in a kind of doom loop.

The key moment for him is the attempted overthrow of US democratic process and laws on January 6 2021, by followers of would-be autocrat Donald Trump. But the key episode, both for what it revealed and what it caused, is the 2008 global financial crisis, in reality a crisis spawned in the democracies of America and Europe and then inflicted on the world.To Wolf, this calamity was not just some technical error in economic policy. It was, and is, the result of “the rise of rentier capitalism”, in which inequality in many of the liberal democracies has grown while too much of capitalism has come to consist of creating quasi-monopoly profits, or “rents”, and then using the resulting wealth to buy the political influence needed to defend them. One of Wolf’s strengths is his ability, as the Chinese say, to seek truth from facts. His data on the entrenchment of inequality is especially compelling, although he glosses over the point that his own data shows it has grown not just in the US, UK and Canada but also Japan and Germany. Compelling too, is his analysis of the rise of the financial sector to a disproportionate role in the economy and in politics, and the way those two trends distorted the policy response to the 2008 crash especially in the UK and US. 

So why hasn’t democracy once again righted its own ship? Why, in an era of technological disruption, haven’t the forces of innovation and competition eroded those excess profits and power? They could still do so, and much of the book is devoted to recommending ways in which enlightened political leaders and policymakers should help this to happen.Some of those recommendations will be familiar to readers of Wolf’s columns, especially his desire for a restoration of tough antitrust enforcement and for stricter financial regulation to create much bigger capital requirements (and lower profits) for banks. Others will surprise and provoke, such as his defence of trade unions — “public policy should support the creation of responsible worker organisations, within the law” — and of higher taxes to enable states to provide the “security, opportunity, prosperity and dignity” that are, he argues, the correct aims of economic policy.How to nurture and empower those enlightened political leaders, the successors to Franklin D Roosevelt who Wolf credits with saving democratic capitalism in the 1930s? That is a much harder question, for which there are no straightforward answers. Shining a bright light on the doom loop is an important start. The loop itself is not new: as he writes, Adam Smith warned two centuries ago of “the tendency of the powerful to rig the economic and political systems against the rest of society”. But each time it needs to be fought against.

This problem, while all-too obvious in the huge lobbying industry and unlimited campaign finance of the US, can be seen in the personage of Boris Johnson. The idea the former UK prime minister promoted of “levelling up” to remedy inequality was admirable as well as politically astute. A glance at his personal and political finances, dependent on billionaires and hedge funders, shows that he would never actually carry this out.Wolf is no dystopian shoulder-shrugger. He thinks democratic capitalism can be saved, and closes with an appeal for a renewed concept of citizenship to make this possible. But, as befits someone whose forebears suffered terribly from fascism, he feels a duty to be worried: “As I write these final paragraphs in the winter of 2022, I find myself doubting whether the US will still be a functioning democracy by the end of the decade.” The Crisis of Democratic Capitalism by Martin Wolf Allen Lane £30, 496 pages Bill Emmott is a former editor of The Economist, and author of ‘The Fate of the West’ (2017)Join our online book group on Facebook at FT Books Café More

The writer is a professor at Oxford university. Philip McCann, a professor at Manchester university, also contributed to this articleJoe Biden and Rishi Sunak are facing the same problem — the persistent divergence between regions that began during the Thatcher-Reagan era. But the US president and the British prime minister have chosen opposite economic and political strategies to address it.In the US, this trend now pits the large cities against the rest; in the UK, the booming South East has left other areas behind. By 2016, anger at the increasing divergence exploded into political mutiny, with despairing voters in neglected regions backing Donald Trump’s presidential campaign and the rupture of Brexit. The geography of discontent mapped the geography of voting in both countries. Yet, these regional divergences had been historically atypical and countries such as Germany, Korea and Japan remain largely free of them. The processes driving the apparently twin US and UK stories are in fact different. American democracy increasingly came under the influence of the super-rich. Whether right- or left-leaning, they were predominantly based in large coastal cities: their agendas ignored the tragedies in the interior “flyover” states. Biden has a genuine back-story as a representative of a left-behind region. His State of the Union address was a clear reset for Democrat priorities: “My economic plan is about investing in places and people that have been forgotten . . . a blue-collar blueprint to rebuild America.” The Inflation Reduction Act will generate the funds for investment — without austerity. Britain’s problem is different and less tractable: it is the Treasury. Combining the functions of public finance and economic policy but dominated by the annual Budget process, this all-powerful department has multiple cabinet supplicants. Local government must also beg for funds. Its elite recruits rush to cut spending to match revenues. Investment gets squeezed: without an economics ministry, there is no voice for the future.While viewing itself as the bastion of economic orthodoxy, the Treasury does not realise that this short-termism is exceptional. Its power is wholly atypical among advanced economies, and hopelessly inappropriate for today’s economic challenges. The UK is the most top-down and highly centralised large state in the industrialised world. Whitehall overrules and crushes local agency, energy, incentives and action, with leaders on the ground denied the powers or resources to solve proximate problems.OECD-wide evidence tells us that devolving power is essential for fostering national growth — particularly in economically weaker places. The Treasury’s micromanaging approach is doomed to fail. The UK is low on the OECD rankings for growth, civic engagement, quality of life and trust in central government. Yet the Treasury’s repeated response to failure has been tighter centralisation. In contrast, even the two other large unitary states, France and Japan, have been devolving for decades. That the UK today also has among the highest regional inequalities in the industrialised world is not coincidental. Local priorities have long been relegated: by 2016 voters reacted.In 2019, Boris Johnson promised “levelling up” but little has changed. Appointing Michael Gove as head of the new department invigorated the plan to renew left-behind regions — his 2022 White Paper even anticipated Biden’s themes and advocated greater local decision-making matched by public investment. The aim was to outwit the Treasury’s stranglehold and short-termism. The post-unification renewal of formerly East German states, led by Helmut Kohl, demonstrated that it could work. Once much poorer than everywhere in the UK, this region is now richer than anywhere in Britain except the South East.Sunak has repeatedly had the chance to assist Gove’s shift in direction. Instead, he pushed back. He assigned no money to the levelling up plans; due to Treasury scrutiny and delay, 95 per cent of the money Gove found elsewhere is unspent and will be clawed back. Moreover, as EU support for the UK’s poor regions is replaced, it has also been cut. Sunak’s government has now crossed the Rubicon, stripping Gove of authority to spend and rejecting any serious industrial policy.Biden and Sunak have chosen diametrically opposing paths: the US will prioritise redirecting growth to left-behind Americans while Sunak imposes further austerity on their long-abandoned British counterparts. It will not take long for us to discover which approach works. More