America Votes from the Middle Out

The Pitch: Economic Update for November 10, 2022

Friends,

Virtually every news channel and political podcast was predicting that this week’s midterm elections would be a “red wave,” with economically anxious voters choosing Republican politicians up and down the ticket and tightening the purse strings on government spending as a reaction to high inflation.

Flatly: They were wrong.

As I write this, party control of the House and Senate is still up in the air and plenty of races have yet to be counted. But no matter how the actual numbers pan out, Democrats clearly overperformed the historical record, holding more Congressional seats than the typical first midterm election of a presidency.

Voters around the country, from red states to blue states, sent an unequivocal message with their ballots this week: They’re tired of trickle-down policies that enrich the wealthy few, and instead they want to rebuild the economy from the middle out. Here’s a brief survey of some of the biggest wins:

• Washington DC voters chose to eliminate the tipped minimum wage, raising the minimum wage of servers, bartenders, and baristas in the District of Columbia from $5.35 an hour to $16.10.
• Nearly six out of every ten voters in deep-red Nebraska approved an initiative that would raise the state minimum wage to $15 by 2026.
• In my home state of Washington, the city of Tukwila overwhelmingly passed a $19 minimum wage, inspiring a writer at one local news site to declare that “$19 Is the New $15.”
• States don’t get more Republican than South Dakota, and 56% of voters there elected to expand Medicaid health care coverage.
• Some three-quarters of Arizona voters approved an initiative that would rein in medical debt and protect certain assets from seizure by creditors.
• Illinois voters seem to be on track to approve an intriguing “Workers Rights” amendment that would protect the right of workers to unionize and collectively bargain.
• Voters in Massachusetts approved a 5% tax on income over $1 million a year, and 9% on income over $2 million a year. This tax is likely to bring in anywhere from $1.3 to $2 billion for the state in the next year alone.
• Coloradans approved raising taxes on annual household incomes over $300,000 to fund school lunches, buy school lunch ingredients locally, and raise the wages of school cafeteria workers.
• 70 percent of New Mexico voters approved a measure to increase funding for schools and pre k programs.
• In five states, including Kentucky and Montana, abortion bans were struck down and abortion protections were written into law. No state in the nation voted to decrease or ban abortion access. (And yes, if you’re just tuning in: Access to abortion is absolutely an economic issue.)

As someone who has run and advised many campaigns, I can tell you that lots of people tend to focus on everything they didn’t achieve during an election. They dwell on the initiatives that lost, they beat themselves up for not going that extra mile for the candidates who were narrowly defeated, and they argue over strategies that didn’t pan out.

I often have to remind progressives that while it’s important to assess and learn from your losses, it’s also necessary to celebrate when you win. And from where I stand, I look up at that list and I see a whole lot of winning. While some of these victories might have seemed inevitable, the truth is that there’s no such thing as a foregone conclusion in American elections. Millions of people worked incredibly hard to pass these policies, and these policies will significantly improve the lives of millions of people from coast to coast.

If you contributed to, volunteered for, or simply voted for any of these policies, I hope you’ll take a moment this week to savor and celebrate your victories. Winning is hard. Enjoy it when you do.

Next week, the messy work of democracy begins all over again.

The Latest Economic News and Updates

Three headlines about the latest inflation numbers

This morning’s inflation report found that Core CPI — the rate of inflation minus volatile food and energy prices — increased by .3% in October, which is below expectations and down from .6% in September. And the big inflation number for the month, 7.7%, is down from June’s peak of 8.9%. Economist Justin Wolfers tweeted this morning that “it looks like inflation has peaked and is now falling.”

