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Janet Yellen sees Biden’s policies as modernized supply-side economics

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Janet Yellen sees Biden’s policies as modernized supply-side economics

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Treasury Secretary Janet Yellen said the Biden administration aims to build U.S. economic capacity by focusing on issues such as labor supply and public infrastructure, an approach that she called ‘the modern supply-side economy’.

The administration’s approach deviates from traditional supply-side economics, which seeks to promote economic growth through tax cuts and deregulation, Yellen said in a speech to the World Economic Forum on Friday. . She cited a bipartisan infrastructure bill that became law last November and President Biden’s proposal for social programs — such as child care and paid family leave — and climate change initiatives like examples of the administration’s approach to economic policy.

“Our new approach is much more promising than the old supply-side economy, which I see as a failed strategy to increase growth,” Ms Yellen said. “Major capital tax cuts have failed to deliver the promised gains, and deregulation has an equally poor track record in general and with respect to environmental policies.”

Ms Yellen’s comments came at the World Economic Forum, an annual gathering of world leaders in politics, finance and economic policy usually held in Davos, Switzerland. The event has been held virtually for the past few years due to the Covid-19 pandemic.

“The modern supply-side economy seeks to stimulate economic growth by boosting the supply of labor and increasing productivity, while reducing inequality and environmental damage,” she said.

Republicans have said Biden’s economic agenda, which calls for increased federal government spending, can have negative consequences, including fueling higher inflation, causing larger government deficits and crowding out investment from the sector. private.

Ms. Yellen described the Biden approach, highlighting three of the administration’s policy priorities.

First, she said the United States needed to increase its labor supply in order to increase potential economic growth. She said the administration is looking to do that through expanded access to child care and other parts of the health, education and climate plan.

Second, she said the administration aims to boost labor productivity. Previous improvements in productivity driven by technological change, however, have increased inequality, said Yellen. She pointed to increased spending on education and infrastructure as a way to improve productivity without increasing inequality.

However, many of those policy goals tie into Mr. Biden’s social spending proposal, the passage of which is uncertain amid disagreement in Congress over several of the plan’s components. Ms Yellen acknowledged that the final details of the plan are yet to be determined.

Ms Yellen added that projects funded by the infrastructure bill “should promote sustainable growth by tackling climate change and mitigating extreme weather events, which also disproportionately impact the poor”.

Third, she said taxation systems need to be leveled around the world, to avoid a “race to the bottom” mentality.

The size of the new bipartisan infrastructure bill is not the only thing that separates this legislation from its predecessors. The WSJ’s Gerald F. Seib explains five key ways this bill takes a different approach to infrastructure. Illustrative photo: Elise Dean (Video from 11/15/21)

The Biden administration is seeking to implement an international tax deal that would set a global minimum corporate tax of 15% and give governments greater ability to levy corporate income taxes on businesses that sell to customers. in a country without having a significant physical presence there. .

Ms Yellen said on Friday that the global minimum tax would help boost U.S. economic supply by countering incentives that “have caused some businesses to move real economic activity beyond our borders.”

The international tax agreement faces several obstacles. Provisions that would implement the global minimum tax in the United States are part of Mr. Biden’s stalled social spending plan. Some Republicans, meanwhile, have argued that other parts of the deal must receive congressional approval, while the Treasury Department took a different view, saying the legislation is only one of the many options at its disposal for its implementation.

Write to Amara Omeokwe at amara.omeokwe@wsj.com

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Janet Yellen sees Biden’s policies as modernized supply-side economics

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