Economics in the News – Oct. 17-23, 2022
Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o British Prime Minister Liz Truss resigned after a turbulent and historically brief tenure. She served as prime minister for only 45 days, marking the shortest tenure ever by a British prime minister. Before Truss’ resignation, the shortest-serving prime minister of Britain was George Canning, who died in office in 1827 after 119 days. Truss’ duration in office was marred by economic policies that spiraled the financial markets.
She leaves office with Britain facing a cost-of-living crisis and a looming recession. Truss advocated for a low tax, low regulation policies, but those policies proved to be disastrous in a period of high inflation and slow growth. The value of the British pound decreased after her tax cuts drove up the cost of mortgages and caused more economic pain for people and businesses still recovering from the COVID-19 pandemic. [Associated Press]
o Are you sharing your Netflix account with a family member or friend? According to a company letter to shareholders, Netflix will begin charging for password sharing in early 2023. Netflix began exploring an additional charge for password sharing after losing subscribers for the first time in over a decade in the first quarter of 2022.
Netflix began a pilot program in Costa Rica, Chile and Peru for password sharing earlier this year. Subscribers in those countries could add up to two extra members to their accounts for an additional $2.99 each per month. Netflix has not announced how much it plans to charge customers for password sharing when it begins in the United States and other countries. [TIME]
o The Internal Revenue Service (IRS) has adjusted its tax parameters for 2023, raising the tax brackets and increasing the standard deduction by 7 percent. The adjustments reflect higher inflation and follow formulas set by Congress. The changes will impact taxes filed in 2024 for the 2023 tax season.
The standard deduction will climb to $27,700 for married couples and $13,850 for individuals. It marks the largest automatic adjustment to the standard deviation since core features of the tax system were first indexed to inflation in 1985. The seven tax brackets were also adjusted, with the top 37 percent tax bracket applying to individuals who earn an income above $578,125 and married couples with an income above $693,750. The annual gift tax exclusion – the amount any person can give to any other without affecting lifetime limits – will climb to $17,000 from $16,000. [The Wall Street Journal]
o Virtually every major central bank has scrambled to raise interest rates to tame inflation that continues to soar at a 40-year high. Every major central bank, besides Japan – the third largest economy in the world. The Japanese yen has fallen to a 32-year low against the dollar, a plunge that has contributed to unusual price increases across Japan. Inflation in Japan has reached 3 percent – the highest since 1991. But besides food and energy, prices in Japan were just 1.8 percent higher than last year, compared to 6.6 percent in the United States.
Japan has remained committed to its ultralow interest rates, because of worries about setting back a fragile economic recovery from the pandemic. Experts broadly agree that raising interest rates would do more harm than good. The economy has barely returned to pre-pandemic levels and wages have stagnated. The public has become used to stable prices. But much of the current inflation pressure comes from factors outside the Bank of Japan’s control, including a strong dollar and supply issues impacting imports. [The New York Times]
o The cost for shipping freight containers across the Pacific Ocean has cooled from its peak during the pandemic. The recent average cost for a freight container was $2,720, compared to $20,586 at its peak in September 2021. The price decrease is due to a decrease in demand. Vendors, manufacturers and retailers aren’t ordering as much from Asia, because consumer behaviors have drastically changed due to soaring inflation.
But even so, prices on the shelves for consumers are unlikely to decline this holiday season, according to experts. Gas and labor costs continue to rise in a period of high inflation. Retailers have been more strategic in their holiday buying this year, to avoid the supply chain headaches experienced in 2021. The changing consumer behaviors have impacted the big-box stores holding excess inventory. [The Washington Post]