We’ve heard that before, so let’s not pull out the “Mission Accomplished” banner just yet. But it is still an unequivocally good inflation report. So for a little exercise, let’s see how this report was covered in the media this morning, starting with the Washington Post:

This headline is particularly confusing because it fails to mention that the 7.7% over last year is considerably lower than last month’s report, and a continuation of a downward trend — anyone unfamiliar with how inflation works would assume from this headline that prices have just skyrocketed in the last month by nearly 8%. Now let’s look at the New York Times:

The Times gets in the nuance that the Washington Post headline fails to capture — but the idea that the Federal Reserve’s push to raise interest rates is responsible for the decline is unsupported anywhere in the data that I’ve seen. It’s correlation, not causation, based on the assumption that since the Fed is raising rates in an attempt to lower inflation, and since inflation is going down, the Fed’s plan must be working. The reality is way more complicated, as we’ll discuss later on in this newsletter.

The best snap judgment from a major newspaper that I’ve seen is from the Wall Street Journal:

Unlike the Post, the Journal gets the direction of inflation for the month of October correct, and unlike the Times, the Journal doesn’t leap to an unsupported conclusion about why rates declined last month. It’s hard to interpret breaking news as it happens, and everybody falls down on the job sometimes. But this is a reminder that no single source is completely infallible when it comes to interpreting data, and it’s important to bring multiple perspectives into your media diet.

Can the Federal Reserve change course?

Contrary to the messages sent by many pre-election polls, Americans certainly didn’t vote as though they wanted to punish elected officials for high inflation. Instead, voters embraced the idea that corporate greed is a major contributor to inflation. As David Dayen writes at The American Prospect:

Across the country, in fact, Democrats ran against corporate power. They brought up Republican defenses of Big Oil, Big Pharma, and the gun lobby. They highlighted specific votes that exemplified this. It was not the sole contributing factor to electoral success, because nothing ever is. But it was a factor, and one overlooked by the punditocracy, among many of their mistakes.

This election feels a bit like a pivot point in our current economic discussion. Voters in states around the nation appeared to reject the link between government spending and inflation, and more experts are starting to re-examine their assumptions about the true cause of inflation.

For one thing, as former Treasury Chief Economist Karen Dynan told Rachel Siegel at the Washington Post, the experts are starting to admit they might not have as good an understanding of the current conditions as they thought they did. “Economists, generally, are being humbled by the experience of the past year,” Dynan explained, adding that, “I think the Fed is also realizing that they don’t have as good a grasp on what’s likely to happen as they might have thought earlier.”

It’s an uncertain moment, and that can definitely be scary. But it’s also a hopeful moment because the economic path the Federal Reserve was on was absolutely not heading in the right direction, so now they have the opportunity to correct our course toward a more economically responsible direction. Jerry Sonnenfeld and Steven Tian at the Prospect explain that last month’s strong jobs report proves that the Fed has been failing in its efforts to curb inflation: “unless the Fed induces a catastrophic recession, its policy levers will have limited if any impact on the presumed inflation indices it is targeting. Indeed, the Fed’s preferred inflation statistics have only accelerated upward since the start of rate hikes six months ago.”

We have to recognize, though, that inflation isn’t moving in a straight line right now — it’s bouncing up and down, with different prices decelerating and accelerating at different times. And many of those prices will produce lagging indicators: Housing prices, for example, are dipping, but that decrease won’t actually show up in the inflation numbers for up to a year.

“Used-car prices, which spiked during the pandemic because of new-car production bottlenecks, are way down. Lumber prices are also down dramatically. Housing costs, a big driver of inflation, are moderating. Rental prices are actually trending down,” Robert Kuttner notes.

So what does all this mean? Simply, our economic leaders need to chart a new course, and the Fed needs to lead the way. The Economic Policy Institute argued recently that we could potentially avoid a painful recession if the Federal Reserve stops driving up interest rates and instead encourages policies to combat corporate greed, and more and more economists are starting to join EPI’s side. We are at an important crossroads, and it may not be too late for Fed leadership to change its mind before plunging us into a recession.

Exploring the “stubbornly” good jobs numbers

The economy added more jobs than expected last month, reports the New York Times, and wage growth is slowing but still increasing — though those higher wages have not climbed nearly as high as inflation, so workers are still losing out.

