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The Pitch: Economic Update for March 9, 2023

Friends,

This week, the Justice Department announced that it was taking legal action to block a merger between JetBlue Airways and Spirit Airlines. The $3.8 billion merger, the Justice Department warned, would result in higher prices for millions of travelers every year, and would create an unnecessary economic burden for budget-conscious Spirit Airlines passengers.

“After years of bankruptcies and mergers, four domestic carriers — American Airlines, Delta Air Lines, United Airlines and Southwest Airlines — account for about 80 percent of the market,” reports the Washington Post’s Lori Atarani and Perry Stein. “JetBlue is the sixth-largest U.S. carrier, while merging with Spirit would make it fifth.”

At this point, we shouldn’t be surprised to see the Biden administration taking action against a large corporate merger. They’ve fought consolidation of corporate power in the publishing industry, in hospitals and health care, and in Big Tech. Corporate executives around the country should by now understand that their plans for big mergers will be met with skepticism, and probably some sort of action, from the White House.

This anti-merger atmosphere is a welcome change of pace. The Biden administration is intentionally making a 180º turn from the pro-corporate policies of four decades of Republican and Democratic presidential administrations. In this case, Attorney General Merrick Garland specifically argued that “JetBlue’s plan would eliminate the unique competition that Spirit provides” in his statement announcing the lawsuit.

Note that the administration correctly frames their efforts to stop monopolies as fostering competition in the marketplace. It’s a fine distinction, but it’s important. For too long, opponents of corporate consolidation have argued that it’s a moral imperative to stop monopolies from happening — that too much power in too few hands is unfair for everyone. And that argument is correct! But it’s easy for trickle-downers to frame this moral argument as anti-business, anti-job, and anti-economic growth. The problem with fairness arguments is that both sides can credibly claim the higher moral ground. But it’s impossible for corporations to argue that swallowing up their competitors is good for competition.

The record clearly shows that mergers and monopolies drive wages down, push consumer prices up, and stifle innovation. They’re terrible for everyone except the corporate executives who get big payouts on their completion. By making a case for a robust market full of businesses with different strategies competing for consumer dollars, the Biden administration has embraced economic growth. That’s an easy-to-understand, popular framing of anti-monopoly actions which aligns with the administration’s middle-out economic principles.

The Latest Economic News and Updates

The Recession Is Always Just Around the Next Corner

The headline on Nick Timiraos’s story at the Wall Street Journal feels like a punchline: “Why the Recession Is Always Six Months Away.” But the story itself is a good explanation of why every economist continues to predict a recession just out on the horizon, and why we never actually touch that horizon. Retailers, for instance, are reporting very strong consumer spending numbers, but at the same time, they predict that spending will fall off a cliff at some indeterminate point in the future.

Timiraos explains that the federal response to the pandemic “left household, business, and local government finances in unusually strong shape,” when compared to the rest of the world. (Funny that the article frames government’s efforts to protect ordinary people during lockdowns in a vaguely negative light, when the WSJ was a vocal cheerleader of the government’s Wall Street bailouts in 2008.) And as the global economy has slowly come back online after being turned off by the pandemic, our spending is keeping people employed.

The job market has slowed down from its highs of 2021, but it is still doing remarkably well. Black and Latino employment is now higher than it was pre-pandemic, and workers across the economy are still quitting their jobs at elevated numbers — a sign that they have confidence they can find employment relatively easily:

The fact that the labor market is so strong is apparently keeping Federal Reserve Chair Jerome Powell up at night with concern. Powell recently warned that “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

Corporations raised prices across the board last year, and greedflation simultaneously contributed to record corporate profits and kept inflation numbers high all year long. But because the labor market is strong and people are spending their wages, Powell believes that interest rates need to go even higher in order to get inflation in line.

On Tuesday, Senator Elizabeth Warren warned Powell that if he goes through with his threatened wave of aggressive rate hikes, at least 2 million Americans will lose their jobs. This whole exchange is quite remarkable:

Senator Warren: Chair Powell, if you could speak directly to the two million hard-working people who have decent jobs today, who you’re planning to get fired over the next year, what would you say to them? How would you explain your view that they need to lose their jobs?

Chair Powell: I would explain to people more broadly that inflation is extremely high and it’s hurting the working people of this country badly, all of them. Not just two million of them but all of them are suffering under high inflation, and we are taking the only measures we have to bring inflation down.

Senator Warren: And putting two million out of work is just part of the cost, and they just have to bear it?

Chair Powell: Well, will working people be better off if we [at the Fed] just walk away from our jobs and inflation remains five percent, six percent?

The problem with Powell’s characterization of his choice and his interpretation that the Fed has to raise rates aggressively to fight inflation is that inflation has, as Nobel-winning economist Paul Krugman notes, “come down since early 2022 — you really have to work hard to find measures that don’t say that.”

