Journalism, from the Middle Out

The Pitch: Economic Update for April 6, 2023

Friends,

With the high-profile collapse of mid-sized banks and the Federal Reserve’s continuing push to raise interest rates, recession fears are on the rise again. Or at least, the media is talking about recessions again. A Google Trends search of the word “recession” in news stories over the past 90 days shows a huge spike in searches over the past week or so:

And so the media is asking yet again: Is the economy in danger of entering a recession? The problem isn’t in asking this question — good journalism is all about asking questions — but in the fact that many outlets frame the question in a neoliberal lens of groundless speculation. The cable news channels trot out the usual crew of experts making wild predictions about when the next recession will arrive, how hard it might hit, and what the direct cause of the recession might be — and their predictions generally favor the wealthy and powerful at the expense of everyone else.

Even worse, in the current 24-hour news cycle, wrong predictions don’t have any real repercussions, so experts are incentivized to go big and dark with their recession speculation, in order to grab as many views as possible. Larry Summers, for instance, predicted a recession starting within six to nine months in January of 2022, and when that prediction failed he offered another prediction in October of 2022 that a recession was possible within the next 18 months, though he backed off from that prediction in January of this year.

The media eats up quotes about economic doom from really rich people, and JP Morgan CEO Jamie Dimon offered some delicious red meat in his annual letter to shareholders this week. The Guardian notes that Dimon warned the aftermath of Silicon Valley Bank’s collapse could result in “financial turmoil” spreading throughout the financial sector for years to come. “It is not clear when this current crisis will end,” Dimon wrote, adding that it “will clearly cause some tightening of financial conditions as banks and other lenders become more conservative.”

The Guardian also regurgitated Dimon’s warning that though a lack of regulation led to SVB’s collapse, politicians should avoid “kneejerk, whack-a-mole or politically motivated responses” when considering new regulations on the banking industry, which he says might “throw the baby out with the bath water.” Dimon played the media expertly, catching reporters’ attention with a dire warning and then pivoting into an anti-regulatory message that was dutifully and uncritically repeated in outlets around the world — never mind that Dimon was warning about a crisis which was caused by a lack of banking regulations

The Guardian and other outlets failed to mention that Dimon’s letter to shareholders actually argued that the American economy is currently very strong, and is well-positioned to be strong for years to come. Axios outlines Dimon’s positive outlook, which argues that spending is strong, wages are up, “Businesses are pretty healthy, and credit losses are extremely low.” Dimon previously warned of an economic “hurricane” that was on the horizon in the form of a debilitating recession, but now he says the hurricane is mostly made up of storm clouds that could “peacefully and painlessly dissipate,” concluding that “Looking ahead, the positives are huge.”

This is not a case of Dimon talking out of both sides of his mouth. Both of these perspectives in his shareholder letter can be true — the economy can be fundamentally strong and poised for a middle-out recovery at the same time that the banking industry faces choppy waters due to SVB’s collapse. But it’s interesting to see many in the media cherry-pick Dimon’s dire predictions while leaving his sunny economic predictions on the cutting room floor.

In any case, the economic media shouldn’t be covering the future of the economy like it’s a horse race — especially since smart players like Dimon have figured out how to smuggle their own interests into that kind of coverage. Instead, I’d like to see more recession coverage that focuses on the hundreds of millions of Americans who don’t work in swanky corner offices — perhaps by shining a spotlight on the parts of the system that are unprepared for a potential recession, like the rollbacks in pandemic-era Medicaid and food stamp coverage that are leaving millions of Americans without access to affordable food and health care. That last story is by the Washington Post’s Abha Bhattarai, who notes that if a recession were to arrive, the cuts to these programs would hurt millions more Americans.

If I could ask economic reporters to keep one rule in mind when writing about recessions, it would be this: Cover economic news from the perspective of the middle and working classes, not the wealthy few. Don’t ask a CEO to riff on whether they believe a recession is imminent. Instead, focus on the effects that the recession might have on ordinary Americans, and what policies might help mitigate those effects for the vast majority of people. That’s the difference between creating content to fill the infinite scroll of social media timelines and doing journalism that could make a positive impact in the world.

The Latest Economic News and Updates

The Fed’s Measurement of Economic Health Doesn’t Take Working Americans Into Account

“The measure of inflation most closely watched by the Federal Reserve slowed substantially in February, an encouraging sign for policymakers as they consider whether to raise interest rates further to slow the economy and bring price increases under control,” writes Jeanna Smialek of the New York Times. You can see in the chart below that the Personal Consumption Expenditures price index, which measures non-food, non-energy prices, is now lower than at any point since September of 2021:

As the Washington Center for Equitable Growth argues, inflation has always been hard to measure, and it’s only getting more difficult in the age of the pandemic. While the PCE index subtracts food and energy costs from its average because they are particularly volatile, those two particular sectors are where Americans have been most feeling the pinch of inflation. And we could see energy prices spike very soon, as OPEC has announced that it’s cutting oil production by more than one million barrels a day starting in May.

