Bloomberg Blew It

The Pitch: Economic Update for October 19th, 2023

Friends,

On October 17th, 2022, the financial news site Bloomberg ran a remarkable story. Bloomberg’s economic analysts examined the data and determined, with one hundred percent confidence, that the United States would fall into a recession within a year. Here’s the actual headline:

It is incredibly rare that any expert issues a 100% prediction, so Bloomberg’s story was understandably picked up at a number of outlets in October of last year. Here are three such stories, from Yahoo News, the New York Post, and CBS News, but there were many more:

You are receiving this newsletter two days after the one-year anniversary of Bloomberg’s 100% confident prediction that the U.S. would be in a recession within a year. And as of this moment I can write with 100% confidence that the U.S. has not entered a recession.

Let’s be clear: I’m not arguing that the economy is perfect right now. For most Americans, prices are too high and interest rates are impacting their lives — especially housing prices. But a recession is a very specific economic term referring to two or more consecutive quarters of widespread economic contraction, and by any metric that has definitively not happened. In fact, on October 17th, JP Morgan issued a report predicting that the US economy would expand by a whopping 4.3% in the third quarter of this year.

That’s not the only positive economic signal that happened to land on the anniversary of Bloomberg’s dire prediction: We also learned that U.S. retail sales increased by .7% in September, more than double what the experts expected, led by big bumps in auto sales and restaurant spending. If the American economy is contracting, nobody bothered to tell the American consumer.

Even economists are starting to come around: This week, a Wall Street Journal survey found that a majority of economists are optimistic that the United States will successfully avoid recession. (But given that mainstream economists last year were pessimistic about the state of the economy, maybe this is a sign that we should be worried.)

At the time that I write this, neither Bloomberg nor any of the news sites that picked up Bloomberg’s story have addressed their completely wrong predictions of disaster. That’s to be expected: As Larry Summers’s long and successful career proves, economists rarely if ever suffer any repercussions for repeatedly making predictions that turn out to be completely wrong. But if Bloomberg isn’t going to hold itself accountable for its failure, the rest of us should at least mark this embarrassing anniversary by trying to understand exactly what went wrong with their predictions.

Part of the problem is that too many mainstream economists made the mistake of believing that the global wave of inflation we’ve experienced for the past two years would behave in exactly the same way as the inflation crisis of the 1970s. But the inflation of 50 years ago was a long-running crisis caused by energy bottlenecks and complex geopolitical issues, while the price increases that kicked off in 2022 were caused by the supply chain snarls that happened when we basically turned the global economy off and then back on again during the pandemic. (And they were then spurred on by greedflation, in which corporations exploited natural supply-chain price increases to raise their prices even higher and pad their record-high profit margins.) Bloomberg’s models very likely failed to understand that today’s inflation was not going to linger in the way that it did a half-century ago.

And most importantly, Bloomberg sees the world through an outdated economic lens. Their economists still believe that CEOs and the super-rich are the engines of the economy. It’s an outdated, trickle-down understanding of the world that fails to recognize that working- and middle-class Americans are the true job creators, which means they are the key to widespread prosperity. Anyone looking at America’s strong consumer spending numbers, which were spurred on by widespread wage growth and a strong job market, would not have argued with 100% confidence that a recession was imminent.

Bloomberg underestimated working Americans, and distrusted Biden Administration economic policies that invested in working Americans, and so they predicted doom. This should serve as a warning to the experts who use trickle-down economics to shape their worldview: If you don’t center working Americans in your predictions, your reputation as a reliable economic news source will be at risk.

Get your copy of the trickle-down playbook

And just as a reminder — Civic Ventures founder Nick Hanauer’s new book with Nation journalist Joan Walsh and In the Public Interest Executive Director Donald Cohen, Corporate Bullsh*t: Exposing the Lies and Half-Truths That Protect Profit, Power, and Wealth in America is nearly here. Preorder now to receive your copy when the book is published on Halloween.

The Latest Economic News and Updates

Inflation Is Getting in Line, but Will the Fed Care?

“The September report from the Bureau of Labor Statistics showed the same annual level of inflation as in August, with high housing and gas costs straining families’ budgets,” wrote Rachel Siegel at the Washington Post last week. “Month-to-month price gains improved slightly, though, climbing 0.4 percent over August compared with a 0.6 percent rise between August and July.”

So while the big price spikes of 2022 appear to be safely in the past, the fact is that inflation is currently steady at slightly higher-than-usual levels, which is exactly the problem point for the Federal Reserve: Do they keep raising interest rates in order to shave that last percentage point off the monthly inflation rate — and increasing the risk that the Fed will throw the economy into an unnecessary and painful recession — or do they begin to lower rates and hope that a sustainably strong economy eventually brings down price increases on its own?

The higher prices aren’t evenly distributed. As Siegel noted, two main factors are keeping inflation aloft. For one thing, diesel gas prices are currently very high, which is a factor that could ultimately affect the prices of many of the holiday goods that are currently being shipped around the country.

