A Tale of Two Economies

The Pitch: Economic Update for December 7th, 2023

Friends,

You have likely noticed a growing chasm between the tone that the media and economists use to talk about the economy and the ways that working Americans talk about the economy. While economists explain that the American economy is doing remarkably well compared to other wealthy nations, and that paychecks are growing even after taking inflationary price increases into account, the comments below those news stories are full of anecdotes about Americans barely keeping their heads above water.

The tensions between these two narratives have been building up over the last few months — especially on social media, where algorithms favor the angriest, most bad-faith takes on both sides. But the truth behind these opposing viewpoints is slowly emerging from the data, and the answer seems to be that both sides are correct.

It is undeniable that American workers have made remarkable progress in the last three years, and prices have leveled out faster here than in just about every other nation on earth. But it is also true that this year especially, pandemic-era investments in the American people have largely ended. The stimulus checks have been spent, increased unemployment benefits are gone, and the Child Tax Credit program ended. Just in the last few months, billions of dollars in additional federal child care subsidies finally dried up and student loan repayment freezes ended.

The end of these investments in working Americans means that workers at the low end of the income scale suddenly lost a ton of disposable income, as economist Gabriel Zucman explains:

If you’re an American family solidly in the middle class — if you already owned a house and had a good emergency fund socked away before the pandemic began — you’re likely doing better now than you were before the pandemic. But while paychecks on the low end of the income scale have risen dramatically over the last two years, that can’t make up for the loss of all the investments that were enacted during the pandemic.

For people at the very bottom of the income scale, this isn’t just an inconvenience to overcome — it’s an existential threat:

When you layer on some of the price increases that have a greater effect on the bottom half of the economy — including transportation costs and soaring housing prices and rent — you have a tale of two economic recoveries, and an explanation for why, even though wages have grown, the Census reports that American household income actually dropped 2.5% over the last two years.

Now that we have a clearer picture of the economic problems affecting American families, the solution couldn’t be more obvious. Robust investments into the social safety net not only helped America survive the pandemic — they helped us thrive, with an economic recovery that outpaced just about everyone else in the global economy. Those Child Tax Credits, enhanced unemployment payments, and child care supplements allowed Americans to spend money in their local communities — supporting businesses, creating jobs, and creating a virtuous cycle of economic growth.

If our leaders want to inspire the same economic growth that helped America recover from Covid, they have to increase those investments again, to ensure that all Americans can robustly participate in the economy. Doing so won’t just help those at the bottom of the wage scale — it will grow the economy for everyone.

The Latest Economic News and Updates

[A note to our readers: On the day this issue of The Pitch is published, December 7th, the Washington Post Union has organized a one-day walkout and a picket line outside Washington Post offices to protest their employers’ refusal to bargain with the union. They have asked Washington Post customers to not cross the picket lines by boycotting the Post, both in print and digital, for the 24 hours of the strike. We’re of course honoring their request and I hope you’ll do the same. I link to and/or quote Post journalists here in The Pitch every week because they do excellent work covering the American economy and telling stories that otherwise would never be told. I believe they deserve higher wages and better compensation in exchange for that work, and I wholeheartedly support their strike.]

The Job Market Is Strong, but Pandemic-Era Highs Are Declining

Job openings fell from 9.3 million in October to 8.7 million in November, reports J. Edward Moreno at the New York Times. That’s the lowest number of open jobs reported in a month since March of 2021.

“There are still ample opportunities for workers,” Moreno writes. “The rate of hiring remained steady in October despite the decline in openings,” and he also notes that “The rate of layoffs was little changed, as was the rate of quitting, which generally reflects workers’ confidence in their ability to find new employment.”

It’s important to be clear that the numbers are still good: workers are still getting raises, jobs are being created, workers feel confident that they can find good work. But the labor market has basically come back to earth from that post-lockdown euphoria. The numbers are in line with a strong job market that looks more like the strong job markets we saw in pre-pandemic times.

But of course, the pandemic did happen, and it’s continuing to shape the behavior of workers who aren’t content to simply return to normal. Noam Scheiber reports for the New York Times that medical professionals including doctors are pushing to unionize for better pay, more humane work conditions, and more staffing to address the increased patient demands that they’ve seen since the pandemic began.

“And doctors are not the only health professionals who are unionizing or protesting in greater numbers. Health care workers, many of them nurses, held eight major work stoppages last year — the most in a decade — and are on pace to match or exceed that number this year,” Scheiber writes. “This fall, dozens of nonunion pharmacists at CVS and Walgreens stores called in sick or walked off the job to protest understaffing, many for a full day or more.”

Workers also won’t forget the unprecedented choice and opportunity offered by the tight labor market of 2021 and 2022. Martha C. White reports that workers are using their increased confidence to demand a return to the robust pension plans of yore, rather than the stingier and less secure 401ks that became standard over the last few decades. That shift had been so dramatic during the trickle-down era that now only about one out of every ten American workers has a pension plan through their employer.

