Job-Killer No More

The Pitch: Economic Update for February 15th, 2024

Friends,

One of the most bizarre lines of attack in the early days of the Fight for $15 was that proponents of a higher minimum wage were “anti-business.” There was a running assumption that if you were for higher wages, you were against business and wanted to harm the economy.

But that’s always been BS. We here at Civic Ventures are big proponents of market economies and businesses. Like President Biden says, “every time someone starts a small business, it’s an act of hope.” I have been on the ground floor of a couple of acts of hope over the years. And only a truly unserious person could accuse Civic Ventures founder, early $15 proponent, and prominent venture capitalist and successful business mogul Nick Hanauer of being “anti-business.”

If you take a step back, it’s bananas to believe what’s good for workers is bad for business! But that’s exactly what these trickle downers wanted you to believe — and for a long time a lot of people did. They didn’t say it because it was true; they said it because getting everyone to believe it was the best way to keep profits high and wages low.

But the good news is that these claims have proven to be wrong—and a majority of Americans in red states, blue states, and every place in between get it. People intuitively understand the middle-out economic principle that powered the idea of raising the minimum wage — when dishwashers earn enough money to eat in restaurants, that’s nothing but good news for restaurant owners — and rejected the idea that adopting a higher wage would kill businesses. Now, only the frothiest, angriest trickle-down deadender pulls out the “job-killer” label when confronted with policies that raise wages, and those claims fall flat with voters.

All that preamble is to explain how I was pleasantly surprised twice yesterday when reading the morning news. The first shock came when I read an excellent piece by Ben Casselman at the New York Times explaining how the job market foiled economists’ expectations by running hot during a time of high inflation and the Fed’s consistent march of interest-rate hikes. You should read the whole piece, but the part that raised my eyebrows was a quote from an economist for a huge online corporation that sells its services to large employers.

In the not-so-distant past, you’d expect a big corporation to embrace trickle-down by suggesting that strong wage growth was a hindrance to a growing economy. Not so: “‘A strong labor market sets off a virtuous cycle, where people have jobs, they buy stuff, companies do well, they hire more people,’ said Julia Pollak, chief economist for the job site ZipRecruiter. ‘It takes something to slow that train and interrupt that cycle.’”

Pollak is speaking the unvarnished truth about how middle-out economics operates — in fact, I couldn’t say it better myself. We’ve come a very long way from the widespread bogus argument that raising wages kills jobs.

The second eye-opener yesterday was a story in the Seattle Times about a special election to raise the minimum wage to $20.29 for large employers and $19.29 for small businesses in Renton, a city just to the south of Seattle. The Times was one of the most tireless opponents of the Fight for $15, so imagine my surprise when I read this report about Renton’s minimum wage ahead on election night with 57.5% approval: “Research has generally found raising the minimum wage does not result in widespread job losses, (in some cases, it creates new jobs,)” Alexandra Yoon-Hendricks writes, adding that “Higher minimum wages can lift some out of poverty and alleviate debt for some households, researchers have found, and price increases for consumer goods are typically small or negligible.”

It’s truly remarkable to see mainstream economists and journalists make this transition over just a single decade. They’ve shifted from repeating the received wisdom that the better the rich do the better the economy does to understanding that working people are what really help the economy grow. That’s a complete 180-degree shift in perspective, made in less than a generation.

I point out these shifts when I see them for two reasons. First, it’s important to celebrate your victories — and make no mistake, this is a huge victory. But second, seemingly impossible shifts like this should inspire you to broaden your idea of what is possible. If we can completely flip the mainstream understanding of the minimum wage in a decade, what can we do for an encore over the next decade?

The Latest Economic News and Updates

Inflation Moves Less Than Expected, and Housing Is To Blame

“Fresh data from the Bureau of Labor Statistics showed that prices rose 3.1 percent in January compared with the year before,” writes Rachel Siegel at the Washington Post. “That’s a slower increase than the 3.4 percent annual rate notched in December, and leagues below the post-covid peak of 9.1 percent.”

Groceries continued to push inflation higher. “Egg prices climbed 3.4 percent in January from the month before, a slower rate than 3.7 percent in December but up from 2.6 percent in November,” the New York Times’s Madeleine Ngo writes. A resurgence of avian flu has contributed to the uptick in prices, economists said, with outbreaks recently hitting commercial poultry farms in several states.”

