2023: A Year in Economics

The Pitch: Economic Update for December 28th, 2023

Friends,

Wherever you are as you read this, I hope you’re enjoying warmth, kinship, and relaxation this holiday season.

For the last Pitch of the year, I thought I might provide an overview of the economic year that was. To research this issue, I dug back into the archives to review the last year’s worth of Pitch issues. There’s always a surprise or two in store when I dip back into issues I wrote last January — some top stories that seem huge at the time feel tiny in retrospect.

For instance, the whole country was enraged at this time last year because airline snarls left thousands of Americans stranded all over the nation throughout the holiday season. Southwest Airlines was the most egregious offender — their computer systems seemed to completely collapse. “Southwest received billions of dollars in a bailout from the federal government during the pandemic, but it was a profitable company before and after 2020,” I wrote at the time.

“Why didn’t the airline devote some of those profits to updating its computer systems and preparing for a crisis like the one they experienced last month? It seems that Southwest’s corporate leadership was too busy giving away some $5.6 billion dollars to shareholders, with no strings attached.” I concluded with a prediction that aged pretty well: “Corporate greed deserves to be a top story of 2023, if not the top story.” Indeed, greedflation accounted for top economics headlines all year long, with President Biden recently renewing his call against corporate price-gouging.

Thankfully, as I write this, 2023 has seen the fewest flight cancellations in the last five years — perhaps thanks in part to the Biden Administration’s proposed new rules which would require airlines to compensate passengers for delays and cancellations. But from a year away, it’s remarkable how much this crisis has receded in our institutional memories. Solved problems simply don’t leave the same mark that ongoing problems do.

So with the grace of an additional year’s wisdom, let’s take a look back at the year in economics, starting with the most overrated and underrated stories of the year:

Overrated Story of the Year: Doom Is Right Around the Corner!

The year started with spiking egg prices, which were a genuine hardship for millions of

American households but which were also presented by mainstream economists as a portent of impending inflationary doom. The truth is that those eggs weren’t a sign of a worsening crisis on the horizon. Instead, their prices spiked due to greedflation, in which egg producers decided to take advantage of economic conditions and reports of bird flu as a smokescreen to raise their quarterly profits by double- (and in some cases triple-) digit percentages. There was a nice little capstone on this story earlier this month, when a judge found egg producers guilty of anti-competitive price-fixing in the 2000s.

But the economic panic over egg prices paled in comparison to the doomsaying that erupted when Silicon Valley Bank and other medium-sized financial institutions started to collapse in March. The media circled this story for months, wondering if a 2008-style banking collapse was about to happen. In retrospect, the Biden Administration handled the crisis with calm skill, and while the government’s decision to allow JPMorgan Chase to rush in and buy the troubled First Republic Bank’s assets wasn’t ideal — one rule of thumb of middle-out economics is that we want to see more competition in the world, not less — the decision certainly seemed to calm hyper-panicked traders on Wall Street long enough for the world to catch its breath.

By the time the banking crisis finally settled down in May, economic journalists latched onto another potential panic that would continue throughout the summer: Big-name economists warned us that a recession was just around the corner. We were told that because there were fewer megayachts off the coast of Cannes during the biggest film festival in the world, a recession was well underway.

Former Obama Administration economic adviser Larry Summers became the patron saint of recessionary fears, going on seemingly every cable talk show and talking to every economics reporter who would answer his calls to suggest that a recession was on the way. Even more troublingly, Summers argued that the recession was necessary to bring inflationary pressures down. He even famously called for millions of Americans to lose their jobs for an extended period of time to ease price increases by a couple of percentage points. Very few news outlets called Summers out when, later in the year, prices leveled out without his supposed requisite widespread layoffs. Summers is still out in the world telling anyone who’ll listen that there’s still a 25% chance of recession, but it should be clear by now that nobody should take Summers’ predictions seriously.

As the summer stretched on and prices leveled out from the peaks of 2021 and 2022, the media started to ease off the recession panic. The conversation changed dramatically in October, when we reached the one-year anniversary of Bloomberg’s ridiculous prediction that the US economy had a 100% chance of entering a recession by October of this year. Spoiler alert: The recession didn’t arrive.

