More stories

  • in

    Is America’s Economy Entering a New Normal?

    Policymakers are wrestling with the reality that the pandemic may mark a turning point in the nation’s economic plot.The pandemic, and now the war in Ukraine, have altered how America’s economy functions. While economists have spent months waiting for conditions to return to normal, they are beginning to wonder what “normal” will mean.Some of the changes are noticeable in everyday life: Work from home is more popular, burrito bowls and road trips cost more, and buying a car or a couch made overseas is harder.But those are all symptoms of broader changes sweeping the economy — ones that could be a big deal for consumers, businesses and policymakers alike if they linger. Consumer demand has been hot for months now, workers are desperately wanted, wages are climbing at a rapid clip, and prices are rising at the fastest pace in four decades as vigorous buying clashes with roiled supply chains. Interest rates are expected to rise higher than they ever did in the 2010s as the Federal Reserve tries to rein in inflation.History is full of big moments that have changed America’s economic trajectory: The Great Depression of the 1930s, the Great Inflation of the 1970s and the Great Recession of 2008 are examples. It’s too early to know for sure, but the changes happening today could prove to be the next one.Economists have spent the past two years expecting many of the pandemic-era trends to prove temporary, but that has not yet been the case.Forecasters predicted that rapid inflation would fade in 2021, only to have those expectations foiled as it accelerated instead. They thought workers would jump back into the labor market as schools reopened from pandemic shutdowns, but many remain on its sidelines. And they thought consumer spending would taper off as government pandemic relief checks faded into the rearview mirror. Shoppers have kept at it.Now, Russia’s invasion of Ukraine threatens the global geopolitical order, yet another shock disrupting trade and the economic system.For Washington policymakers, Wall Street investors and academic economists, the surprises have added up to an economic mystery with potentially far-reaching consequences. The economy had spent decades churning out slow and steady growth clouded by weak demand, interest rates that were chronically flirting with rock bottom and tepid inflation. Some are wondering if, after repeated shocks, that paradigm could change.“For the last quarter century, we’ve had a perfect storm of disinflationary forces,” Jerome H. Powell, the Fed chair, said in response to a question during a public appearance this week, noting that the old regime had been disrupted by a pandemic, a large spending and monetary policy response and a war that was generating “untold” economic uncertainty. “As we come out the other side of that, the question is: What will be the nature of that economy?” he said.The Fed began to raise interest rates this month in a bid to cool the economy down and temper high inflation, and Mr. Powell made clear this week that the central bank planned to keep lifting them — perhaps aggressively. After a year of unpleasant price surprises, he said, the Fed will set policy based on what is happening, not on an expected return to the old reality.“No one is sitting around the Fed, or anywhere else that I know of, just waiting for the old regime to come back,” Mr. Powell said.The prepandemic normal was one of chronically weak demand. The economy today faces the opposite issue: Demand has been supercharged, and the question is whether and when it will moderate.Before, globalization had weighed down both pay and price increases, because production could be moved overseas if it grew expensive. Gaping inequality and an aging population both contributed to a buildup of savings stockpiles, and as money was held in safe assets rather than being put to more active use, it seemed to depress growth, inflation and interest rates across many advanced economies.Japan had been stuck in the weak-inflation, slow-growth regime for decades, and the trend seemed to be spreading to Europe and the United States by the 2010s. Economists expected those trends to continue as populations aged and inequality persisted.Then came the coronavirus. Governments around the world spent huge amounts of money to get workers and businesses through lockdowns — the United States spent about $5 trillion.The era of deficient demand abruptly ended, at least temporarily. The money, which is still chugging out into the U.S. economy from consumer savings accounts and state and local coffers, helped to fuel strong buying, as families snapped up goods like lawn mowers and refrigerators. Global supply chains could not keep up.The combination pushed costs higher. As businesses discovered that they were able to raise prices without losing customers, they did so. And as workers saw their grocery and Seamless bills swelling, airfares climbing and kitchen renovations costing more, they began to ask their employers for more money.Companies were rehiring as the economy reopened from the pandemic and to meet the burst in consumption, so labor was in high demand. Workers began to win the raises they wanted, or to leave for new jobs and higher pay. Some businesses began to pass rising labor costs along to customers in the form of higher prices.The world of slow growth, moderate wage gains and low prices evaporated — at least temporarily. The question now is whether things will settle back down to their prepandemic pattern.The argument for a return to prepandemic norms is straightforward: Supply chains will eventually catch up. Shoppers have a lot of money in savings accounts, but those stockpiles will eventually run out, and higher Fed interest rates will further slow spending.As demand moderates, the logic goes, forces like population aging and rampant inequality will plunge advanced economies back into what many economists call “secular stagnation,” a term coined to describe the economic malaise of the 1930s and revived by the Harvard economist Lawrence H. Summers in the 2010s.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

