Bidenomics, One Year Later

The Pitch: Economic Update for January 20th, 2022

(The Pitch is a weekly economics newsletter written by Zach Silk. Sign up for free on Substack to receive a new issue in your inbox every Thursday.)

Friends,

The most important question economists should always ask themselves is: “Are we measuring the right outcomes?” Is it actually useful to measure a country’s economy through its imports and exports, for instance, when children are going hungry and families are going bankrupt due to medical debt? Does anyone believe that the stock market has more of an impact on ordinary Americans’ lives than the cost of housing? Should unemployment be the most important ranking of an economy during a pandemic, when so many full-time workers still live in poverty?

Karen Dynan at the Washington Center for Equitable Growth asks if academic researchers are measuring the correct outcomes of America’s pandemic-era economic response. It gets a little weeds-y, but the post looks at the latest economic research on stimulus spending and finds that researchers focused on how stimulus payments affected the aggregate economy, rather than concentrating “on the more general question of how this type of countercyclical fiscal policy helps to protect households from harm that might otherwise result from a weak economy.”

In other words, researchers are looking at how these policies impact the GDP, but not considering the personal misery that these policies have avoided. This might sound like hair-splitting, but it’s very likely that researchers could draw bad conclusions by looking at economic data in the wrong way. You can’t measure something that you don’t know exists, and if you try to examine how stimulus payments helped everyday Americans by exploring macroeconomic data like corporate profits, revenue rates, and other tools that are not up to the job of measuring the day-to-day experience of ordinary Americans, you might wind up not seeing the trees because the forest has gotten in the way.

The Latest Economic News and Updates

During the pandemic, the richest got much richer

Let’s start with the most shocking figure of the week: The wealthiest ten American billionaires got $1 billion richer every single day of the pandemic, according to Americans for Tax Fairness. That’s an addition of about $12,600 per second to their stores of wealth for the last two years, and a damning sign that income inequality isn’t just growing in the United States during the pandemic — it’s accelerating.

After one year of Bidenomics, the report cards are coming in

One year ago today, Joe Biden took office as President of the United States, so it’s a good time to reflect on the successes and failures of the first year of the administration. The media is buzzing with retrospectives. Many of these report cards follow the lead of The Washington Post’s Jeff Stein, whose analysis is exactly as dramatic and pessimistic as the headline warns: “The left dreamed of remaking America. Now, it stares into the abyss as Biden’s plans wither.” Stein provides an overview of various losses suffered by the Biden White House in Congress, in the Supreme Court, and in public opinion, ultimately concluding that “It could be years, if not decades, before Democrats again control both branches of Congress and the White House.”

Stein generally has a good head on his shoulders, but predictions tend to make fools out of even the wisest among us. Those of us with a wider view of history remember that the first year of Ronald Reagan’s two terms was widely considered a failure — particularly on economic fronts — and many predicted that Barack Obama would be a one-term president on witnessing the Tea Party backlash to the adoption of Obamacare. This isn’t to say that the Biden presidency is guaranteed to be a success, but it is too early in the game to call it a failure.

The Center for American Progress takes a different approach, examining the successes of President Biden’s bold economic policies and calling for the continuation and expansion of those policies in the years ahead by making permanent expansions to the safety net, providing rental assistance to families facing down the end of local eviction moratoriums, and ensuring that workers continue to enjoy more power in the expanding labor market. And it’s promising news that Biden’s Treasury Department last week encouraged state and local governments to spend the remaining $150 billion or so in remaining American Rescue Plan funds directly on people, rather than on tax cuts and other trickle-down policies that would put the money into the pockets of corporations and the wealthy. As we know, tax cuts simply don’t work.

In another article packed with charts and data, CAP makes a compelling case that these economic policies are what helped us get through the pandemic relatively unscathed, and that to turn our back on progressive economics would be a grave mistake. I learned a lot from this chart showing the actual rate of employment gains under the American Rescue Plan against the Congressional Budget Office projections:

And this chart shows that while we did make earnings gains for the average American when measured in disposable income, paychecks still have a lot of room to grow:

Will 2022 be the year of the housing crisis?

Hopefully in 2022, our leaders will address the crisis of affordable housing, which Pew says a growing share of Americans are identifying as “a major problem where they live.” It’s quite remarkable to look at this chart and realize that a majority of Americans — regardless of age, education, race, political affiliation and gender — recognize that housing affordability is “a problem,” though the split between whether they consider it to be a “major” or a “minor” problem does tend to be fairly large:

And CNBC notes that a new ticking clock is compounding America’s housing crisis: Mortgage rates are starting to climb, and people are rushing to get mortgages before the market crowds them out entirely. “Applications for a mortgage to purchase a home jumped 8% [last week] and set a record for loan size,” Diana Olick notes. I don’t know about you, but the idea of a wave of people rushing into making one of the biggest purchases of their life due to economic uncertainty doesn’t exactly fill me with confidence.

Saving jobs and raising wages through smarter rulemaking

Every huge corporate merger results in thousands of layoffs as the organizations fuse their workplaces together and then eliminate redundancies. On the simplest economic level, this explains why mergers are bad: they reduce competition both for consumers and for workers, pinching the economy on both ends.

That’s why it’s good news that the Biden Administration is working to finally update policies for corporate mergers, as Marcy Gordon writes for the Associated Press: “The Justice Department and the Federal Trade Commission announced Tuesday they are seeking public comment on how current merger guidelines can be updated to better detect and prevent illegal and anticompetitive deals in an increasingly consolidating corporate marketplace.”

