Footing the Bill for the Wealthiest Americans
The Pitch: Economic Update for October 26th, 2023
Friends,
In this week’s episode of the Pitchfork Economics podcast, Nick Hanauer talks with Donald Cohen, executive director of In the Public Interest, and Joan Walsh of The Nation about their new book, Corporate Bullsh*t, which will be on bookstore shelves on Tuesday. If you haven’t already, you can order your copy here or by clicking the photo below:
In the episode, Nick explains that his path to the book began when he became a supporter of Seattle’s Fight for $15. “In the absence of any empirical evidence,” Nick explained, business owners kept repeating the same false threats over and over: “It’ll be a job killer. It’ll harm the very people it’s intended to help.” Even though these warnings had no basis in economic research, local media repeated the lies uncritically.
Nick happened to be introduced to Donald Cohen, who had also noticed industry opponents threatening that safety regulations kill jobs. “I remember thinking, ‘let’s go see what they said before the things that we now take for granted, like Social Security, the end of child labor, the Clean Air Act.’ And it turns out they were saying the same things,” Donald says. The pattern was clear: Whenever any social benefit is proposed, the wealthy and powerful always step up and warn that the policy would only hurt the very people it’s intended to help.
Donald amassed a huge quote bank of these trickle-down threats through history, and he and Nick deliberated on the best use for it. When they decided to publish a book, they brought on Joan Walsh, who has been writing about progressive policies for decades. Joan says that when she first gained access to the quote bank, “I was terrified, to be honest. It was a lot.”
But Joan says that when the patterns became clear and that business interests and progressive leaders were fighting the same battle over and over for decades, she realized that “if we can organize and inform other people that these are the arguments they use, we will do better than we’re doing now.” She calls Corporate Bullsh*t “a handbook for people who care about any of these issues,” teaching them how to fight back against the same old tired lies.
It’s important that the book has a sense of humor and is easy to read, Joan says, because some of these arguments from captains of industry — against abolition, against child labor laws, against women’s suffrage — are horrific, and without a good sense of humor, it’s easy to lose hope.
Nick adds that humor is also how we can defang these trickle-down claims. “If you think that you are going to talk the Chamber of Commerce out of saying that raising wages kills jobs by showing them the economic evidence [to the contrary,] you are deeply, deeply naive,” Nick says, adding that ridicule plays “an essential role” in debunking these claims and changing the public conversation for good.
I’m excited to see Corporate Bullsh*t arrive on bookstore shelves and in the hands of readers. It’s an attractive book, it can be read in one sitting or flipped through when the mood strikes, and it tells the truth about one of the longest-running scams in American history. This is a book you should give to everyone on your holiday shopping list who cares about making the world a better place.
The Latest Economic News and Updates
The GDP Skyrockets in the Third Quarter
The Washington Post’s Heather Long writes on Twitter, “US GDP soared to a blockbuster 4.9% in Q3. That’s the highest since the end of 2021 and a big uptick from 2.1% in Q2. Strong consumer spending and gov’t spending drove the growth. Bottom line: No recession in sight.”
Of course, the GDP is a broad measurement that doesn’t recognize individual economic experiences, and many Americans are still struggling with higher prices, especially housing costs. But this report does prove that the American economy is still growing — and it’s growing from the middle out, not the top down.
We’ll have a lot more to say about the GDP numbers in next week’s Pitch, but my first takeaway upon waking up to this news is that this report is a striking refutation of Bloomberg’s prediction from last year — made with 100% confidence, remember — that the American economy would be in a recession by now. Journalists and economists are right now having a lot of fun on social media at Bloomberg’s expense.
US Debt Payments Spike, and Everyone Is Drawing the Wrong Conclusions
Every major newspaper in the United States freaked out on Friday when the US Treasury released a report warning that the US will pay $659 billion on interest payments toward the national debt this year, a total that has doubled over the past two years:
Thanks to trickle-down think tanks, this news will of course inspire the usual round of hand-wringing about government waste and excessive spending. But let’s say plainly that this big spike in our interest bill isn’t due to wasteful government spending. In fact, spending only increased slightly over last year. The fact is that these debt payments are up for two major reasons: Interest costs are way up due to the Fed, and tax revenue is way, way down. Let’s unpack those two.