  • in

    Cash Aid to Poor Mothers Increases Brain Activity in Babies, Study Finds

    The research could have policy implications as President Biden pushes to revive his proposal to expand the child tax credit.WASHINGTON — A study that provided poor mothers with cash stipends for the first year of their children’s lives appears to have changed the babies’ brain activity in ways associated with stronger cognitive development, a finding with potential implications for safety net policy.The differences were modest — researchers likened them in statistical magnitude to moving to the 75th position in a line of 100 from the 81st — and it remains to be seen if changes in brain patterns will translate to higher skills, as other research offers reason to expect.Still, evidence that a single year of subsidies could alter something as profound as brain functioning highlights the role that money may play in child development and comes as President Biden is pushing for a much larger program of subsidies for families with children.“This is a big scientific finding,” said Martha J. Farah, a neuroscientist at the University of Pennsylvania, who conducted a review of the study for the Proceedings of the National Academies of Sciences, where it was published on Monday. “It’s proof that just giving the families more money, even a modest amount of more money, leads to better brain development.”The payments will continue until the children are at least 4 years old, and the researchers plan further tests.via Lauren Meyer/Baby’s First YearsAnother researcher, Charles A. Nelson III of Harvard, reacted more cautiously, noting the full effect of the payments — $333 a month — would not be clear until the children took cognitive tests. While the brain patterns documented in the study are often associated with higher cognitive skills, he said, that is not always the case.“It’s potentially a groundbreaking study,” said Dr. Nelson, who served as a consultant to the study. “If I was a policymaker, I’d pay attention to this, but it would be premature of me to pass a bill that gives every family $300 a month.”A temporary federal program of near-universal children’s subsidies — up to $300 a month per child through an expanded child tax credit — expired this month after Mr. Biden failed to unite Democrats behind a large social policy bill that would have extended it. Most Republicans oppose the monthly grants, citing the cost and warning that unconditional aid, which they describe as welfare, discourages parents from working.Sharing some of those concerns, Senator Joe Manchin III, Democrat of West Virginia, effectively blocked the Biden plan, though he has suggested that he might support payments limited to families of modest means and those with jobs. The payments in the research project, called Baby’s First Years, were provided regardless of whether the parents worked.Evidence abounds that poor children on average start school with weaker cognitive skills, and neuroscientists have shown that the differences extend to brain structure and function. But it has not been clear if those differences come directly from the shortage of money or from related factors like parental education or neighborhood influences.The study released on Monday offers evidence that poverty itself holds children back from their earliest moments.“This is the first study to show that money, in and of itself, has a causal impact on brain development,” said Dr. Kimberly G. Noble, a physician and neuroscientist at Teachers College, Columbia University, who helped lead the study.Dr. Noble and colleagues from six universities recruited a thousand mother-infant pairs within days of the babies’ birth and randomly divided the families into two groups. One group received a nominal $20 a month and another received $333.Using electroencephalograms, or EEG tests, to evaluate the children at age 1, the researchers found that those in the high-cash group had more of the fast brain activity other research has linked to cognitive development than those in the low-cash group. The differences were statistically significant by most, but not all, measures and were greatest in parts of the brain most associated with cognitive advancement.The payments will continue until the children are at least 4 years old, and the researchers plan further tests.Researchers are still trying to determine why the money altered brain development. It could have purchased better food or health care; reduced damaging levels of parental stress; or allowed mothers to work less and spend more time with their infants.The question of whether cash aid helps or hurts children is central to social policy. Progressives argue that poor children need an income floor, citing research that shows even brief periods of childhood poverty can lead to lower adult earnings and worse health. Conservatives say unconditional payments erode work and marriage, increasing poverty in the long run.President Bill Clinton changed the Democratic Party’s stance a quarter-century ago by abolishing welfare guarantees and shifting aid toward parents who work. Though child poverty subsequently fell to record lows, the reasons are in dispute, and rising inequality and volatility have revived Democratic support for subsidies.There are a variety of public and private programs underway in the United States to measure the effects of a guaranteed income on poor families, and many other rich countries offer broad children’s allowances without condition.The temporary expansion of the child tax credit, passed last year, offered subsidies to all but the richest parents at a one-year cost of more than $100 billion. Representative Suzan DelBene, Democrat of Washington, said the study strengthened the case for the aid by showing that “investing in our children has incredible long-term benefits.”Greg J. Duncan, an economist at the University of California, Irvine, who was one of nine co-authors of the study, said he hoped the research would refocus the debate, which he said was “almost always about the risks that parents might work less or use the money frivolously” toward the question of “whether the payments are good for kids.”But a conservative welfare critic, Robert Rector of the Heritage Foundation, argued that the study vindicated stringent welfare laws, which he credited with reducing child poverty by incentivizing parents to find and keep jobs.“If you actually believe that child poverty has these negative effects, then you should not be trying to restore unconditional cash aid,” he said. “You certainly don’t want to go in the business of reversing welfare reform.”Economists and psychologists once dominated studies of poor children, but neuroscientists have increasingly weighed in. Over the past 15 years, they have shown that poor children on average differ from others in brain structure and function, with the disparities greatest for the poorest children.EEG tests have found differences in electrical activity. Magnetic resonance imaging, or M.R.I.s, have shown differences in the size of the cerebral cortex, especially in areas linked to language development and executive functioning. One study found differences in cerebral cortex size may account for up to 44 percent of the achievement gap between high- and low-income adolescents.As with any group differences, averages do not predict individual outcomes. Many other factors beyond brain features influence cognitive development, and many low-income children thrive.To test the effects of cash aid, Baby’s First Years raised more than $20 million from public and private sources, including the National Institutes of Health. Researchers recruited participants from maternity wards in New York City, Minneapolis-St. Paul and the metro areas of New Orleans and Omaha, randomly assigning them to the high- and low-payment groups.The families had average incomes of about $20,000, below the official poverty line for an average-sized family, meaning those who received $333 a month experienced an income gain of approximately 20 percent. The mothers were told they could use the money as they wished.The researchers predicted that children in the high-cash group would show more high-frequency brain activity than those in the low-cash group and less low-frequency activity. Previous research has found such patterns are associated with higher cognitive skills and fewer attention problems.The results largely conformed to predictions, with the children who received the higher grants showing more of the fast brain activity (though no differences in slow brain activity).The scientists wrote that the money “appeared” to cause the changed brain patterns, though they were less equivocal in interviews. Dr. Noble said the evidence, though strong, was not “airtight,” in part because the coronavirus pandemic allowed them to test only 435 infants.Researchers are still trying to determine why the money altered brain development. It could have purchased better food or health care.Cody O’Loughlin for The New York TimesJohn Gabrieli, a neuroscientist at the Massachusetts Institute of Technology, said the evidence that cash aid altered brain activity was persuasive and “very important scientifically,” though he added, “We want to see if these differences result in improvements to cognition.”While the size of the recorded differences are modest (about a fifth of a standard deviation), the researchers said they were comparable to those produced by the average school experiment, like giving children tutors. While those services are often hard to administer, they added, cash can be distributed on a mass scale.Katherine Magnuson, a co-author of the study who directs the Institute for Research on Poverty at the University of Wisconsin, said she was surprised that only a year’s worth of aid made a difference. “It shows how sensitive the brain is to environments,” she said.Critics of unrestricted cash aid often warn that families will waste or abuse it. But Lisa A. Gennetian, an economist at Duke University and a co-author of the study, said the results indicated that parents could be trusted to make good decisions. “For one family, that might be food; for another, it might be housing,” she said. Additional research will examine how parents spent the money.Unlike last year’s expansion of the child tax credit, the experimental payments were narrowly targeted to poor newborns, which would make it less costly to replicate and possibly ease conservatives’ concerns about deterring work.One critic of the broader payments, Angela Rachidi of the American Enterprise Institute, said the study suggested the importance of infant bonding. Should the initial results hold up, she said, they could lend support for policies that help mothers spend more time with their newborns, including paid leave.But any cash aid, she said, should be “targeted to those with low incomes, time limited, and not erode work incentives in the long term.” More