“The jobs platform Indeed found that over the past three years, people looking for work have increased searches for pensions by roughly 12 percent,” White writes. “Indeed also found that, while the number of job postings that mention pensions remains low, that figure has shot up roughly 130 percent over the past three years.”

But as we noted earlier, many workers in America don’t have pensions or 401ks. Miriam Jordan reports on the tens of thousands of aging undocumented farm workers around the country who have spent decades paying into Social Security and Medicare in every one of their paychecks, and who will not receive any benefits even though they’re nearing (or past) retirement age.

“Half of the farmworkers interviewed for the National Agricultural Workers Survey, released last year by the Labor Department, had spent 11 to 30 years on farms, and nearly one in five had done so for more than three decades,” Jordan writes, adding, “They were earning an average of $20,000 a year.”

It might seem to a casual viewer that the medical professionals pushing to unionize and the farmworkers fighting for their lives share nothing in common. But the truth is that levels of education and distinctions between manual labor and office work are false divisions that only serve exploitative employers. Workers rights are workers rights. When workers on the low end of the income scale organize for better working conditions, it opens up space for medical practitioners to follow suit. And exploitation of farmworkers on the low end of the income scale hurts medical practitioners who earn six figures, because once you agree that there is a class of worker that it is okay to exploit, every worker loses ground.

Inflation, Deflation, and Big Refunds for Washington Consumers

The Federal Reserve keeps signaling that it’s done raising interest rates, but Nick Timiraos at the Wall Street Journal points out that Fed officials seem reluctant to actually, officially admit that their campaign to combat inflation is over. Instead, observers are reading deeply into public comments from Fed Chair Jerome Powell suggesting that the Fed is unlikely to raise interest rates when it meets again next week.

Jeanna Smialek wrote a piece for the New York Times that all but declares victory on the Fed’s behalf. “After months of choppy progress, the Fed has recently received a spate of data suggesting that it is making meaningful progress toward achieving its goals,” she writes. ”Inflation has been moderating noticeably, and the slowdown is coming across a range of products and services. The job market has cooled from white-hot levels last year, although companies are still hiring. Consumer spending is showing some signs of deceleration, though it has not fallen off a cliff.”

The problem is that there’s not really any sign that the Fed’s campaign to raise interest rates is what actually brought inflation under control. Prices have dropped largely because the supply chain has finally been repaired from the once-in-a-lifetime shock of turning the world’s economy off and then back on again to combat Covid. Most of the stubborn price increases we’ve experienced since then have been the result of greedflation, or corporations taking advantage of inflation to raise prices not to pay for higher costs but rather simply because they could.

Now, those high prices might prove to be too much for consumers. Last week, the Department of Commerce reported that consumer spending rose by a scant .2% in October, a number that’s making some economists nervous as the all-important holiday shopping season continues.This Wall Street Journal article about the consumer revolt around greedflation finds some truly inventive ways to avoid using the term “greedflation,” as when Paul Donovan,the chief economist at UBS Global Wealth Management, explains that sales are dipping because “consumers are less willing to support profit margin expansion.” Indeed.

But in general inflation is flattening out. In fact, some durable goods prices are actually falling, as David Harrison reports at the Wall Street Journal. “Prices for long-lasting items, known as durable goods, have fallen on a year-over-year basis for five straight months. In October, they were down 2.6% from their peak in September 2022, according to data released Thursday by the Commerce Department,” he writes.

For the most part, those price decreases were led by dropping automobile prices, home goods, and recreational items:

That deflation in durable goods is helping keep the PCE index, which is the Fed’s preferred inflation metric, on the right track: “The personal consumption expenditures price index, excluding food and energy prices, rose 0.2% for the month and 3.5% on a year-over-year basis,” writes Jeff Cox at CNBC, a drop “from respective readings of 0.3% and 3.7% in September.”

Cox continues, “Headline inflation was flat on the month and at a 3% rate for the 12-month period” at the same time that “Energy prices fell 2.6% on the month, helping keep overall inflation in check, even as food prices increased 0.2%.”

Those grocery prices are definitely not helping the public perception that inflation is still out of control. Unless you have incredibly bad luck, you’re not likely to buy more than one car in a year. But someone from every American household goes to the grocery store multiple times a month, and grocery prices (thanks in large part to greedflation) seem to be staying stubbornly high.

Here in my home state of Washington, Attorney General Bob Ferguson brought a successful lawsuit against chicken and tuna producers for colluding to keep prices artificially high. And now, 400,000 Washington households will see real benefits from that case. Michael LeCompte at NBC explains that in total, “$40.6 million in restitution will be sent to households whose income is at or below 175% of the federal poverty level. 402,200 households across Washington will get checks,” he adds, and those checks will range from $50 to $120.