The last time egg producers claimed that avian flu was pushing prices up, at almost exactly this time last year, those skyrocketing prices were found to be the result of corporate price-gouging. Back then, the national average price of a dozen eggs peaked at $4.82, but today it stands at $2.45.

Axios’s Nathan Bomey points out that greedflation is still factoring into these inflation reports. Huge corporations are still reporting sky-high profits, even though their sales volume has flattened out — and even dropped precipitously. There are a limited number of ways to make record-breaking amounts of money when you’re selling fewer products, but the easiest is to jack up the price tag on what you’re selling.

Bomey compares several corporations’ price/mix — what they charge retailers and customers for products — and their profits:

Coca-Cola’s fourth-quarter organic revenue rose by 12%, three-quarters of which was driven by price/mix. In North America, volume was down by 1%.

For cereal maker W.K. Kellogg, price/mix was up 7.5% in the fourth quarter, while volume was down 10.1%.

At beer giant Molson Coors, price/mix was up 4.2% in the fourth quarter, while volume rose only 0.8%.

And while groceries are still too pricey, Siegel reports in the Post that the biggest recent driver of inflation hasn’t changed: “As has been the case for months, housing costs continue to make up the lion’s share of America’s inflation, while price increases ebb in other categories such as gas and used cars.”

I’ve said this before, and I’ll keep saying it until the economic mainstream pays attention: The media still reports that the Federal Reserve’s aggressive campaign of interest-rate hikes are what drove prices down. That is the exact opposite of what is happening in the real world. Prices declined from inflationary highs because the pandemic-era broken supply chain healed itself and Americans enjoyed record wage growth that encouraged them to buy products once they became available again. Inflation right now is held up by high housing prices, which are caused in part by the Fed’s high interest-rate hikes.

If the Fed wants to bring down housing prices, the best thing they can do is lower interest rates as quickly and aggressively as they raised them over the last two years. Full stop.

Where We Need to Build on Existing Worker Successes

While workers have made great strides over the last two years, there’s still a long way to go — especially for workers who have long been at the bottom of the wage scale. That’s why Uber and Lyft drivers around the country went on strike yesterday for Valentine’s Day, a traditionally busy day for rideshare services.

Hundreds of California fast-food workers, looking for better pay, job security, and benefits, created the California Fast Food Workers Union last week. Affiliated with the Service Employees International Union (SEIU), the first-of-its-kind CFFWU is a new attempt at sectoral bargaining, empowered by a new California law that allows workers to organize and set industry-wide standards, rather than working to organize on a store-by-store basis. In other labor news, this week, flight attendants around the country briefly went on strike to protest low wages and poor working conditions, reports Michael Sainato at the Guardian, who explains that “over two-thirds of flight attendants in the US, at United Airlines, Southwest Airlines, Alaska Airlines, Air Wisconsin, American Airlines, Omni and Frontier, are currently in new union contract negotiations.”

Those workers are right to demand more money. After all, the New York Times reports that American worker productivity is currently booming. “Economists typically measure productivity as a simple ratio: the total amount of output an economy produces per hour worked by its labor force,’ Talmon Joseph Smith writes. “On that score, productivity increased 2.7 percent in 2023, according to the Bureau of Labor Statistics, and over the last two quarters has been growing at more than double the rate from 2005 to 2019.”

And while trickle-down economics always argue that the market perfectly determines a workers’ worth, the truth is that American wages have not kept up with productivity. Talmon Smith writes, “From 1979 to 2022… productivity grew by more than four times the inflation-adjusted 14.8 percent growth in compensation for average nonsupervisory workers in the private sector, who are roughly eight of 10 people in the labor force.”

Even though Black and Latino unemployment is at or near record lows and paychecks have been growing at historic levels, Axios’s Emily Peck reports that the racial wage gap has actually grown over the last year, largely due to the fact that white workers keep more of their wealth in the stock market than workers of color. Of course, these numbers are also skewed because the wealthiest .1 percent of families are predominantly white, and the outsized gains of the wealthy few tend to interfere with the proportions of measurements like these. But the racial pay gap is definitely an ongoing problem: Timothy Noah reports at The New Republic that white men are still more likely to work in better-paying jobs, while jobs that are more likely to be filled by Black workers, Asian workers, or women pay less on average.