To be clear, I’m a proud optimist, but I’m not a fool: Bad things will happen in the economy — disasters occur, systems break, and human error abounds on every level of society. But at the same time that the media and the economic mainstream bounced from impending doom to impending doom this year, there were plenty of economic observers who were quietly calling BS on those claims. Unfortunately, we live in an attention economy and looming threats of an impending apocalypse always attract more eyeballs than someone calmly calling for sensibility and reason.

Underrated Story Of the Year: The Data Are In, and Middle Out Economics Works

You might ask, “hey, Zach, what should those economics reporters have focused on all summer long, rather than spending their word counts expounding about the potential ramification of always-impending recessions, along with vague economic vibes, and trying to convince us that good economics news is actually bad news?”

I’m so glad you asked. This year was a banner year in the field of economics and the mainstream media barely even noticed. We saw the publication of some compelling data that proved the trickle-down economic theory that has dominated the thinking of leaders of both parties for the last forty years is not just wrong — it’s entirely backwards.

The idea that funneling money up to the wealthy few and corporations at the very top of the economy is a bad economic practice — it doesn’t actually create wealth, as leaders from Reagan on have repeatedly promised us. Instead, working Americans are the source of economic growth and prosperity, and the more we invest in the middle class, the stronger the economy will grow for everyone.

In May, a groundbreaking study from researchers Justin Wiltshire, Carl McPherson, and Michael Reich looked at 47 counties where the minimum wage was raised to (or above) $15 per hour between 2009 and March 2022. There’s already a huge body of research proving that raising the minimum wage is good for workers by raising their pay, and proving that none of the job losses that trickle-downers predicted actually occurred in the real world. So it’s already more or less a given among most economists that raising the minimum wage doesn’t kill jobs — even the New York Times admitted this year that the Fight for $15 is basically settled, and the workers won.

But what this study showed is that raising the wage actually creates jobs. Wiltshire explained on Twitter that when the study drills down on the less wealthy counties in the study, “we estimate *large* and significant positive employment effects.” In fact, he wrote, “These large minimum wage increases led to gains in both earnings *and* employment!”

It’s just common sense that raising the minimum wage will give more workers more money to spend, and that they’ll spend those paychecks in their local communities, creating jobs with their consumer demand. Mainstream economists spent 40 years combating minimum-wage increases through faulty trickle-down economic thinking, but people finally understand that raising the wage is good for everyone. Still, it is vitally important to create a compelling body of evidence that analyzes the data and proves this economic truth. This study is a breakthrough in that field, and it should have been front-page news when it was released earlier this year.

And a few months after that big new study confirmed the power of middle-out economics, more data has helped us to understand the negative effects that trickle-down cost-cutting has on the whole economy. Paul Krugman investigated the austerity approach that the federal government took after the Great Recession.

Led by a wave of hardline Tea Party Republicans in 2010, Congress responded to the widespread economic misery of the Great Recession by making it harder for ordinary Americans to access unemployment benefits, child care, food stamps, and other investments. Studies have already shown that in many important respects, including paycheck growth and savings, American workers hadn’t even fully economically recovered from the Great Recession when the pandemic began in 2020.

Most people understand that the economic recovery from the Great Recession really only helped the wealthy few and corporations. But Krugman had an important revelation — he decided to put a dollar amount on the economic misery that American workers went through during the Great Recession and its aftermath.

“I’ve argued that we could and should have returned to full employment by the middle of 2011. If we sum up the gap between actual and potential G.D.P. between then and the end of 2019, it comes to $3.5 trillion in 2012 dollars, or $4.5 trillion in today’s prices,” Krugman writes. “That’s an immense waste of human and economic potential — but it happened quietly, so that hardly anyone noticed.”

Imagine what the economy would look like today had the working class been able to see, and participate in, $4.5 trillion in additional economic activity — how much bigger paychecks would be, how many small businesses would have been launched, how many families would have been able to invest in their futures.