I take serious issue with the Times’s framing of this story, though: Their story about the jobs report began with the statement that “Job growth remained stubbornly robust in October.” Only in this absurd economic moment, in which experts are claiming with a straight face that unabashedly good news is bad news, could the paper of record get away with framing a good jobs report as a vexing annoyance.

I’ll keep repeating this until I’m blue in the face: More jobs and higher wages are a good thing. Your wages aren’t driving up inflation — higher prices are caused by a variety of factors, particularly runaway corporate greed. (And anyway, inflation has risen far faster and for longer than wages have been on the rise.)

But like every other economic indicator, the jobs numbers are complicated right now. We’ve seen a number of high-profile layoffs of thousands of workers in the tech sector recently — including Twitter, Facebook, and Redfin — and it remains to be seen if that’s just a correction in a sector that became hugely overvalued during the pandemic, or a leading indicator that more layoffs are on the way across the economy.

And the pandemic continues to drag on the workforce, as explained in an excellent Wall Street Journal investigation. “In the average month this year, nearly 630,000 more workers missed at least a week of work because of illness than in the years before the pandemic, according to Labor Department data,” write Gwinn Guilford and Lauren Weber.

Of course, many of these workers don’t work in states which protect their right to paid sick leave so the costs of these sick days are particularly devastating on a personal level. And as any parent can tell you, American children are currently passing at least three revolving respiratory illnesses back and forth. Their sick days obviously impact the working lives of parents — and again, paid family leave is unfortunately not the norm in the American workplace.

So in summary: As with everything to do with the economy these days, nobody knows for sure what’s going on with the jobs numbers, and anyone who argues otherwise is either lying or a fool. All we can do is keep a close eye for oncoming trends and pass policies to ensure that Americans are working and their wages are rising.

Housing for the wealthy, debt for everyone else

Stefanos Chen at the New York Times takes a deep look at the housing market and concludes that it’s probably worse than you think. The chief economist at Moody’s Analytics tells Chen that this moment “may be the worst time in my living history for the home buyer,” adding that “it just doesn’t make sense.”

Because the Fed keeps raising interest rates, mortgage rates are way up. Someone getting a loan for the median asking price for a home is likely to pay more than $1100 more per month than a homebuyer at this time last year.

Chen interviewed a wide range of housing experts, and they concluded that “Home prices are going to drop, just not to the extent some buyers have hoped for,” while “renters may finally get a reprieve from surging prices, even as prices stay well above prepandemic levels.” (Bear in mind the usual caveat about experts, particularly in these weird economic times.)

Still, companies that service the housing market are starting to demonstrate a lack of confidence in the housing market. When Redfin announced layoffs of 13% of its workforce this week, the company also announced that it was closing down its home-flipping division, to which it had devoted hundreds of millions of dollars.

Like so many other tough economic situations, wealth inequality is only exacerbating the problem. That means wealthy, older, white homeowners are pushing others out of the housing market. According to a study from the National Association of Realtors, some 88 percent of home sales last year were to white buyers, a 25-year high. At the same time, only 26 percent of home sales were to first-time buyers, which is the lowest percentage in the 41-year history of the study.

And remember, homeownership is about much more than just providing shelter — for the average American, their home is their primary source of wealth, and one of the main drivers of intergenerational wealth. The longer that the housing market is unattainable for families of color, the more wealth they lose for decades (and generations) to come.

As we wait to learn who controls Congress, the debt limit looms

Even though the election proved to be much stronger than expected for Democrats around the country, Emily Cochrane and Jim Tankersly write that one big question mark is hanging over the final results: If Republicans control either house of Congress, they could kick off a battle over the debt ceiling with President Biden. By refusing to allow the United States to borrow money, Republican leadership could imperil the whole economy in the process.