And while we’re talking about rulemaking, the Center for American Progress makes a great case for local and federal governments to make more use of prevailing wage laws in the service sector. “Service sector prevailing wage laws require service workers on government projects to be paid wages and benefits that at least match market levels for workers who are employed in similar professions in a given area,” CAP explains. In industries and municipalities without prevailing wage laws, the government can often undercut local standards, driving wages down for all workers in a region. By simply expanding the use of prevailing wage laws, CAP argues that government can raise wages broadly for entire local industries. This is a very wonky topic, but it’s one that has been proven to result in markedly higher wages for workers of color and women in service positions including janitorial work.

Inflation causes still aren’t clear, but inflation’s effects seem to be record profits

David J. Lynch reports for the Washington Post that the worst supply-chain snags might be behind us, but fallout from Omicron variant surges might inspire more inflation spikes in the beginning of 2022. Lynch says that “the cost of sending a standard metal container from China to the U.S. West Coast remains more than three times what it was one year ago and is expected to remain elevated through the first half of the year.”

We should note that while we know inflation is high around the world, we’re still not entirely sure on the causes of spiking prices. Some are arguing that recent tariff increases contributed to pandemic supply-chain issues, which the Economic Policy Institute strongly denies. One thing that is abundantly clear, though: Corporations and shipping companies certainly aren’t feeling the pain from higher prices. Proctor & Gamble’s Chief Financial Officer this week bragged that higher prices combined with a six percent increase in net sales led to a higher-than-expected quarterly profit for the company. And shipping companies brought in $150 billion last year, setting record profits for the shipping industry. Take a look at this table from Bloomberg and tell me that the rising prices are entirely a result of natural market forces:

Income inequality is out of control among squirrels, too

At Naked Economics, Yves Smith reports on a new study showing that income inequality also affects the animal kingdom. Specifically, the hoarding and passing on of intergenerational wealth seems to be consistent among a wide variety of mammals: “Certain squirrel mothers who hoard nuts and pine cones, for example, will end up bequeathing food stores to a few of their offspring, thus upping their chances of survival,” and “High-ranking hyenas are able to pass on status to daughters (they’re matriarchal, those clever hyenas), who inherit the right to the best meat, while some monkeys obtain tools to crack nuts from their parents, giving them extra advantage.”

A few wags on Twitter have used this study to argue that income inequality is natural and therefore inescapable. I’d like to invite those armchair economists to give up indoor plumbing and heating, if they truly believe we should replicate the practices of the animal kingdom in all its wisdom. Humans have the unique power of reason, and that means we should be able to create a system more equitable, just, and efficient than the economic hierarchy established by the instincts of a few red squirrels.

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.

• On Civic Action Live this week, we’ll assess the Biden Administration’s first full year in office and explore the policies that they should pursue in order to keep the economy growing, we’ll discuss the warning signs that America could be entering a new phase of the housing crisis, and we’ll discuss the increasing dissonance between growing billionaire stores of wealth and the high prices that most Americans are struggling with every day. Plus, we’ll take your questions and comments live, starting at 10:30 am PST on Friday.
• The great Saru Jayaraman joins the Pitchfork Economics podcast to explain the racist roots of the tipped minimum wage and explain why no employer should be able to get away with paying a measly $2.13 per hour.
• In his Business Insider column, Paul explains in plain English what the Federal Reserve does to combat economic downturns, and why it may actually exacerbate the underlying economic conditions that cause economic downturns in the first place.

Closing Thoughts

I had hoped that the Great Resignation might finally put an end to the popular economic canard that automation will wipe out the American workforce. If ever there was a time that robots would take the jobs of workers in the service industry, surely that time is now — why wouldn’t all those employers complaining that nobody wants to work anymore simply replace their absentee workforce with burger-flipping automatons, self-checkout machines, and Roombas and be done with it? That this hasn’t happened is perhaps the greatest refutation of The Robots Will Take Your Jobs argument imaginable. But automation is too powerful a threat for trickle-downers to give up entirely — there are still plenty of employers who want to keep their workers in line with threats of automated kiosks and single-task robots.

That’s why I was glad to see Byron Auguste’s report at Washington Center for Equitable Growth. In the piece, titled “Understanding how U.S. workers can benefit from workplace automation and artificial intelligence,” Auguste makes the case that “Technology is not like gravity” — not an insurmountable force that is destined to happen. Instead, technology amplifies workers, removing drudgery and inserting possibilities into their jobs. He suggests ways to incorporate the non-college-educated workforce into a futuristic workplace by considering them not as “unskilled” workers but rather as “Skilled Through Alternative Routes,” or STAR workers who can be augmented by automation and modest training into even more productive — and better-paid — employees.

Auguste also encourages policymakers to get ahead of the issue of automation by making “technology an empowering tool in the hands of workers — not because of luck, but through deliberate choices, including long-term investments, by our government, industry, and citizenry.” And that’s really the most important part of all this. As Nick Hanauer likes to say, technology has been improving work since the first worker stopped using their hands to dig a hole and instead crafted a makeshift shovel. No matter how much technology is layered on top of work, more work always needs to be done. What our leaders can do is make those difficult transition periods when technology transforms work into something easier, more prosperous, and more mutually beneficial for workers and employers. That’s what policy is for.

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

Zach