Economics in the News – May 22-28, 2023
Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o President Joe Biden and House Speaker Kevin McCarthy have reached a deal to avoid a US default but the pair need to sell it to Congress in order to suspend the nation’s debt limit through 2025. Congress will begin scrutinizing the bill on its first day back from the Memorial Day holiday, as Treasury Secretary Janet Yellen warned that the United States could default on its debt obligations on June 5.
The bill includes provisions to fund medical care for veterans, change work requirements for some recipients of government aid and streamline environmental for pipelines and other energy projects. The bill suspends the debt limit until Jan. 2025, past the next presidential election and will require Congress to approve 12 annual spending bills or face a snapback to spending limits from the previous year. [Associated Press]
o The final weekend of the English Premier League season saw Leicester City, Leeds United and Southampton relegated to the English League Championship. Everton remained in England’s top flight with a 1-0 win over Bournemouth on the league’s final day, extending its streak to 73 consecutive seasons in England’s top league. Relegation from any top league is bad news for players, fans, managers and club executives. However, it arguably has the greatest impact on the behind-the-scenes staff, such as ticketing, security, administrators, and receptionists.
Clubs who are relegated lose out on the windfall of cash as part of the league’s revenue stream, much of it coming from broadcasting and marketing rights payments. Oftentimes, clubs will lose out on 60 percent of their revenue when dropping down a league, even when accounting the parachute payments that help soften the blow the first three years out of the English Premier League. With the loss in revenue, business decisions become essential, meaning that hundreds of employees will need to prepare to lose their jobs in the coming months. [The Athletic]
o More than half of the world’s lithium is mined in Australia. A large portion of that is sold to China to refine it for further use in products such as batteries for smart phones and electric vehicles. However, the Australian government wants to break its dependence on China, refine the lithium for sale to allies such as the United States and South Korea.
The bet by the Australian government is that customers will seek its lithium supply from a country that is more environmentally friendly than China. For Australia, it would allow it to obtain loans and subsidies from the Inflation Reduction Act, which aims to cut into China’s green energy dominance. [The New York Times]
o Memorial Day weekend kicked off the busy summer travel season that is forecast to be the busiest one ever. AAA projected that 3.4 million Americans were planning to fly Thursday thru Monday of Memorial Day weekend on more than 313,000 flights. Aviation experts are projecting airlines to carry a record number of passengers, even while operating fewer flights than before the COVID-19 pandemic. While operating fewer flights, airlines have countered by flying larger passenger aircrafts than they normally would.
The busy season will test an aviation industry plagued by staff shortages, antiquated technology, air traffic control issues, scheduling concerns and labor disputes. Some within the industry worry that travelers will face similar disruptions to last year that caused havoc on summer travel when more than 210,000 flights were canceled. Airlines insist that they are better equipped to handle the travel surge this summer because of a hiring spree that resulted in more than 486,000 workers being hired. [NPR]
o China’s economic recovery following its zero-COVID policies is stalling. Debts are stifling households and some families who are worried for the future are hoarding cash. Instead of a six to eight percent expansion this year, some economists are projecting a two to three percent expansion in the future. This year, China’s economy is expected to exceed the government’s targeted five percent growth rate, which is partially fueled by the weak economy last year.
While consumers are spending somewhat more after restrictions were dropped, China isn’t experiencing the surge other economies enjoyed in their COVID recoveries. Competition for investment is heating up with countries such as India and Vietnam, partly due to the risk of disruption factors between the US and China. [The Wall Street Journal]