  • in

    Critics Say I.M.F. Loan Fees Are Hurting Nations in Desperate Need

    Democratic lawmakers say the global fund’s surcharges for emergency relief siphon away money that countries need to fight the pandemic.At a time when the coronavirus pandemic is fueling a rapid rise in inequality and debt, a growing number of policymakers and economists are pressuring the International Monetary Fund to eliminate extra fees it charges on loans to struggling nations because they siphon away scarce funds that could instead be used to battle Covid.The fund, which for decades has backstopped countries in financial distress, imposes these fees for loans that are unusually large or longstanding. They were designed to help protect against hefty losses from high-risk lending.But critics argue that the surcharges come at the worst possible moment, when countries are already in desperate need of funds to provide poverty aid and public health services. Some of the countries paying the fees, including Egypt, Ukraine and Armenia, have vaccinated only about a third of their populations. The result, the critics argue, is that the I.M.F. ends up undermining the financial welfare and stability of the very places it is trying to aid.In the latest critique, a letter this week to Treasury Secretary Janet L. Yellen from 18 Democrats in Congress, including Representatives Alexandria Ocasio-Cortez of New York and Pramila Jayapal of Washington, asked the United States to support ending the surcharge policy.The surcharge “discourages public health investment by developing countries,” the letter said. “This perverse outcome will undermine global economic recovery.” The letter echoed several other appeals from more than two dozen emerging nations, including Argentina, South Africa and Brazil, as well as economists.Volunteers at a soup kitchen in Buenos Aires last spring. The coronavirus pandemic has further strained Argentina’s poor.Sarah Pabst for The New York Times“Attempts to force excessive repayments are counterproductive because they lower the economy’s productive potential,” the Nobel Prize-winning economist Joseph E. Stiglitz and Kevin Gallagher, a professor of global development at Boston University, wrote in a recent analysis. “Both creditors and the country itself are worse off.”They added: “The I.M.F. should not be in the business of making a profit off of countries in dire straits.”The fund primarily serves as a lender of last resort, although recently it has expanded its mission to include reducing extreme inequality and combating climate change.In addition to building up a reserve, the surcharges were designed to encourage borrowers to repay on time. The poorest countries are exempt.The fees have become a major source of revenue for the I.M.F., which is funded primarily by its 190 member nations, with the United States paying the largest share. The fund estimates that by the end of this year, borrowers will have shelled out $4 billion in extra fees — on top of their regular interest payments — since the pandemic began in 2020.The debate over the surcharge is emblematic of larger contradictions at the heart of the I.M.F.’s structure and mission. The fund was created to provide a lifeline to troubled economies so that they recover “without resorting to measures destructive of national or international prosperity.”But the terms and conditions that accompany its loans have at times ratcheted up the economic pain. “They penalize countries at a time when they are in an adverse situation, forcing them to make greater cuts in order to repay debts,” according to an analysis from the liberal Center for Economic and Policy Research in Washington.“Demanding these surcharges during an ongoing recession caused by a pandemic goes even more against” the I.M.F.’s founding principles, the center argues.Voting power in the fund’s governance is based on the size of each country’s monetary contribution, with only the United States having veto power. That means that countries most in need have the least say in how the I.M.F. carries out its role.In a statement, the Treasury Department reiterated support for the surcharges: “As the I.M.F.’s major shareholder we have an obligation to protect the financial integrity of the I.M.F.” And it pointed out that the interest rates charged by the fund were often far below market rates.A review of the surcharges last month by the fund’s executive directors ended without any agreement to halt the charges. An I.M.F. statement explained that while “some directors were open to exploring temporary surcharge relief” to free up resources to deal with the pandemic, most others preferred a comprehensive review later on in the context of the fund’s “overall financial outlook.”Strapped countries that are subject to the surcharges like Argentina balked earlier at the extra payments, but their campaign has picked up momentum with the spread of Covid-19.“I think the pandemic makes a big difference,” said Martín Guzmán, Argentina’s minister of economy.He argues that the pandemic has turned what may have once been considered unusual circumstances into the commonplace, given the enormous debt that many countries have taken on to meet its rising costs. Government debt in emerging countries has hit its highest level in a half a century.The number of nations subject to surcharges increased to 21 last year from 15 in 2020, according to the I.M.F. Pakistan, Egypt, Ukraine, Georgia, Albania, Tunisia and Ecuador are among those paying.Argentina, which has long had a contentious and bitter relationship with the fund relating to a series of bailouts and defaults that date back decades, has been a leading opponent of the surcharges.The country is trying to work out a new repayment schedule for $45 billion that the previous government borrowed as part of a 2018 loan package. By the end of 2024, the government estimates, it will have run up a tab of more than $5 billion in surcharges alone. This year, 70 percent of Argentina’s nearly $1.6 billion bill from the I.M.F. is for surcharges.A protest against a possible new deal with the I.M.F. in Buenos Aires last month.Alejandro Pagni/Agence France-Presse — Getty Images“The charges will be undermining the mission of the I.M.F., which is to ensure global stability and balance of payments,” Mr. Guzmán said.According to World Bank estimates, 124 million people were pushed into poverty in 2020, with eight out of 10 of them in middle-income countries.Meanwhile, the costs of basic necessities like food, heating and electricity are surging, adding to political strains. This week, the I.M.F. warned in its blog that continuing Covid outbreaks, combined with rising inflation, debt and interest rates, mean emerging economies should “prepare for potential bouts of economic turbulence.” More