But perhaps most importantly, housing prices were the highest driver of last month’s price increases. Americans who rent are paying much more than they did before the pandemic, and house prices are so high that Americans are buying fewer homes than at any time since the housing bubble burst. And the housing inequality gap continues to grow: a new study from Redfin shows that more than a third of all young people under 30 who are buying their first house are doing so with funds from their family.

And remember, the Fed’s push to raise interest rates to their highest point in 22 years is raising the price of mortgages, too. Will they continue to raise rates later this month? For what it’s worth, the New York Times reports that Wall Street is betting that the Fed is done raising rates for now, and the Fed’s public comments seem to indicate that they’re feeling skeptical about raising rates any further. The Fed meets two more times this year — once around Halloween and once in mid-December. The decisions they make at those two meetings could very well establish the course of the economy in 2024, and the economy’s health is one of the biggest factors in presidential elections. It’s hard to overemphasize what is at stake.

America at Work

Most pundits were completely gobsmacked by the announcement that the economy added 336,000 jobs in September, a number that far outpaced the expectations of economists. When taken in tandem with this month’s shockingly good retail sales numbers that I mentioned at the beginning of this newsletter, this month has been all about defying economic expectations.

Workers still have the power to demand higher wages, and employers know it. The huge three-day strike that Kaiser Permanente health care workers embarked on earlier this month successfully convinced Kaiser executives to meet union demands. Aaron Gregg at the Washington Post reports that the new tentative contract “establishes new minimum wages over three years for union employees, which Kaiser said will reach $25 per hour in California and $23 per hour in other states. It also provides for across-the-board wage increases totaling 21 percent over four years, according to a statement from Kaiser.”

Perhaps spurred on by the Kaiser workers, nurses in Los Angeles embarked on a 5-day strike and doctors at a large nonprofit healthcare system in Wisconsin and Minnesota voted to unionize last week. “The union vote follows recent walkouts by pharmacists in the Kansas City area and elsewhere over similar concerns,” writes Noam Schieber at the New York Times, adding that the doctors voted to unionize in part because “employers have exploited their sense of mission to pay them less than their skills warrant, or to work them around the clock. Others contend that new business models or budget pressures are compromising their independence and interfering with their professional judgment.”

An Axios survey of American strikes projects that during the Kaiser action, nearly a third of a million Americans were on strike. Now that the healthcare workers have reached a tentative agreement, Axios projects that 241,500 Americans are currently striking. All told, “The number of workers on strike has increased nearly 10-fold since 2021,” Axios notes.

Workers have taken employers by surprise with all these actions, the New York Times reports. Union leaders believe that “employers are increasingly miscalculating — acting from a template that applied in previous decades, when employees had little leverage, and underestimating the frustration and resolve in the postpandemic work force.”

For many Americans, virtually every aspect of their work life has changed over the past three years. Remote work has changed daily habits, childcare has become more expensive, and demand has been incredibly high in sectors like healthcare and hospitality. While wages are finally rising above price increases, most Americans feel like they deserve more — and they finally have the power to do something about it. The faster that employers realize the balance of power has shifted, the better they’ll be able to adjust to the new realities of America in the 2020s.

A Nobel Cause

Because last week’s issue of The Pitch was solely devoted to the release of a new book documenting the trickle-down game plan, we didn’t turn our attention to one of last week’s biggest economics stories: The awarding of the Nobel Memorial Prize in Economic Sciences to Professor Claudia Goldin.

Make no mistake: Goldin is an economic trailblazer. She has devoted her career to studying the gender pay gap and other economic inequalities that impact women. And she’s also made huge strides in investigating one of the most under-studied aspects of economics: The way that power imbalances affect the lives of everyone in an economy.

Abha Bhattarai wrote for the Washington Post that “Goldin’s work pushes back against long-held notions that a strong economy and technological advancements would be enough to pull women into the workforce.”

In other words, simply stating that the labor market is now open to women isn’t enough to close the yawning gap created by centuries of reinforced gender inequality. “Goldin’s analysis of more than 200 years of U.S. labor force data shows how employment rates and the gender wage gap depend not just on the economy,” Bhattarai explains, “but also on evolving social norms related to women’s education and roles in the home and family.”

The Nobel’s economic selection committee doesn’t always get it right, but Goldin’s award is much-deserved. She has not only contributed to, and in some cases created, a tremendous body of work documenting and exploring the economic lives of women. She’s also helped uproot the pernicious idea that economics is simply a math problem to be solved, and replaced it with an understanding that an economy is made up of people, and that people are subject to invisible societal forces that can’t be measured on a spreadsheet.

It’s only by understanding the whole scope of human experience that we can truly begin to create an economy that includes everyone. Goldin has done more to move us toward that goal than just about anyone living on the planet right now.