One of the two big reasons we’re paying so much more in interest now is because the Federal Reserve has jacked up interest rates in an effort to make money more expensive and cool down the economy. Interest rates are high for American consumers, too, and those rates are harming virtually every sector of the economy. “Governments are paying more to borrow money for new schools and parks. Developers are struggling to find loans to buy lots and build homes,” Lydia DIPillis writes at the New York Times. “Companies, forced to refinance debts at sharply higher interest rates, are more likely to lay off employees — especially if they were already operating with little or no profits.”
We should take good care to not characterize the spiking housing and credit costs as “unintended consequences” of the Fed’s decision to raise interest rates, though. In fact, that’s exactly the kind of economic misery that the Fed planned to cause, in the mistaken hopes that this would drive prices down. (In the next item down, we’ll talk much more about the fatal flaw in the Fed’s plan.)
But if Congressional Republicans are as serious as they say they are about decreasing the deficits, the first thing they can do is allow the Trump tax cuts for the wealthy and corporations to expire. Bobby Kogan, the federal budget policy director at the Center for American Progress, explains that almost 3/4ths of the surge in U.S. deficit and debt ratio was due to revenue decreases caused by the Trump tax cuts of 2017 and the tax cuts written into law during the George W. Bush administration.
“We have a revenue problem, due to tax cuts,” Kogan announced. “The Bush and Trump tax cuts broke our modern tax structure. Revenue is significantly lower and no longer grows much with the economy.”
This is not the first time Kogan has talked about the damaging effects of the Bush and Trump tax cuts. He warned back in March that revenue from taxes keeps shrinking in comparison to the national Gross Domestic Product:
If not for the Bush tax cuts and their extensions — as well as the Trump tax cuts — revenues would be on track to keep pace with spending indefinitely, and the debt ratio (debt as a percentage of the economy) would be declining. Instead, these tax cuts have added $10 trillion to the debt since their enactment and are responsible for 57 percent of the increase in the debt ratio since 2001, and more than 90 percent of the increase in the debt ratio if the one-time costs of bills responding to COVID-19 and the Great Recession are excluded.”
In other words, both George W. Bush and Donald Trump combined have basically removed $10 trillion dollars from the budget, handed it away to a tiny number of wealthy Americans and corporations, and stuck the rest of us with the bill — which is now coming due.
So don’t let anyone tell you that we have to cut spending in order to get America’s budget in order. What we have to do is fix our tax structure to ensure that everyone is paying what they should. Right now, our tax code is subsidizing the wealthy few, and they’re not the true creators of jobs and wealth in our economy — working Americans are.
Why Economists Are Always Wrong
Rogé Karma writes for The Atlantic that the economic mainstream has finally begun to turn against the Federal Reserve’s mistaken belief that the only cure for inflation is raising interest rates so high that they trigger widespread layoffs and a recession.
“The belief in a mechanical relationship between inflation and unemployment is the closest thing [the Fed] has to sacred law,” Karma explains, “and raising interest rates to cool prices is the essence of what it does.”
“This view so thoroughly dominates the economics profession that it is often considered something closer to a law of nature. It is why, when inflation began taking off last year, nearly every economist, forecaster, and CEO believed a recession was around the corner,” Karma writes.
“Then the seemingly impossible happened,” he continues. “The inflation rate, which peaked in June 2022, fell to within a point or two of the Fed’s 2 percent goal, and the much-anticipated recession never arrived. The traditionalist view had been wrong. More than that, it may now be a liability. “
Karma offers many possible reasons why the mainstream economic expectation didn’t happen, and he spotlights many mainstream economists who are eager to admit that this was a failure of imagination on the Fed’s part. But the economists certainly don’t seem humbled by this widespread failure of their profession — and worse, they seem completely unwilling to reckon with the fundamental flaws in their models and assumptions that caused them to be so wrong about inflation and its solutions.
Everyone likes to hassle meteorologists when they fail to predict a downpour, but the track record of mainstream economists is about as abysmal as they come. They completely missed the Great Recession. They failed to predict how the recovery from the Great Recession would play out. They whiffed on the economic turbulence that arrived with the new millennium. And they also repeatedly got their predictions wrong during the last great inflation surge, predicting a recession that didn’t arrive in 1978 and failing to understand the length and depth of the stagflation crisis that sprawled across the 1970s and into the 1980s.
So my question to economists is this: Since you and your forebears failed to recognize every major economic crisis of the past 50 years, and you predicted several economic calamities that completely failed to materialize in that same time, perhaps it’s time to rethink the fundamentals of your profession? Economists who have been trained in a trickle-down mindset simply can’t imagine an economy in which working Americans, not CEOs, are the source of widespread prosperity.