One of the problems is that experts keep revising the numbers, Krugman explains. “At the beginning of this year, consumer price data seemed to show a significant decline in inflation over the course of 2022. Then the Bureau of Labor Statistics revised its seasonal adjustment factors, which had no effect on inflation for the year as a whole but made inflation look lower in early 2022 and higher later in the year,” he writes. This chart shows the path of inflation last year, with the pre-revision line in green and the post-revision line in red:

“The numbers still show improvement, but it’s sufficiently less significant to curb many economists’ initial enthusiasm,” Krugman says. He advises Powell that “there doesn’t seem to be any reason to panic. The Fed is creeping its way forward through a dense data fog, and this suggests to me that it should avoid drastic moves in either direction.”

The Fed will announce their decision in two weeks. Pretty much everyone expects that interest rates will increase, but the most important question is by how much. If the Fed keeps making money more expensive to borrow, they could put the brakes on more than just the job market — they could kill the consumer spending that has helped us recover from the pandemic faster than virtually any other nation on earth.

Biden and the Republicans Lay Out Contrasting Economic Paths

It’s been a couple of months since we last discussed the debt ceiling impasse in Congress, but basically nothing has changed since I last wrote about this: Congressional Republicans continue to hold the economy hostage over a manufactured budget crisis, and much of the media continues to fail to acknowledge that Republicans are holding the economy hostage.

This week, Moody’s Analytics Chief Economist Mark Zandi testified before the Senate about what might happen if Republicans force the federal government into defaulting on its loans. “The damage could spiral to seven million jobs lost and a 2008-style financial crisis,” reports the New York Times. Zandi also warns that if Republicans were to get their way, and Congress were to enact austerity measures throughout the federal government, those spending cuts would “push the economy into recession in 2024, cost the economy 2.6 million jobs and effectively destroy a year’s worth of economic growth over the next decade.”

President Biden this week issued his response to the Republican hostage-takers: If they really want to reduce the federal deficit, he’s proposing a $3 trillion cut to the deficit over the next ten years by raising taxes on corporations and the wealthy. Biden also released a plan to strengthen Medicare for the next 25 years.

At the same time, Republicans are responding with a plan “to gut the nation’s foreign aid budget and make deep cuts to health care, food assistance and housing programs for poor Americans” in order to balance the federal budget. The New York Times made a graphic which shows the extent of those cuts:

By slashing all safety net programs, the above Republican plan would push tens of millions of Americans outside the economy, wiping out the consumer spending that creates jobs and toppling the economy into a death spiral of layoffs, evictions, and poverty.

The Center on Budget and Policy Priorities does a great job of pointing out that many of the agencies and programs that Republicans want to slash are still limping along after being slashed during post-Great Recession austerity measures put in place in 2010. It’s hard to argue that government spending is out of control when government programs haven’t financially recovered from the economic collapse that happened 14 years, and two recessions, ago.

We’re moving into a new phase of this debt ceiling crisis in which both sides are laying out contrasting economic visions for the future of this country: One which invests in ordinary Americans to build the economy from the bottom up and the middle out, and one which argues that, in a time of record corporate profits and out-of-control inequality, you’re on your own.

Corporations Decide They Only Want Rich People’s Money

Jason Karaian and Jeanna Smialek at the New York Times report that in over 60 earnings calls and public statements, corporations have announced that they are embracing “premiumization,” which are “offerings that cater to higher-income customers — people who are willing and able to pay more for products and services.”

In effect, the greedflation that we saw last year has essentially maxed out. Corporations have raised prices about as high as ordinary Americans can bear, and sales are declining. So in order to keep those profit margins high, they’re raising prices and adding benefits for wealthy consumers — or diminishing the experience for lower-end consumers while preserving the customer experience for people who can afford to pay the higher price. In short, some companies are deciding that it’s not even worth the effort to take money from Americans at the bottom end of the income scale. A few examples:

• Disney World has turned into a world of haves and have-nots, with wealthy customers shelling out extra money in order to avoid hours-long lines with the common people and additional fees added to nearly every ride.
• Big movie theater chains are rolling out premium programs to, for example, charge more for seats with better lines of sight, forcing poorer customers to sit all the way at the front of the theater and strain their necks if they don’t pay a few dollars more for the “premium” seats.
• And Stanford researchers found that credit card companies are favoring rewards, points, discounts, and other “perks for educated, usually urban professionals” that “are being subsidized by people who have less.” Those exorbitant fees that people at the lower end of the spectrum pay in order to simply have a credit card are funding the showy perks that attract wealthy customers.