This Week in Middle Out

• A new report from the Center on Equitable Growth finds that the $15 minimum wage not only raises pay for low-wage workers, but it also increases employment, too. “Using simple back-of-the-envelope calculations, we estimate that the higher minimum wage in California and New York resulted in 39,000 more employed fast-food workers,” the authors write.
• There’s so much data in the Federal Reserve’s new 2022 Survey of Consumer Finances that economists will be unpacking it for weeks to come. But Joey Politano spotted an exciting bright spot in the data almost as soon as the Fed released the report yesterday: Specifically, there have been “Massive increases in Black & Hispanic business ownership,” which he calls “more data confirming the pandemic-era entrepreneurship boom was driven in large part by minority-owned small businesses.” You can see the spike in the chart on the far right:

• Here’s an exciting development in the fight against wage theft, which is robbing American workers of an estimated $50 trillion every year: The California Labor Commission has made its first criminal prosecution against a business owner for wage theft. Until bad actors understand that they can go to jail for stealing money from their workers, America’s wage theft problem will never get under control.

“This is the first time a garment manufacturer and garment contractor have ever been arrested for wage theft,” said Labor Commissioner Lilia García-Brower. “These employers not only abused their workers by paying them as little as $6.00 per hour but they also defrauded the system.”

• In a blow to the FTC’s fight against big corporate mergers, Microsoft’s acquisition of Activision went through last week. “The completion of Microsoft’s Activision acquisition is a clear signal that several years of governments around the world scrutinizing big tech companies have so far done little to curb their power, their growth or their ability to ink megadeals,” writes the New York Times. “And the deal could provide a blueprint for other big tech companies on how to successfully fend off the intervention of regulators.”
• Last year, semiconductor manufacturers praised the passage of President Biden’s bipartisan CHIPS and Science Act, which invested hundreds of billions of dollars to bring chip manufacturing away from China and back to the United States. But now, those same big companies are protesting a Biden regulation that prevents them from selling their chips to China. Nothing in the New York Times article about the manufacturers’ complaints convinces me that this is anything more than a push to enlarge their already-huge profit margin by slashing regulations — which is particularly galling since chip manufacturers were so enthusiastic about the investments that they lobbied for the regulations in the first place.
• Biden Administration policies like the CHIPS and Science Act are already reshaping our trade relationship with the world. “A deepening confrontation between the U.S. and China is eroding trade ties between the world’s two largest economies, with goods from China accounting for the smallest percentage of U.S. imports in 20 years,” writes the Wall Street Journal. “Instead, buyers are turning to Mexico, Europe and other parts of Asia for wares ranging from computer chips and smartphones to clothing.”
• You should definitely read this Economic Policy Institute report on the shameful state of teacher pay in America. It finds that in 31 states, teachers earn at least 20% less than other college graduates who attained the same level of education — what EPI frames as a “teacher pay penalty,” which is a term that simply should not exist. Teachers around the country should be getting raises. Anyone with even the briefest contact with middle out economics understands that paying these teachers more would not only increase the quality of public education in America, but it would also improve the communities where those teachers live.

• Lee Harris at The American Prospect writes about how private equity funds are standing in the way of the green economy: They’re gobbling up HVAC companies and jacking up the prices of energy-efficient heat pumps to pad their profits, making it harder for Americans to afford to make their homes more environmentally friendly.

This Week on the Pitchfork Economics Podcast

We at Civic Ventures have known for years that the more people you include in an economy, the better the economy is for everyone. On a rebroadcast of a May 2022 episode of the Pitchfork Economics podcast, john a. powell, the Director of the Othering & Belonging Institute, broadens the scope of that inclusive message to explain why the concept of belonging is so important for a healthy community.

Closing Thoughts

This month economists Alessandro Ruggieri, Triastany Armangué-Jubert, and Nezih Guner published a doozy of a paper that helps to expand our understanding of how economic prosperity really grows.

The paper’s undramatic title, “Labor Market Power and Development,” doesn’t really clue you in to its findings. The authors explain in the introduction that they dug into the numbers to find out “whether labor market competition differs across countries with different levels of economic development and whether such differences can help explain disparities in GDP per capita worldwide.”

In plain English, that means they compared the labor markets of poorer countries like Zambia and Senegal to countries that are developing more widespread wealth like Peru and Indonesia, and wealthy countries like the Netherlands and the United States. Their findings apply just as much to economies of nations on the top of the wealth scale as they do the bottom.

They find that non-competitive labor markets (in other words, regions in which employers hold too much market power) generate lower productivity and slower widespread GDP growth than more competitive labor markets. So when a small number of employers can dictate the terms of employment for workers throughout a region, those workers produce less and create poorer-quality products and services. But this isn’t just a problem for the employers: In situations where workers have fewer choices, the entire surrounding economy grows slower and is generally weaker than it would be if workers had more power.

Competition, then, is key to a healthy economy. If workers have more options for employment, they can demand higher wages and they work harder. And with those higher wages, they buy more goods and services, creating jobs with their consumer demand.

Sound familiar? It’s the same middle-out argument that we’ve been talking about since the Fight for $15 launched a decade ago this fall: When workers have more money, they spend that money in local businesses, and that’s good news for everyone.

This report is yet another example of the bad things that happen when wealth and power is accumulated at the very top of the economy, and the great things that happen when more people are empowered to fully participate in the economy as workers, consumers, and citizens. It’s just as true everywhere around the world as it is here in my home of Seattle.

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

Zach