  • in

    Economists Pin More Blame on Tech for Rising Inequality

    Recent research underlines the central role that automation has played in widening disparities.Daron Acemoglu, an influential economist at the Massachusetts Institute of Technology, has been making the case against what he describes as “excessive automation.”The economywide payoff of investing in machines and software has been stubbornly elusive. But he says the rising inequality resulting from those investments, and from the public policy that encourages them, is crystal clear.Half or more of the increasing gap in wages among American workers over the last 40 years is attributable to the automation of tasks formerly done by human workers, especially men without college degrees, according to some of his recent research.Globalization and the weakening of unions have played roles. “But the most important factor is automation,” Mr. Acemoglu said. And automation-fueled inequality is “not an act of God or nature,” he added. “It’s the result of choices corporations and we as a society have made about how to use technology.”Mr. Acemoglu, a wide-ranging scholar whose research makes him one of most cited economists in academic journals, is hardly the only prominent economist arguing that computerized machines and software, with a hand from policymakers, have contributed significantly to the yawning gaps in incomes in the United States. Their numbers are growing, and their voices add to the chorus of criticism surrounding the Silicon Valley giants and the unchecked advance of technology.Paul Romer, who won a Nobel in economic science for his work on technological innovation and economic growth, has expressed alarm at the runaway market power and influence of the big tech companies. “Economists taught: ‘It’s the market. There’s nothing we can do,’” he said in an interview last year. “That’s really just so wrong.”Anton Korinek, an economist at the University of Virginia, and Joseph Stiglitz, a Nobel economist at Columbia University, have written a paper, “Steering Technological Progress,” which recommends steps from nudges for entrepreneurs to tax changes to pursue “labor-friendly innovations.”Erik Brynjolfsson, an economist at Stanford, is a technology optimist in general. But in an essay to be published this spring in Daedalus, the journal of the American Academy of Arts and Sciences, he warns of “the Turing trap.” The phrase is a reference to the Turing test, named for Alan Turing, the English pioneer in artificial intelligence, in which the goal is for a computer program to engage in a dialogue so convincingly that it is indistinguishable from a human being.For decades, Mr. Brynjolfsson said, the Turing test — matching human performance — has been the guiding metaphor for technologists, businesspeople and policymakers in thinking about A.I. That leads to A.I. systems that are designed to replace workers rather than enhance their performance. “I think that’s a mistake,” he said.The concerns raised by these economists are getting more attention in Washington at a time when the giant tech companies are already being attacked on several fronts. Officials regularly criticize the companies for not doing enough to protect user privacy and say the companies amplify misinformation. State and federal lawsuits accuse Google and Facebook of violating antitrust laws, and Democrats are trying to rein in the market power of the industry’s biggest companies through new laws.Mr. Acemoglu testified in November before the House Select Committee on Economic Disparity and Fairness in Growth at a hearing on technological innovation, automation and the future of work. The committee, which got underway in June, will hold hearings and gather information for a year and report its findings and recommendations.Despite the partisan gridlock in Congress, Representative Jim Himes, a Connecticut Democrat and the chairman of the committee, is confident the committee can find common ground on some steps to help workers, like increased support for proven job-training programs.“There’s nothing partisan about economic disparity,” Mr. Himes said, referring to the harm to millions of American families regardless of their political views.Representative Jim Himes, who leads a panel on economic disparity, is confident it can find ways to help workers, like increased support for proven job-training programs.Samuel Corum for The New York TimesEconomists point to the postwar years, from 1950 to 1980, as a golden age when technology forged ahead and workers enjoyed rising incomes.But afterward, many workers started falling behind. There was a steady advance of crucial automating technologies — robots and computerized machines on factory floors, and specialized software in offices. To stay ahead, workers required new skills.Yet the technological shift evolved as growth in postsecondary education slowed and companies began spending less on training their workers. “When technology, education and training move together, you get shared prosperity,” said Lawrence Katz, a labor economist at Harvard. “Otherwise, you don’t.”Increasing international trade tended to encourage companies to adopt automation strategies. For example, companies worried by low-cost competition from Japan and later China invested in machines to replace workers.Today, the next wave of technology is artificial intelligence. And Mr. Acemoglu and others say it can be used mainly to assist workers, making them more productive, or to supplant them.Mr. Acemoglu, like some other economists, has altered his view of technology over time. In economic theory, technology is almost a magic ingredient that both increases the size of the economic pie and makes nations richer. He recalled working on a textbook more than a decade ago that included the standard theory. Shortly after, while doing further research, he had second thoughts.“It’s too restrictive a way of thinking,” he said. “I should have been more open-minded.”Mr. Acemoglu is no enemy of technology. Its innovations, he notes, are needed to address society’s biggest challenges, like climate change, and to deliver economic growth and rising living standards. His wife, Asuman Ozdaglar, is the head of the electrical engineering and computer science department at M.I.T.But as Mr. Acemoglu dug deeply into economic and demographic data, the displacement effects of technology became increasingly apparent. “They were greater than I assumed,” he said. “It’s made me less optimistic about the future.”Mr. Acemoglu’s estimate that half or more of the increasing gap in wages in recent decades stemmed from technology was published last year with his frequent collaborator, Pascual Restrepo, an economist at Boston University. The conclusion was based on an analysis of demographic and business data that details the declining share of economic output that goes to workers as wages and the increased spending on machinery and software.Mr. Acemoglu and Mr. Restrepo have published papers on the impact of robots and the adoption of “so-so technologies,” as well as the recent analysis of technology and inequality.So-so technologies replace workers but do not yield big gains in productivity. As examples, Mr. Acemoglu cites self-checkout kiosks in grocery stores and automated customer service over the phone.Today, he sees too much investment in such so-so technologies, which helps explain the sluggish productivity growth in the economy. By contrast, truly significant technologies create new jobs elsewhere, lifting employment and wages.The rise of the auto industry, for example, generated jobs in car dealerships, advertising, accounting and financial services.Market forces have produced technologies that help people do their work rather than replace them. In computing, the examples include databases, spreadsheets, search engines and digital assistants.But Mr. Acemoglu insists that a hands-off, free-market approach is a recipe for widening inequality, with all its attendant social ills. One important policy step, he recommends, is fair tax treatment for human labor. The tax rate on labor, including payroll and federal income tax, is 25 percent. After a series of tax breaks, the current rate on the costs of equipment and software is near zero.Well-designed education and training programs for the jobs of the future, Mr. Acemoglu said, are essential. But he also believes that technology development should be steered in a more “human-friendly direction.” He takes inspiration from the development of renewable energy over the last two decades, which has been helped by government research, production subsidies and social pressure on corporations to reduce carbon emissions.“We need to redirect technology so it works for people,” Mr. Acemoglu said, “not against them.” More