This Week in Labor Exploitation

I urge you to read this New York Times report on why “the number of managers in the labor force increased more than 25 percent from 2010 to 2019, while the overall number of workers grew roughly half that percentage.” It’s unlikely that the need for managers in this country climbed by 25% in ten years. Instead, employers are using bogus “manager” classifications to force low-wage workers to put in long hours for no extra pay. Noam Schieber at the Times explains that “this tactic is especially common in low-wage industries like retail, dining and janitorial services.”

This practice reminds me of the recent report from the Economic Policy Institute about how employers “avoid their legal obligations to extend rights, benefits, and protections to workers” through misclassification. By simply not classifying their workers as workers, employers are avoiding basic labor protections like overtime pay, benefits, and minimum wages.

EPI points out that several states, like New Jersey, use a basic three-point “ABC Test” to determine whether a worker is an employee or an independent contractor. In short, they write, a worker can only be classified as an independent contractor if:

A. The work is done without the direction and control of the employer;

B. The work is performed outside the usual course of the employer’s business; and

C. The work is done by someone who has their own, independent business or trade doing that kind of work.

If a worker’s responsibilities fail to meet any of those three criteria, they are an employee, and they are subject to the same regulations that cover all American workers, including pay, overtime, and benefit protections.

If you need a reminder about why those protections are in place, remember that some exploitative employers will do absolutely anything they can to avoid paying fair wages. Case in point: the Biden Administration is cracking down on child labor, after the media uncovered several cases of dozens of children illegally working in dangerous slaughterhouses and factory jobs.

And just as some businesses eagerly put children to work, some politicians are eager to relax regulations in order to legalize child labor. This week, Arkansas Governor Sarah Huckabee Sanders signed a bill into law which eliminates a requirement that children under 16 provide the written consent of their parents in order to obtain a job. In the new law’s defense, the governor’s spokesperson called the consent requirement an “arbitrary burden on parents.”

Until fairly recently, people like myself at the tail end of Generation X and the beginning of the Millennial generation often took certain protections for granted. Because we were born and grew up in an age of unprecedented prosperity, we considered many of the battles of the past to be settled and done — a moment fixed in history.

Now, it’s become apparent that the most basic of worker protections is always in danger of being signed away by some zealous politician doing the bidding of the worst elements of the business community. Rights like a 40-hour work week and child labor protections aren’t simply handed to us by previous generations — they’re won over and over again through our vigilance and our willingness to fight for them.

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 the Pitchfork Economics podcast this week, Nick and Goldy talk with EPI President Heidi Shierholz about a new report finding that anywhere from one in ten to three in ten American employers are misclassifying their workers as independent contractors, when in fact those workers should be earning more money and benefits as regular employees. This is more than just a simple case of wage theft — it’s an attempt to rewrite the American labor contract and undo a century’s worth of progress on workers rights.

Closing Thoughts

Yesterday was International Women’s Day, which many corporations celebrate by posting feel-good videos and graphics paying lip service to the importance of women in their workforce. A Twitter account called Gender Pay Gap Bot helps prove the lie behind those empty words by reposting those graphics and videos with data showing how much less those corporations pay their female employees as compared to their male employees:

In fact, women are taking a leadership position in the American workforce. Sarah Chaney Cambon and Lauren Weber write at the Wall Street Journal that “Women have gained more jobs than men for four straight months, including in January’s hiring surge, pushing them to hold more than 49.8% of all nonfarm jobs.”

Women workers are powering America’s red-hot labor market, driving up wages and pushing unemployment down to historic lows. And thanks in part to stronger remote-work options, mothers are rejoining the workforce at all-time high participation rates. But while this is all great news for the economy, the authors note that men still outnumber women in the workforce: “The participation rate for men ages 25 to 54 was a seasonally adjusted 88.5% in January, 11.6 percentage points higher than for women.”

As their economic power grows, women are making decisions that would have been unavailable to them in years past. For the first time in history, Abha Bhattarai notes at the Washington Post, more American women are single — 52% — than married. And while the conventional wisdom about the wage gap is that women’s wages drop when they have children, Bhattarai reports that “Never-married women earned just 92 percent of what never-married men did last year, and have 29 percent less wealth.”

“Women have made strides in just about every facet of the economy in recent decades. The number of women attending and graduating from college has outpaced men for years, according to government figures. Women are also more likely to buy their own homes, despite lower wages,” Bhattarai reports.

Women have made a lot of economic progress over the last few decades, and the past year has been especially consequential for women,. But we have a long way to go until women are able to fully participate in the economy as equals to men.

Here’s a policy that would help with that progress: Perhaps you noted that the companies the Pay Gap Bot called out are all British. That’s because UK law requires all companies with over 250 employees to calculate and publicly post their gender pay disparity statistics every year. As we’ve seen with salary disclosure laws, when wage figures are visible to everyone, pay disparity decreases. Requiring large employers to post gender pay gap information is a low-cost, transparent, and powerful way to make employers stop and think about who gets paid more in their organizations — and why.

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

Zach