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US Treasury Secretary Yellen At Davos Agenda: Optimistic About Prosperous Future And Recovery

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In the closing session of the virtual Davos Agenda 2022, the United States Treasury Secretary Janet Yellen expressed optimism about the US economic recovery, outlining the Biden administration’s strategy to promote growth and address long-standing structural issues relating to income inequality, racial disparities and climate change.

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“I am optimistic about the US economic recovery,” she said, noting that by most traditional metrics the pace of the country’s current recovery has exceeded even the most optimistic expectations, despite the ongoing COVID-19 pandemic. “I am confident that we can beat this pandemic and move decisively down the path towards a more prosperous future.”

Yellen noted that aggregate growth has been rapid and that real GDP growth for 2021 was projected at 5.3% in 2021, while a recent Blue Chip forecast put 2022 growth at 3.3%. She added that the US labour market was exceptionally strong, with 6 million jobs added last year, the unemployment rate is again below 4% and household and firm balance sheets are even healthier than before the pandemic.

“To date, we have not seen large or persistent increases in long-term unemployment, indebtedness, evictions, or bankruptcies. This contrasts with the aftermath of the global financial crisis,” she said.

Yellen went on to outline the administration’s economic growth strategy, which focuses on modern supply-side economics. This approach, she said, prioritizes labour supply, human capital, public infrastructure, R&D and investments in a sustainable environment. These focus areas are all aimed at increasing economic growth and addressing longer-term structural problems, particularly inequality.

The recently enacted Bipartisan Infrastructure Bill and the Build Back Better legislation that remains under consideration in Congress incorporate this modern supply-side approach.

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“A country’s long-term growth potential depends on the size of its labour force, the productivity of its workers, the renewability of its resources, and the stability of its political systems,” she said. “Modern supply-side economics seeks to spur economic growth by both boosting labour supply and raising productivity, while reducing inequality and environmental damage. Essentially, we aren’t just focused on achieving a high topline growth number that is unsustainable – we are instead aiming for growth that is inclusive and green.”

She added that the Biden administration’s economic strategy embraces, rather than rejects, collaboration with the private sector through a combination of improved market-based incentives and direct spending based on empirically proven strategies. For example, a package of incentives and rebates for clean energy, electric vehicles and decarbonization will incentivize companies to make these critical investments.

This approach does not just apply to just the US. In 2021, 137 countries – representing nearly 95% of the world’s GDP – agreed to rewrite the international tax rules to impose a global minimum tax on corporate foreign earnings. This historic global tax deal, Yellen said, will end this race to the bottom by ensuring that profitable corporations pay their fair share, providing governments with resources to invest in their people and economies.

Klaus Schwab, Founder and Executive Chairman of the World Economic Forum also emphasized the important role supply side economics has when it comes to social infrastructure, which includes tackling such issues as education, health and the environment.

“I think that the modern supply-side economics approach is probably the path to choose in today’s context to create a modern economy that is not just successful in creating prosperity but creating inclusive prosperity that is also sustainable and resilient,” he said.

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