The Fed’s campaign of interest-rate increases in the hopes of kicking off widespread job losses is a trickle-down solution to the problem of inflation, and so it’s no surprise that it failed. Mainstream economists believe that the only way out of a recession is to take money from the majority of people and distribute it to the wealthy few, so that the top one percent can create jobs — even though that policy has never really worked, and in fact it led to the slowest economic recovery in modern American history after the Great Recession of 2009. Until economists accept that their understanding of how the economy really works is not only wrong but completely backwards, we can continue to expect their predictions and policy prescriptions to be wrong.
Are Workers Sparking a “Great Reset?”
On Tuesday of this week, the women of Iceland — including the prime minister of the nation — went on a strike to protest unequal pay, gender-based violence, and other inequalities. Even though Iceland consistently ranks at or near the top in global gender equality surveys, women in Iceland on average still earn 21% less than their male counterparts. This is the largest protest in Iceland since 1975, when nine out of every ten women in the country took to the streets to demand gender equality.
Here in the US, United Auto Workers union leadership announced that they have reached a tentative agreement with Ford, one of the three Detroit automakers that they’ve been striking against. UAW Vice President Chuck Browning explained the details of the contract, which UAW members will presumably vote on next month.
“We have won a 25% general wage increase over the course of this agreement,” Browning announced. He added that with cost of living adjustments written into the agreement, over the next four and a half years “we expect the top rate to increase by over 30 percent, to above $40 an hour.” This agreement, Browning says, will make up for the drop in wages that auto workers took on during the Great Recession when the whole industry was at risk of collapse, and it will total more than all the raises the union won over the last 22 years combined. The union also won agreements that will increase pension benefits, improve work conditions for temporary workers, and immediately raise the wages of workers by 11% if the contract is adopted.
The UAW is taking part in what Stephen Greenhouse at the Guardian has called “The Great Reset,” in which American labor unions have won “a wave of impressive — sometimes eye-popping — union contracts over the past year, far more generous than in recent decades.” Greenhouse continues:
“I’ve never seen a moment quite like this. I’ve never seen this level of action and enthusiasm among workers, especially among young workers,” said Lane Windham, associate director of the Kalmanovitz Initiative for Labor and the Working Poor at Georgetown University. “People drew a line in terms of their expectations. For 40 years, workers have been putting up with low wages and bad jobs. But after coming through the pandemic, many people said: ‘I’m not going to do this any more. I’m not going to put up with this any more.’”
Windham said many employers had been surprised by the level of labor militancy they are encountering. “Employers are entering negotiations and beginning with their old calculations, but they’re seeing this is not business as usual. They’ve had to recalibrate what they’re willing to give.”
But of course, union membership in America has been gutted by 40 years of federal and local anti-union legislation making it harder for unions to form and negotiate.Those growing ranks of non-union workers don’t have the power that their unionized peers have. For instance, The Washington Post reports that years of rapid consolidation by the nation’s three biggest pharmacy chains seems to have reached its breaking point. “Rite Aid, which filed for Chapter 11 bankruptcy protection last week, CVS and Walgreens have signaled over the past two years plans to collectively shutter more than 1,500 stores,” reports the Post.
Let’s be clear here that pharmacies aren’t suddenly an unprofitable business model — the Post reports that the three biggest pharmacy chains totaled some $455 billion in sales last year. These closures are the end result when businesses are allowed to grow so big that they wipe out all the competition. Now experts worry that one-quarter of all Americans — especially low-income and Black and Latino communities — are now or soon will be living in a “pharmacy desert,” with limited access to health care options.
When you step back to observe the big picture, it’s clear that workers have a lot of room to grow. The Hamilton Project released a paper tracking American wage growth since the pandemic began, and the findings are interesting. While the paychecks of the lowest-earning workers grew the fastest during the economic recovery from the pandemic, when accounting for inflation and other economic pressures the actual gains look quite different. The authors find that the highest earners have experienced significant wage increases, while those in the middle and lower income brackets have seen substantial, but more modest gains.
Make no mistake: The last few years have been good for the paychecks of American workers. But remember, we’re starting at the bottom of a 40-year hole created by trickle-down wage suppression, and there’s about $50 trillion in lost wages to be recaptured before workers earn proportionally as much as they did when the middle class was at its strongest. We’re on the right track, but we have many miles to go.