So there’s still a lot of ground to cover. It’s not enough that workers are making more. We also have to ensure that systemic biases don’t prevent people from earning enough to participate in the economy and accrue wealth. Remember, working Americans have had more than $50 trillion taken from them by the super-rich over the last 40 years thanks to trickle-down economics. A couple of years of strong gains for workers, while undeniably a positive, is really just a brief, strong start toward a much bigger shift in our economy.

Trickle-down strikes back

Just because the mainstream is slowly realizing the truth about middle-out economics doesn’t mean that trickle-down economics is just rolling over and surrendering. Several recent news stories show how trickle-downers are opposing gains for working Americans and enriching the most wealthy and powerful entities in the country:

• President Biden championed a 15% minimum global corporate tax, and nations around the world are finally seeing more revenue roll in from that tax as corporations finally pay up. But the United States isn’t enjoying the fruit of Biden’s policy. The Wall Street Journal reports, “U.S. companies that enjoyed single-digit tax rates in some foreign countries now must pay at least 15% in each. But even though Treasury officials were crucial in forging the international accord and President Biden has pushed to implement it, Congress hasn’t changed U.S. tax law to conform to it.”
• Harold Meyerson reports that trickle-down lawmakers in red states are fighting progressive legislation in blue cities “by denying those cities the right to enact any laws or promote any policies that run counter to the preferences of the governor and the legislature.” He continues, “This trend began in 2016, when North Carolina nullified a Charlotte ordinance that penalized violations of LGBTQ rights. That same year, the majority-Black and majority-Democratic city of Birmingham, Alabama, passed a municipal minimum-wage statute, whereupon the Republican state legislature outlawed municipal minimum-wage laws.”
• And as a reminder that no villain stays dead forever, Big Tobacco is outmaneuvering recent regulations that would ban flavored nicotine products like menthol cigarettes.
• The Economic Policy Institute issued a report showing that so-called “right to work” laws which make it harder for workers to unionize are hurting the economic power of workers in red states, resulting in lower wages, smaller pensions, and worse benefit packages. Additionally, the trickle-down claims that eliminating right-to-work laws will create jobs are patently false:

This Week in Middle Out

• President Biden has vowed to veto a bill that would make it harder for workers to unionize, reports Karla Walter at the Center for American Progress.
• The New York Times reports that subsidies in the Green New Deal are enticing manufacturers to move away from Europe and toward the US. “Companies were steadily adding battery capacity to the pipeline in Europe before the announcement of the Inflation Reduction Act in August 2022, tracking of company announcements by Benchmark Mineral Intelligence shows. But after the law was announced, European capacity largely plateaued, and expected U.S. capacity shot up and eventually overtook it.”
• And green-energy incentives written into the Inflation Reduction Act are attracting more interest — and investments — from corporations, reports the New Republic. “Within a year of its passage, the IRA led to $282 billion of new investment and created some 175,000 jobs, Goldman Sachs researchers found. They also estimated that it will drive $3 trillion worth of investments over the next decade.”
• Meanwhile, Biden’s CHIPS act has turned Phoenix into a semiconductor boom town, reports Jeanne Whalen at the Washington Post. “The promise of federal subsidies from the Biden-backed Chips and Science Act of 2022 has sparked some of the biggest investment projects in the nation’s history, transforming Maricopa County into one of the world’s most important manufacturing sites for the tiny components that power all modern electronics.”
• All these policies from the Biden Administration have inspired a surge of investments into some of the poorest counties in the nation, notes Axios. “Distressed communities are attracting new clean energy and semiconductor investment at roughly twice the rate of traditional private investment,” Brian Deese, until recently a White House economic adviser, told Axios. “If this trend continues, it has the potential to change the economic geography of the country and create economic opportunity in parts of this country that too many people have written off in the past.”
• A popular Biden investment in creating broadband in rural communities is running out of funding, notes Ramenda Cyrus. “According to the Biden administration, the program saved families over $500 million a month on internet bills. Funding was expected to last through 2024, but the success of the initiative now means that Congress must negotiate funding earlier than expected.”
• An Obama-era proposal to use Medicaid to subsidize housing for people in financial distress is finally going forward. In Oregon, Medicaid funds will pay for six months of rent for people who would otherwise be homeless, and Arizona is planning to use the funds to provide housing for people suffering from serious mental illness. (I note here with pride that my home state of Washington has led the way on allowing Medicaid vouchers to be used for housing.)
• And the Roosevelt Institute has put out two papers about improving workers rights protections in Biden Administration policies this week. The first argues that public dollars for the transition to electric vehicles should come with more pro-worker requirements, and the second argues that the Biden Administration’s investments in industrial development should come with more explicit rules making it easier for workers to unionize.