That’s a huge middle out win. This ruling gets money directly into the pockets of working families that most need the investment, and it ensures that those prices will be lower the next time they buy chicken or tuna in the future. This should be a model for leaders looking to deal with greedflation, price-fixing, and other anti-competitive behaviors that hurt consumers.

This Week in Middle Out

• “The Biden administration is proposing new restrictions that would require the removal of virtually all lead water pipes across the country in an effort to prevent another public health catastrophe like the one that came to define Flint, Michigan,” writes Coral Davenport at the New York Times. Unfortunately, the article is framed almost entirely in terms of cost — $20 to $30 billion. But setting aside the incalculable benefit of future generations of lead-free, healthy children, this will also create jobs in parts of the country that have been economically left behind for decades.
• The latest edition of the Roosevelt Institute’s excellent Bidenomics Brief outlines a few new Biden Administration policies including a plan to stop the corporate consolidation of chicken and pork farms and an exploration of how CHIPS Act policies are encouraging semiconductor manufacturing employees to unionize.
• The Consumer Financial Protection Bureau could soon be issuing new regulations to protect bank customers from out-of-control overdraft and insufficient funds fees.
• The Biden Administration is acting quickly to close a loophole that would allow Chinese-built electric vehicles to qualify for a tax credit intended to spur the sales of American-made EVs.
• Over the weekend, the Biden Administration issued new regulations on methane. “The Biden administration’s crackdown on methane leaks from oil wells is based in part on a new powerful policy tool that could strengthen its legal authority to cut greenhouse gas emissions across the entire economy — including from cars, power plants, factories and oil refineries,” notes Coral Davenport.
• Two big airline mergers have been proposed recently: Alaskan Airlines announced that they are buying Hawaiian Airlines for $1.9 billion, and JetBlue is planning to buy low-budget Spirit Airlines. “For years, the big airlines have been accused of coordinating on prices and jointly controlling the supply of airline seats on key routes,” writes Tim Wu in an editorial protesting the latter merger. “Corporate earning calls have even been shown to result in reduced seating capacity. That yields high profits in good years. In bad years, the airlines turn to Congress for multibillion-dollar bailouts.”
• In New York, an ambitious effort to build a public model for renewable wind energy is facing interference from the fossil fuel industry.
• Ian Millheiser at Vox reports that it looks as though the Supreme Court is likely to reject an argument that wealth taxes are unconstitutional. Unfortunately, the Center for American Progress reports that in another case the Court might rule in favor of Meta and against the FTC — a ruling that might make it harder for government to regulate corporations.

This Week on the Pitchfork Economics Podcast

The Pitchfork Economics podcast is about to take a deep dive into the policies of middle-out economics, so this week for added context they’re republishing an interview with journalist Michael Tomasky about his book The Middle Out, which tells the story of how middle out economics came to be. This episode is a great foundation for anyone who wants to learn about this new economic understanding of the world.

Closing Thoughts

Back in March, I wrote about a formula that never fails to uncover corporate greed: When a corporation makes headlines for negligence, faulty products, or complaints about the normal cost of doing business, you just have to Google the name of the company and “stock buybacks.”

Corporations used to reinvest their profits back into themselves — funding research & development, increasing the wages of workers who create those profits, and improving the customer experience. But now, companies use their own profits to buy back their stock from wealthy investors, basically handing those profits away to a handful of super-rich people with no strings attached. (Of course, that elite investor class also includes the very same CEOs and board members who vote for the buyback in the first place.)

For too long, the business media has failed to draw a connection between the growing number of buybacks — over a trillion dollars a year — and the similarly rising number of corporations that are failing to successfully invest in their workers and their customers. That’s why I was so pleased to see this Reuters headline making the rounds last week: “GM sees $9.3 billion hit from labor deals, outlines $10 billion stock buyback.”

David Shepherdson opens the story with a knockout first paragraph: “General Motors said on Wednesday its new labor deals after a lengthy U.S. strike will cost it $9.3 billion even as it outlined $10 billion in share buybacks, a 33% dividend increase and ‘substantially lower’ spending at its robotaxi unit Cruise.”

It couldn’t be any clearer: GM is whining about having to pay its workers fairly while at the same time handing away an even larger share of its profits away to the investor class. The workers earn their wages by efficiently creating cars for GM to sell, and the bigger paychecks are guaranteed to improve worker retention and cut training costs. But those shareholders offer absolutely no value in return for that $10 billion.

By connecting those two price tags, Shephardson and the story’s headline are doing readers a tremendous service. The media often talks about corporate profits, executive bonuses, and stock buybacks as though they’re a separate pot of money than worker wages and benefits. But it is the exact same pot of money, and as buybacks have soared since the Reagan Administration legalized them in the 1980s, wages have stagnated and the wealth of the top one percent has grown.

This isn’t a coincidence, or a conspiracy — it’s just simple math. Congratulations to Reuters for putting those two figures together in both the headline and the body of the story. Hopefully more media outlets will follow suit in 2024, helping to draw the contours of corporate greed for all to see.

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

Zach