  • in

    Checking Privilege in the Animal Kingdom

    Researchers say the human concepts of intergenerational wealth and inequality are useful for studying some animals’ behavior.Some North American red squirrels are born with a silver spoon in their mouths. They live in pine forests where the adults defend caches of food. Without a cache of their own, many baby squirrels won’t survive the winter. But each year, some squirrel mothers abandon their territory, bequeathing all their food to one or more babies who stay behind. These young squirrels are much more likely to survive until the spring.Across the animal kingdom, there are other examples of species that share resources such as territory, tools and shelter between generations. In a paper published last month in Behavioral Ecology, a trio of researchers argue that we should call this phenomenon the same thing we call it in humans: intergenerational wealth.Those young, pine-cone-rich squirrels, the scientists say, are children of privilege. When George Orwell wrote in “Animal Farm” that some animals were more equal than others, he was trying to shed light on the human ideological conflicts of the time. The researchers hope to use the analogy in the opposite direction. Applying a human lens, they say, can help us understand the roots of inequality in animals.Jennifer Smith, a behavioral ecologist at Mills College in Oakland, Calif., said the idea for the paper arose early in the pandemic, in conversations that she and colleagues at the University of California, Los Angeles, had over (of course) Zoom. They saw how Covid-19 was highlighting health disparities and other inequalities around the world. The scientists began to wonder if they could learn more about inequality by studying it in animals.“When we started looking for it, we found lots and lots of examples,” Dr. Smith said.Young red grouse are more likely to succeed in establishing their own territories when their fathers and other kin are nearby. Hyena daughters born to high-ranking mothers inherit their status, and get dibs on fresh meat. Some chimpanzees and capuchin monkeys crack nuts using stone tools that their parents used before them.Animal wealth may be passed down to nonrelatives, too, as in paper wasps that take over shared nests or hermit crabs that seek better real estate.Some capuchin monkeys crack nuts using stone tools that their parents used before them.T. Milse/Juniors Bildarchiv GmbH, via AlamyTo study wealth transfers between animals, scientists can ask concrete questions: Does a lizard that lives with its parents survive longer? Does a monkey with access to larger nut-cracking rocks go on to have more children and grandchildren? Biologists can explore animal privilege without tackling all of the topic’s cultural complexities in humans.By seeking similarities between privilege in people and animals, Dr. Smith hopes to unlock a greater understanding of inequality in the natural world. “For me, it’s very exciting to study the rules of inequality in nonhuman animals,” she said. “To see this across so many different species was quite surprising. And we’re just touching the surface.”Next, she’s planning to expand her survey, looking at wealth and privilege across thousands more animal species.“The use of terms like ‘privilege’ and ‘perpetuating the cycle of privilege’ is a little bit unusual” in animal research, said Jenny Tung, an evolutionary anthropologist and geneticist at Duke University who focuses on how social factors affect health in primates. “In part because they’re a bit loaded for us as humans to read.” But she thinks the idea of using a human lens to look at how animals pass down resources has promise.“That is potentially tremendously useful,” Dr. Tung said. The idea “opens up a whole tool chest of ways to understand” where inequality comes from among animals, she said.Siobhán Mattison, an evolutionary anthropologist at the University of New Mexico who has studied inequality in human societies, also thinks that combining the anthropology of privilege with animal biology has potential. “Humans are animals,” she said. “We are undoubtedly influenced by some of the same things that drive inequality in other animals.”That doesn’t mean animals can answer every question about how inequality arises in humans, Dr. Mattison added: “Humans are vastly more cooperative than most other species.” Our cultural institutions can reinforce inequality, she said, but they can also fight against it.Although Dr. Smith is primarily hoping that insights from humans can teach her more about inequality in animals, she does think the science could work in the opposite direction too. Some of the rules scientists discover in animals might apply to humans.She stresses, though, that finding inequality in nature isn’t the same as justifying it. Her research “could be misinterpreted as saying, ‘Well, it exists everywhere, so we can do nothing about it,’” Dr. Smith said.Unlike other animals, “We’re able to understand this phenomenon,” Dr. Smith said, “and then explicitly act to choose how we use that knowledge to create social change.” More

  • in

    What Causes Inflation and Should I Worry About It?