“Failing to lift the limit could force the Treasury Department to default on its obligations to bondholders, or to prioritize government payments in a manner that delays or threatens military salaries, Social Security benefits or basic federal services,” Cochrane and Tankersly write.

As we saw in 2011, when Republicans caused a crisis by threatening to raise the debt ceiling, a debt-limit showdown injects massive uncertainty into the global economy. This was bad enough when the world was just beginning to recover from the 2008 economic meltdown, but compounding our current pandemic-era economic uncertainty with a debt ceiling battle along partisan lines could tip us all over into a global recession.

As I write this, it’s impossible to predict the precise outcome of the midterm elections. But if Republicans control even half of Congress, the clock will start ticking on an entirely avoidable economic disaster, adding another major concern to our plates for 2023.

Real-Time Economic Analysis

Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunk Works; and follow us on Twitter and Facebook.

• To celebrate the midterm elections, The Pitchfork Economics podcast reposted a conversation with Vote.org CEO Andrea Hailey from late last year about the reality of voter suppression in America, and what steps we need to take in order to have a truly inclusive democracy.

Closing Thoughts

The more I learned about mainstream economics as a young man, the more astonished I became at what economics didn’t bother to measure. Most of the economists who have held positions of power over the last 40 years, for instance, failed to acknowledge the power dynamic between workers and their employers. If a worker didn’t like their pay, they’d claim, the worker could simply quit their job and find employment elsewhere at a higher rate that matched their value. That reductive statement failed to address the fact that millions of workers live paycheck to paycheck and quitting would leave them destitute, and that most full-time workers get their health insurance through their employers, among many other unmeasured factors.

For far too long, economics also completely failed to take the environment into account at all. An economist would look at a strip-mining operation in West Virginia, for instance, and see an economic engine powering the local economy. Their calculations wouldn’t take into account all the pollution that mine was creating, or the contribution to climate change all that coal would make once it was mined and sold, or what might happen to the community once the mine leached the land of all its value.

This week, an economist named Herman Daly passed away at the age of 84. Daly, Emily Langer writes for the Washington Post, “argued for a fundamental shift in the way the economy is understood — not as an independent system, but rather one that exists within the ecosystem of the Earth and is constrained by the resources available on the planet.”

Daly argued, for instance, that mainstream economics considered a massive oil spill to be a net gain for a nation’s Gross Domestic Product because the cleanup efforts injected money into the economy and created jobs. When he started working as an economist a half-century ago, Daly was far out on the fringes of economics — he was undoubtedly characterized by corporations as a job-killing crank, to the extent that they bothered to acknowledge his existence at all.

But he kept at it, and in the 1990s Daly’s work began to receive attention as climate change became harder to ignore. Now, a whole generation of economists take Daly’s hard-won observations as something undeniable and obvious. This is not to say that he’s completely won the war, of course — most of our economic metrics still prioritize growth over long-term sustainability — but Daly literally injected a new metric into economics that had never been there before.

As we work together to undo the trickle-down economic thinking that has dominated the globe for the last 40 years, I think we can all learn a lot from Daly’s example. His persistence, his patience, and his conviction created something out of nothing, as far as economics is concerned, and he helped get us closer to an understanding of economics that reflects the world as it is — not how the wealthy and powerful want us to see it.

I was particularly struck by Daly’s argument that economics should “care about what counts, not about what is merely countable.” What a beautiful, true statement that is! What good is a world of record profits and unprecedented growth if that world can’t provide clean air, food, and water for your great-grandchildren? Who cares if a nation’s GDP is skyrocketing if families are starving?

That great economic innovation of Daly’s is a north star for myself and all my coworkers at Civic Ventures — an understanding that an economy is made up of people, not profits. It’s a concept that seems obvious to us now, but Daly had to fight hard for that concept, pushing at mainstream economics from the outside for decades, so that we can stand on his shoulders, build on his work, and pass it up to the next generation.

Be kind. Be brave. Get vaccinated — and don’t forget your booster.

Zach