This Week in Middle Out Economics
- The Biden Administration has proposed a 30% excise tax on crypto mining firms, which expend ridiculous amounts of power to generate wealth at the expense of the environment. Coinbase reports that crypto miners would “be required to report how much electricity they use and what type of power was tapped. The tax would be phased in over the next three years, increasing 10% each year.”
- At the DC Journal, Karla Walter writes that we’re reaching a turning point in the battle over prevailing wage laws, which requires businesses using government funds to pay their construction workers wages and benefits comparable to what other workers in the area are making. In states with weak or no prevailing-wage laws, government projects often undercut local pay standards, driving down wages for everyone, but recent pushes in Michigan and elsewhere to repeal prevailing-wage bans are helping to grow paychecks around the economy. “Research shows that prevailing-wage laws improve workers’ lives by supporting middle-class pay, ensuring union wage rates are not undercut, expanding health insurance and retirement coverage, and closing the income gap between white and Black construction workers,” Walter writes. “Prevailing-wage laws also benefit responsible contractors and the public by boosting worker productivity, reducing injury rates, and increasing apprenticeship training.”
- Vox featured an excellent conversation with former World Bank Vice President for Poverty Management and Academic Development Masood Ahmed about what the World Bank can do to build up green-economy industries like wind, solar, and energy storage in developing countries. Ahmed argues that even though the world’s poorest nations don’t contribute much to carbon emissions compared to wealthier countries, they’re already incurring the expenses of climate change: “If you’re building bridges in Pakistan, the melt from the snow cap in the Himalayas is now coming down faster and larger. You’re going to have to build more resilient and bigger, tougher, higher bridges than you did before, which is going to cost you more,” Ahmed explains. “If you were building schools in the Sahel, where you thought the temperature that they had to withstand was 104ºF summers, and now it’s 110, 115ºF, then suddenly you’re going to have to build that into the design of things.”
- The Internal Revenue Service just completed a massive audit of Microsoft — the largest audit in history — finding that the company owed nearly $29 billion in back taxes. “The case, in a way, is the last, great vestige of the IRS before it was gutted by budget cuts over the course of the 2010s and corporate audits plummeted,” writes Paul Kiel at ProPublica. “While the recent infusion of billions from the Inflation Reduction Act will allow the agency to rebuild itself in the coming years, the Microsoft case shows the fruit of those efforts could take a long, long time to reap.”
Closing Thoughts
A new report about tax evasion from the European Union Tax Observancy opens with a piece of very good news: “offshore tax evasion by wealthy individuals has shrunk. Thanks to the automatic exchange of bank information, we estimate that offshore tax evasion has declined by a factor of about three over the last 10 years.”
Unfortunately, it’s not all good news. The report finds that “the global minimum tax of 15% on multinationals, which raised high hopes in 2021, has been dramatically weakened” by a series of loopholes that have reduced the effectiveness of the global minimum corporate tax “by a factor of two.”
And worst of all, “tax evasion — including grey-zone evasion at the border of legality — is increasingly happening domestically. Global billionaires have effective tax rates equivalent to 0% to 0.5% of their wealth, due to the frequent use of shell companies to avoid income taxation.”
Plenty of headlines will dwell on those last two points, but we should also pay close attention to the first point. As the below chart shows, once governments around the world required financial institutions to automatically report savings, investments, and sales proceeds in their offshore accounts to the pertinent tax authorities, corporations and the wealthy began to pay the taxes that they’ve always owed on their offshore accounts.
We always hear about policy failures, but this policy was a tremendous success: Global leaders identified a problem — billions of dollars in wealth hidden away from national tax authorities — and then they devised and implemented a solution that solved the problem.
“This success shows that rapid progress can be made against tax evasion if there is the political will to do so,” the EU Tax Observancy reports, and they offer multiple policy solutions to eliminate the loopholes that are sapping the 15% global corporate tax of its strength and to find and tax the wealth of billionaires.
It’s not cynical to observe that for as long as governments collect taxes, there will be tax cheats. Rich people and corporations will always go to great lengths to hoard their wealth, and many of them will cross the line into illegal activity. But this report proves we can also become more nimble and creative in our pursuit of those taxes. Cheating has always been a part of human nature — but then, so has outsmarting the cheats.
Be kind. Be brave. Take good care of yourself and your loved ones.
Zach