    What is inflation, why is it up and whom does it hurt? A run through common questions about the ongoing price burst.Inflation has become central to the American zeitgeist in 2021 in a way that it hadn’t been for decades. Google searches are up. Supply chain issues feature into popular Instagram posts. The satire website The Onion warned in a recent headline that “higher prices may force Americans to eat reasonable portions on Thanksgiving.”Even as inflation hits its highest level since 1982 and inserts itself as a topic of popular discussion, trying to understand it can be a mind-bending task. Some people who have studied markets and the economy for years often do not know the ins and outs of how inflation is calculated. Its aftereffects on society — from who wins and who loses to whether it is good or bad news — are nuanced.Here’s a guide to help explain what inflation is, including how it is measured and what it means for your economic security and savings.What is inflation?Inflation is a loss of purchasing power over time: It means your dollar will not go as far tomorrow as it did today.Inflation is typically expressed as the annual change in prices for a basket of goods and services. In the United States, there are two main inflation gauges.One, the Consumer Price Index or C.P.I., measures the cost of things urban consumers buy out of pocket. The other, the Personal Consumption Expenditures index, or P.C.E., is released at more of a lag and measures things people consume, including things they do not pay for directly — notably health care, which insurance and government benefits help to cover. The two indexes are also built slightly differently.The Federal Reserve, America’s central bank and the institution in charge of keeping prices from increasing too rapidly, targets 2 percent annual increases in the P.C.E. index on average over time. A little bit of consumer price inflation is generally viewed as desirable, in part because it gives companies room to adjust to a changing economy — one where labor and commodities might cost more — without being forced out of business.What causes inflation?In the short term, high inflation can be the result of a hot economy — one in which people have a lot of surplus cash or are accessing a lot of credit and want to spend. If consumers are buying goods and services eagerly enough, businesses may need to raise prices because they lack adequate supply. Or companies may choose to charge more because they realize they can raise prices and improve their profits without losing customers.But inflation can — and often does — rise and fall based on developments that have little to do with economic conditions. Limited oil production can make gas expensive. Supply chain problems can keep goods in short supply, pushing up prices.The inflationary burst America has experienced this year has been driven partly by quirks and partly by demand.What to Know About Inflation in the U.S.The Fed’s Pivot: Jerome Powell’s abrupt change of course moved the central bank into inflation-fighting mode.Fastest Inflation in Decades: The Consumer Price Index rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are acknowledging that price increases have been proving more persistent than expected.Who’s to Blame for Rising Prices?: Here are the most obvious candidates — and where the evidence looks strongest.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.On the quirk side, the coronavirus has caused factories to shut down and has clogged shipping routes, helping to limit the supply of cars and couches and pushing prices higher. Airfares and rates for hotel rooms have rebounded after dropping in the depths of the pandemic. Gas prices have also contributed to heady gains recently.But it is also the case that consumers, who collectively built up big savings thanks to months in lockdown and repeated government stimulus checks, are spending robustly and their demand is driving part of inflation. They are continuing to buy even as costs for exercise equipment or outdoor furniture rise, and they are shouldering increases in rent and home prices. The indefatigable shopping is helping to keep price increases brisk.Where is inflation headed and should I be worried?Officials say they do not yet see evidence that rapid inflation is turning into a permanent feature of the economic landscape, even as prices rise very quickly: The C.P.I. measure rose by 6.8 percent in the year through November, the fastest pace since 1982.There are plenty of reasons to believe that the price burst will fade. Much of the increase this year owes to shortages of goods — from bicycles to cars and beds — that are likely to eventually ease as companies figure out how to produce and transport what people want to buy in a pandemic-altered economy. Many households also have built up savings, in part because of repeated stimulus payments, but they eventually could exhaust those.Plus, before the pandemic, aging demographics and high inequality in income and wealth had combined to drag inflation steadily lower for years as people preferred to save money instead of spending it, and those basic economic building blocks haven’t changed.But there are concerning signs that inflation is becoming stickier, meaning that it might last rather than fading with time. Rents have picked up sharply as home prices have risen and would-be buyers have found themselves locked out of ownership. Consumers are slowly starting to anticipate higher prices, though long-term inflation expectations have yet to jump drastically higher.In the longer term, the (sometimes contested) theory goes, high inflation can become entrenched if workers begin to expect it and can successfully negotiate wage increases to cover their climbing costs. Companies, facing higher labor bills, may manage to pass the costs onto consumers — and voilà, you have a situation where pay and prices push one another steadily upward.Is inflation bad?Whether inflation is “bad” depends on the circumstances.Most everyone agrees that super fast price increases — often called hyperinflation — spell trouble. They destabilize political systems, turn middle-class workers into paupers overnight, and make it impossible for businesses to plan. Weimar Germany, where hyperinflation helped to usher Adolf Hitler into power, is often cited as a case in point.Moderate price gains, even ones a bit above the Fed’s official goal, are a topic of more-serious debate. Slightly higher inflation can be good for people who owe money at fixed interest rates. If I sell coconuts for $1 and owe my bank $200 today, but next year I am suddenly able to charge $1.05 for my coconuts, my debt becomes easier for me to pay back: Now I only have to sell a little bit over 190 coconuts plus interest.But inflation can be tough for lenders. The bank to whom I owe my $200 is obviously not happy to get 190 coconuts worth of money instead of 200 coconuts worth. While politicians and the public rarely cry for bankers, the same is true for people with savings that bear low interest: Their holdings will not go as far. Inflation can be especially tough for people on fixed incomes, like students and many retirees.For workers taking home paychecks, whether inflation is a good or bad thing hinges on what happens with wages. If a worker’s pay goes up faster than prices increase, they can still find themselves better off in a high-inflation environment.Wages are growing quickly right now, especially for lower earners, but some measures suggest the growth is not keeping pace with inflation as it picks up steeply. Still, many households are also receiving transfers from the government — including an expanded Child Tax Credit — which could keep some families’ financial situations from deteriorating.How does inflation affect the poor?High or unpredictable inflation that isn’t outmatched by wage gains can be especially hard to shoulder for poor people, simply because they have less wiggle room.Poor households spend a bigger chunk of their budgets on necessities — food, housing and especially gas, which is often a contributor to bouts of high inflation — and less on discretionary expenditures. If rich households face high inflation and their wages do not keep up, they may have to cut back on vacations or dining out. A poor family may be forced to cut back on essentials, like food.“For lower income households, price increases eat up more of their budget,” said Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, pointing out that some research suggests that poor people may even end up paying comparatively more for the same products. That may be partly because they lack the free cash to take advantage of temporary discounts.Around the world, poor people historically have reported greater concern around inflation, and that is also the case in the United States in the current episode.How does inflation affect the stock market?Really high inflation typically spells trouble for stocks, said Aswath Damodaran, who teaches corporate finance and valuation at New York University’s Stern School of Business. Financial assets in general have historically fared badly during inflation booms, Mr. Damodaran said, while real assets like houses have better held their value.The reason is simple.“You need to make higher returns to break even,” he explained. While it might have been attractive to invest money for a 3 percent annual payback before an inflationary burst, once inflation has taken off to 4 percent, your investment would actually be declining in terms of real-world purchasing power.Plus, inflation can be tough on the underlying business. Companies that lack pricing power — meaning that they cannot easily pass costs on to customers — suffer the worst, because they are forced to absorb input cost increases by taking a hit to their profit margin.High inflation can also spur the Federal Reserve to increase interest rates as it tries to cool off the economy and slow demand. If the central bank does so drastically, it could even plunge the economy into a recession, which would also be bad for stocks — along with everyone else.“The worse inflation is, the more severe the economic shutdown has to be to break the back of inflation,” Mr. Damodaran said. More