Krugman’s theory is supported by America’s economic response to the pandemic, which invested deeply in working Americans through enhanced unemployment benefits, increased child care options, a Child Tax Credit that put money directly into people’s pockets, and many more programs. As a result, America bounced back from pandemic-era lockdowns faster and higher than virtually any nation on earth.

I mentioned above that there will definitely be some kind of an economic calamity at some point in the future. This research provides a roadmap for how we can survive and thrive in the face of that adversity. Budget cuts and other austerity measures are never the answer when we’re confronted with economic hardship; investing deeply in the American people is the only appropriate response.

Workers Won 2023

If I had to pick only one story to summarize the middle-out economic progress we’ve made this year, it would be President Biden joining striking United Auto Workers on the picket line in September. No president in modern times had ever actively sided with workers like that in a labor dispute, and the president’s show of support for the union almost certainly helped bring the strike to a relatively quick close, with huge gains for auto workers.

Pundits announced in July that we were experiencing a “Hot Labor Summer,” but the truth is that workers were winning all year long. 2023 began with 7000 nurses protesting low wages, poor benefits and chronic understaffing by taking to picket lines in a frigid New York City January. And President Biden helped set the stage for the year to come in his State of the Union in February, in which he directly addressed American workers.

“You remember the jobs that went away. And you wonder whether a path even exists anymore for you and your children to get ahead without moving away,” Biden said to working Americans. “I get it. That’s why we’re building an economy where no one is left behind,” he continued. “Jobs are coming back, pride is coming back, because of the choices we made in the last two years. This is a blue-collar blueprint to rebuild America and make a real difference in your lives.”

It’s hard to recall, but this was a pivotal moment for American workers. Remember, we had spent most of the previous two years in the throes of a ridiculous conversation about why “nobody wants to work anymore.” (Another unheralded study released this year showed that those workers weren’t sitting idly at home while employers were complaining about a lack of applicants — instead, they were walking down the street and taking a comparable job for much higher wages.)

It’s honestly hard to keep track of all the wins that workers made this year. With the help of the Biden Administration, railroad workers finally won those sick days that they’d been fighting for at the end of 2022. Screenwriters and actors fought for and won important restrictions on artificial intelligence that prize human work over AI production. Hotel workers, pilots, doctors, and pharmacists all took to the streets from coast to coast in order to protest systemic cuts to their pay and workplace conditions. UPS avoided a strike by offering workers a big pay raise, air conditioned trucks, and more staffing to meet increased demand.

I’ve been focusing on union gains, but the truth is that American wages have climbed very high over the past three years — yes, higher than prices — and some studies show that after decades of widening income inequality, the gap between the lowest-paid workers and their counterparts at the very top of the income scale has finally started to close. That’s huge news that would have been unthinkable just four years ago.

As we saw in the first item above, it’s easy to fall prey to cynicism and apocalyptic thinking. But even though it’s hard to see in the sensationalist flood of social media, we are making remarkable progress in this economy. That progress is not evenly distributed, and it’s not enough to turn the tide of 40 years of regressive trickle-down thought, but we’ve come further, and we’ve done so faster, than just about anyone could have predicted even a decade ago. Workers are making gains, the conversation about who gets what and why is changing, and policies are creating jobs and investing in American manufacturing again, despite neoliberals telling us for decades that those jobs are never coming back.

You can’t overturn an economic paradigm overnight. But when you’re on a journey as long as we are, it’s important to take a minute to celebrate the progress that you’ve made. Middle-out barely existed as a coherent economic thought ten years ago, and now it’s successfully challenging the ideas that establishment economists have held dear since the Reagan Administration, and improving outcomes for working Americans all the while.

Next year is sure to be a challenging one, full of its own unique panics, challenges, and victories. The presidential election will undoubtedly dominate the media, and we’ll have to make sure that working Americans stay at the center of that conversation. But whatever 2024 holds, I’m happy to face it with you. Thanks so much for reading The Pitch and fighting the good fight. Happy New Year.

Be kind. Be brave. Take good care of yourself and your loved ones.

Zach