This Week on the Pitchfork Economics Podcast

President Biden’s top economic adviser, Jared Bernstein, joins the Pitchfork Economics podcast this week to discuss the theory behind Bidenomics, and to explain where he expects President Biden’s economic proposals to head next. This is an important episode for anyone interested in the theory and practice of middle-out economics, and we’ll have a lot more to say about it in next week’s Pitch.

Closing Thoughts

Polling shows that American consumers’ moods on the economy are still improving. A New York Fed survey of consumer expectations found that the share of American households expecting their financial situation to improve over the next 12 months has increased dramatically in the last few polls:

Americans are very fond of policies that grow the economy from the middle out by centering working Americans. A new report from Navigator Research shows that expanding Medicare’s ability to negotiate lower prescription drug prices is wildly popular, with an almost-unthinkable 83% support. Not far behind is the Biden Administration’s policy to cap the price of insulin at $35 per month. And trickle-down policies like repealing Medicare’s negotiation policy and repealing the Affordable Care Act are roundly unpopular.

I’d especially like to call your attention to the second-to-the-last line in the chart below, which shows that only 9 percent of all Americans support cutting Social Security and Medicare. More than three-quarters of all Republicans oppose Medicare or Social Security cuts.

President George W. Bush believed he’d be able to get away with slashing Social Security in his second term, and he suffered for it as his popularity plummeted. During the trickle-down era, calling for cuts was something that made politicians on both sides of the aisle seem serious, like the adults in the room. Presidents Clinton and Obama both signaled openness to Social Security cuts when they were looking for ways to compromise with Republicans in Congress, and trickle-down Republicans like Paul Ryan continued to call for cuts to Medicare and Social Security. Even this year, Republican presidential candidate Nikki Haley has suggested slashing Social Security benefits for younger Americans. But these are wildly popular programs, enjoying levels of near-unanimous support that no politician has ever achieved.

In the opening, I wrote about how trickle-down claims that raising the wage is “anti-business” have lost their power as a persuasion tool. It’s starting to look like other trickle-down claims are losing their luster, too. Here are two more examples:

The New York Times posted an excellent video showing how tax-preparation corporation Intuit lobbies lawmakers into ensuring that taxes are needlessly complicated, requiring taxpayers to pay Intuit hundreds of dollars just to file their taxes. Intuit’s counter-argument — that free tax filing software would somehow harm poor Black taxpayers — is insulting, unconvincing, and feels beyond desperate.

And the National Restaurant Association says that the Biden Administration’s proposed rule to eliminate junk fees would somehow “create chaos” in the restaurant industry. This argument, from the letter the Association sent to the Federal Trade Commission protesting the rule, doesn’t feel like it’s fooling anyone — including the poor soul who had to write the thing:

Imagine walking into a restaurant and the person at the desk asks you how you’re going to be paying that evening. This would become an uncomfortable reality in a world where restaurants can’t use surcharges and are forced to have one menu for large parties, one for smaller parties, one for people paying with credit cards, one for takeout, and one for delivery. This is why if restaurants are not excluded from the final rule, the Association and the Law Center urge the Commission to permit restaurants to utilize service fees, credit card surcharges, and delivery fees so long as they meet certain notice and disclosure requirements that provide appropriate pricing transparency and shopping comparison abilities for consumers.

Anyone who’s been surprised by extra fees, surcharges, and other bogus prices added to the check at the end of a meal knows that eating out now requires diners to scan menus and signs for confusing small print at the bottom which suggests that the establishment can basically add any amount to the bill that they want, for whatever reason. The “uncomfortable reality” that the association is describing if junk fees were eliminated would actually mean that consumers would be able to order food knowing that the price on the menu is the price that they’ll pay at the end of the meal.

Last year, Nick Hanauer co-wrote a taxonomy of trickle-down threats that the wealthy and powerful use to trick people into voting against their own interests. In retrospect, many of these claims — that cigarettes are healthy, that seat belts are needless expenses — seem ridiculous. But the surprising thing is that these two very modern examples of trickle-down threats already feel antiquated, out-of-touch and dumb. As I wrote in the introduction, our conversation around economics has changed considerably in the last ten years. These threats aren’t fooling anyone anymore.

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

Zach