  • in

    World’s Growth Cools and the Rich-Poor Divide Widens

    The International Monetary Fund says the persistence of the coronavirus and global supply chain crisis weighs on economies.As the world economy struggles to find its footing, the resurgence of the coronavirus and supply chain chokeholds threaten to hold back the global recovery’s momentum, a closely watched report warned on Tuesday.The overall growth rate will remain near 6 percent this year, a historically high level after a recession, but the expansion reflects a vast divergence in the fortunes of rich and poor countries, the International Monetary Fund said in its latest World Economic Outlook report.Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.Uneven access to vaccines and health care is at the heart of the economic disparities. While booster shots are becoming available in some wealthier nations, a staggering 96 percent of people in low-income countries are still unvaccinated.“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere,” Gita Gopinath, the I.M.F.’s chief economist, wrote in the report.The outlook for the United States, Europe and other advanced economies has also darkened. Factories hobbled by pandemic-related restrictions and bottlenecks at key ports around the world have caused crippling supply shortages. A lack of workers in many industries is contributing to the clogs. The U.S. Labor Department reported Tuesday that a record 4.3 million workers quit their jobs in August — to take or seek new jobs, or to leave the work force.A street in São Paulo, Brazil, in July. Poverty in many nations is on the upswing.Mauricio Lima for The New York TimesIn the United States, weakening consumption and large declines in inventory caused the I.M.F. to pare back its growth projections to 6 percent from the 7 percent estimated in July. In Germany, manufacturing output has taken a hit because key commodities are hard to find. And lockdown measures over the summer have dampened growth in Japan.Fear of rising inflation — even if likely to be temporary — is growing. Prices are climbing for food, medicine and oil as well as for cars and trucks. Inflation worries could also limit governments’ ability to stimulate the economy if a slowdown worsens. As it is, the unusual infusion of public support in the United States and Europe is winding down.“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Ms. Gopinath said. The I.M.F. lowered its 2021 global growth forecast to 5.9 percent, down from the 6 percent projected in July. For 2022, the estimate is 4.9 percent.The key to understanding the global economy is that recoveries in different countries are out of sync, said Gregory Daco, chief U.S. economist at Oxford Economics. “Each and every economy is suffering or benefiting from its own idiosyncratic factors,” he said.For countries like China, Vietnam and South Korea, whose economies have large manufacturing sectors, “inflation hits them where it hurts the most,” Mr. Daco said, raising costs of raw materials that reverberate through the production process.The pandemic has underscored how economic success or failure in one country can ripple throughout the world. Floods in Shanxi, China’s mining region, and monsoons in India’s coal-producing states contribute to rising energy prices. A Covid outbreak in Ho Chi Minh City that shuts factories means shop owners in Hoboken won’t have shoes and sweaters to sell.South Africa has sent a train with vaccines into one of its poorest provinces to get doses to areas where health care facilities are stretched.Jerome Delay/Associated PressThe I.M.F. warned that if the coronavirus — or its variants — continued to hopscotch across the globe, it could reduce the world’s estimated output by $5.3 trillion over the next five years.The worldwide surge in energy prices threatens to impose more hardship as it hampers the recovery. This week, oil prices hit a seven-year high in the United States. With winter approaching, Europeans are worried that heating costs will soar when temperatures drop. In other spots, the shortages have cut even deeper, causing blackouts in some places that paralyzed transport, closed factories and threatened food supplies.In China, electricity is being rationed in many provinces and many companies are operating at less than half of their capacity, contributing to an already significant slowdown in growth. India’s coal reserves have dropped to dangerously low levels.And over the weekend, Lebanon’s six million residents were left without any power for more than 24 hours after fuel shortages shut down the nation’s power plants. The outage is just the latest in a series of disasters there. Its economic and financial crisis has been one of the world’s worst in 150 years.Oil producers in the Middle East and elsewhere are lately benefiting from the jump in prices. But many nations in the region and North Africa are still trying to resuscitate their pandemic-battered economies. According to newly updated reports from the World Bank, 13 of the 16 countries in that region will have lower standards of living this year than they did before the pandemic, in large part because of “underfinanced, imbalanced and ill-prepared health systems.”Other countries were so overburdened by debt even before the pandemic that governments were forced to limit spending on health care to repay foreign lenders.A power outage on Monday in Beirut. Lebanon’s economic and financial crisis has been one of the world’s worst in 150 years.Agence France-Presse — Getty ImagesIn Latin America and the Caribbean, there are fears of a second lost decade of growth like the one experienced after 2010. In South Africa, over one-third of the population is out of work.And in East Asia and the Pacific, a World Bank update warned that “Covid-19 threatens to create a combination of slow growth and increasing inequality for the first time this century.” Businesses in Indonesia, Mongolia and the Philippines lost on average 40 percent or more of their typical monthly sales. Thailand and many Pacific island economies are expected to have less output in 2023 than they did before the pandemic.Overall, though, some developing economies are doing better than last year, partly because of the increase in the prices of commodities like oil and metals that they produce. Growth projections ticked up slightly to 6.4 percent in 2021 compared with 6.3 percent estimated in July.“The recovery has been incredibly uneven,” and that’s a problem for everyone, said Carl Tannenbaum, chief economist at Northern Trust. “Developing countries are essential to global economic function.”The outlook is clouded by uncertainty. Erratic policy decisions — like Congress’s delay in lifting the debt ceiling — can further set back the recovery, the I.M.F. warned.But the biggest risk is the emergence of a more infectious and deadlier coronavirus variant.Ms. Gopinath at the I.M.F. urged vaccine manufacturers to support the expansion of vaccine production in developing countries.Earlier this year, the I.M.F. approved $650 billion worth of emergency currency reserves that have been distributed to countries around the world. In this latest report, it again called on wealthy countries to help ensure that these funds are used to benefit poor countries that have been struggling the most with the fallout of the virus.“We’re witnessing what I call tragic reversals in development across many dimensions,” said David Malpass, the president of the World Bank. “Progress in reducing extreme poverty has been set back by years — for some, by a decade.”Ben Casselman More

  • in

    Debate Looms Over I.M.F.: Should It Do More Than Put Out Fires?

    As the International Monetary Fund gets set for its annual meeting, economists ask if it’s time to update its mandate as the world’s financial crisis responder.Lopsided access to vaccinations, extreme economic inequality, rising food prices and staggering debt are on the agenda when the International Monetary Fund and the World Bank gather for their annual meetings in Washington next week.A pressing issue not in the official program is the controversy that has been swirling for weeks around the chief of the I.M.F., Kristalina Georgieva, threatening her leadership.An investigation last month accused Ms. Georgieva of rigging data to paint China as more business friendly in a 2018 report when she was chief executive at the World Bank. Ms. Georgieva has denied any wrongdoing.The scandal has focused on the bank’s credibility — billion-dollar decisions can be made on the basis of its information — as well as Ms. Georgieva’s culpability.But lurking behind the debate over her future are foundational questions about the shifting role of the I.M.F., which has helped guide the planet’s economic and financial system since the end of World War II.Once narrowly viewed as a financial watchdog and a first responder to countries in financial crises, the I.M.F. has more recently helped manage two of the biggest risks to the worldwide economy: the extreme inequality and climate change.Some stakeholders, though, have chafed at the scope of the fund’s ambitions, and how much it should venture onto the World Bank’s turf of long-term development and social projects. And they object to what’s perceived as a progressive tilt.“There is a modernizing streak here running through major financial institutions which is creating a kind of tension,” said Adam Tooze, a historian at Columbia University and the author of “Shutdown: How Covid Shook the World’s Economy.”Other pressures weigh on the agency as well. Washington is still home to the I.M.F.’s headquarters, and the United States is the only one of the 190 member countries with veto power, because it contributes more money than any other. But its dominance has been increasingly challenged by China — straining relations further tested by trade and other tensions — and emerging nations.The willingness of the Federal Reserve and other central banks to flush trillions of dollars into the global economy to limit downturns also means that other lenders, aside from the I.M.F., have enough surplus cash on hand to lend money to strapped nations. China has also greatly expanded its lending to foreign governments for infrastructure projects under its ambitious Belt and Road Initiative.At the same time, long-held beliefs like the single-minded focus on how much an economy grows, without regard to problems like inequality and environmental damage, are widely considered outdated. And the preferred cocktail for helping debt-ridden nations that was popular in the 1990s and early 2000s — austerity, privatization of government services and deregulation — has lost favor in many circles as punitive and often counterproductive.The debate about the role of the I.M.F. was bubbling before the appointment of Ms. Georgieva, who this month started the third year of her five-year term. But she has embraced an expanded role for the agency. A Bulgarian economist and the first from an emerging economy to head the fund, she stepped up her predecessors’ attention to the widening inequality and made climate change a priority, calling for an end to all fossil fuel subsidies, for a tax on carbon and for significant investment in green technology.She has argued that however efficient and rational the market is, governments must step in to fix built-in flaws that could lead to environmental devastation and grossly inequitable opportunity. Sustainable debt replaced austerity as the catchword.When the coronavirus pandemic brutally intensified the slate of problems — malnourishment, inadequate health care, rising poverty and an interconnected world vulnerable to environmental disaster — Ms. Georgieva urged action.Here was “a once in a lifetime opportunity,” she said, “to support a transformation in the economy,” one that is greener and fairer.The I.M.F. opposed the hard line taken by some Wall Street creditors in 2020 toward Argentina, emphasizing instead the need to protect “society’s most vulnerable” and to forgive debt that exceeds a country’s ability to repay.I.M.F. headquarters in Washington, where Republicans have bristled at Ms. Georgieva’s agenda.Daniel Slim/Agence France-Presse — Getty ImagesThis year, Ms. Georgieva managed to create a special reserve fund of $650 billion to help struggling nations finance health care, buy vaccines and pay down debt during the pandemic.That approach has not always sat well with conservatives in Washington and on Wall Street.Former President Donald J. Trump immediately objected to the new reserve funds — known as special drawing rights — when they were proposed in 2020, and congressional Republicans have continued the criticism. They argue that the funds mostly help American adversaries like China, Russia, Syria and Iran while doing little for poor nations.Ms. Georgieva’s activist climate agenda has also run afoul of Republicans in Congress, who have opposed carbon pricing and pushed to withdraw from multinational efforts like the United Nations Framework Convention on Climate Change and the Paris climate agreement.So has her advocacy for a minimum global corporate tax like the one that more than 130 nations signed on Friday.In July, Laurence D. Fink, who runs BlackRock, the world’s largest investment management company, and was at odds with the I.M.F.’s stance on Argentina, called the fund and the World Bank outdated and said they needed “to rethink their roles.”The investigation into data rigging at the World Bank focused on what is known as the Doing Business Report, which contains an influential index of business-friendly countries. WilmerHale, the law firm that conducted the inquiry, said various top officials had exerted pressure to raise the rankings of China, Saudi Arabia, the United Arab Emirates or Azerbaijan in the 2018 and 2020 editions.The law firm reported that Ms. Georgieva was “directly involved” with efforts to improve China’s rating for the 2018 edition. She said WilmerHale’s report was inaccurate and rejected its accusations. The I.M.F. executive board is reviewing the findings.The United States, which is the fund’s largest shareholder, has declined to express support for her after the allegations. Ahead of a meeting of the I.M.F. board on Friday, Ms. Georgieva maintained strong support from many of the fund’s shareholders, including France, which had lobbied hard for her to get the job in 2019. Late Friday, the I.M.F. released a statement saying the board would “request more clarifying details with a view to very soon concluding its consideration of the matter.”In Congress, Republicans and Democrats called for the Treasury Department to undertake its own investigations. A letter from three Republicans said the WilmerHale inquiry “raises serious questions about Director Georgieva’s ability to lead the International Monetary Fund.”Several people sprang to her defense, including Shanta Devarajan, an economist who helped oversee the 2018 Doing Business Report and a key witness in the investigation. He wrote on Twitter that the law firm’s conclusions did not reflect his full statements, and that the notion that Ms. Georgieva had “put her thumb on the scale to benefit one nation is beyond credulity.”“It was her job to ensure the final report was accurate and credible — and that’s what she did,” Mr. Devarajan added.In an interview, he said critics had used the investigation to discredit Ms. Georgieva. The problem, he said, is “how people may have chosen to read the findings of the report and use that to criticize Kristalina’s credibility and leadership.”Mr. Devarajan was not the only one to make the case that the controversy was functioning in some ways as a proxy for the contest over the I.M.F.’s direction. Jeffrey Sachs, director of the Center for Sustainable Development at Columbia, wrote in The Financial Times that Ms. Georgieva was receiving “McCarthyite treatment” by “anti-China forces” in Congress.Whatever role one might prefer for the I.M.F. — traditional, expanded or something else entirely — the scandal is both a distraction and a threat.Nicholas Stern, a British economist who formerly served as the chief economist and senior vice president of the World Bank, said this controversy could not come at a worse moment.“The coming few years are of vital importance to the future stability of the world economy and environment,” he wrote in a letter to the I.M.F. board in support of Ms. Georgieva. “This is as decisive a period as we have seen since the Second World War.”Alan Rappeport More