So while the Fed may be doing cartwheels over the PCE numbers, ordinary Americans might not notice a difference in prices for a while. In fact, consumer spending growth slowed in February, which the Fed will also likely consider to be a positive sign — remember, Fed Chair Jerome Powell has argued that the economy needs to slow in order to fight price increases — but which consumers probably interpret quite differently.

And though it’s been a while since I’ve written about “greedflation” — corporations driving up prices in order to keep profits high — this Economic Policy Institute report shows that corporations are still profiting hugely from price increases. In 2021, the amount of profits corporations were pulling from every purchase began to skyrocket. And while the share of profits per unit sold isn’t as high as it was last year, companies are still making much more from every sale than they were before the pandemic.

It’s important to note that the Fed’s attempts to cool down the market and reduce wage growth (while also possibly putting millions of Americans out of work) will do nothing to address greedflation. That’s part of the reason why Bryce Covert wrote an excellent editorial for the New York Times arguing that by using outdated methods to combat inflation, the Fed is actually engaging in “class war” against working Americans.

Speaking of failures of the Fed, Peter Conti-Brown points out how ludicrous it is that the Fed is investigating its own failure to regulate the banking industry in the wake of SVB’s collapse.

Republicans will not trust [the results of the investigation]: They will adopt the banking industry’s perspective that this review and the subsequent policies will have a flavor of “ready, fire, aim,” as one of the bank’s chief lobbyists already declared. Democrats will not trust the results, either, wondering whether the rest of the Fed has provided the candor to evaluate the highly deregulatory and desupervisory policies under the Trump administration. The review will have no audience except future partisans, who will pore over it for talking points to defend their predetermined conclusions.

For any organization like the Fed, it’s vital to establish a strong internal review structure. But when your organization oversees the health of a nation’s financial institutions, and when a failure in that oversight led to the collapse of multiple banks responsible for hundreds of billions of dollars, an outside investigation is necessary. This is just common sense.

Is the Job Market Cooling in the Right Way?

“Worker filings for unemployment benefits rose last week but were still historically low, showing that the broader labor market remains robust despite large companies announcing layoffs,” write Sarah Chaney Cambon and Austen Hufford at Wall Street Journal. At the same time, job openings fell in February, from 10.6 million openings in January to 9.9 million in February — so the job market is still hot, but it’s showing signs of cooling.

Though the number of openings declined by a few hundred thousand, workers are still feeling empowered to chase higher wages and better jobs. “Four million workers quit their jobs during the month, a slight increase from January, and the number of layoffs decreased slightly to 1.5 million,” writes Lora Kelley at the New York Times.

The Roosevelt Institute’s Director of Macroeconomic Analysis, Mike Konczal, says that the softly declining number of openings, quits, and hires indicates that the job market is gradually recovering from the post-pandemic turbulence in a stable fashion. As more and more workers rejoin the workforce, they’re not losing the power that workers gained after the nation reopened from lockdowns.

Best of all, the labor market is still very hot for the workers who most need a boost: Workers at the lower end of the wage spectrum, who traditionally suffer the worst when the job market slows down, have made the most wage gains and have the most opportunities to find new employment. And Courtenay Brown at Axios reports that the gap between white and Black employment rates is at a historic low:

This doesn’t mean that Black and white workers have achieved full workforce equality. Black workers still earn less than their white counterparts, with Black women suffering even greater paycheck inequality than Black men. But this number does represent great progress toward closing a gap that remained stubbornly large for all of living memory, and it’s a great reason why we need to ensure that the labor market continues to grow, even as skyrocketing post-lockdown highs recede.

CEOs Behaving Badly

Just two days after former Starbucks CEO Howard Schultz took offense at being called a billionaire in Congressional testimony about the corporation’s union-busting tactics, Starbucks fired a handful of employees who helped establish the chain’s first unionized stores in Buffalo, New York.

“Starbucks Workers United has claimed more than 200 workers at Starbucks stores involved in union organizing campaigns have been fired throughout the campaign,” writes Michael Sainato at the Guardian. “The National Labor Relations Board (NLRB) or judges have issued orders to reinstate 22 Starbucks employees so far, though not all orders have been enforced yet. Administrative law judges found violations of the National Labor Relations Act in eight cases against Starbucks.”

It’s not just baristas who are unionizing. A federal appeals court found that Tesla illegally fired an employee for unionizing, and the court even ordered Tesla CEO Elon Musk to delete a tweet suggesting that unionization would cause employees to lose stock options in the company. “Last year, eight former employees at SpaceX, the rocket manufacturer led by Mr. Musk, filed charges of unfair labor practices,” writes Noam Schieber at the New York Times. Those employees argued SpaceX “had retaliated against them for helping to write a letter asking for better enforcement of its stated policies on sexual harassment.”

Schultz and Musk are not alone. A new report from EPI finds that employers like Amazon and HelloFresh spend more than $400 million every year on union-busting consultants. That’s money that could have gone to higher wages or better benefits that instead goes to consultants who make up to $350 per hour.

And at the Prospect, Robert Kuttner raises an interesting point:

According to Labor Department records, in the past decade there were 2,505 criminal investigations of union officials and 821 convictions. Hundreds did prison time, mostly for embezzlement of union funds.

During the same period, not a single top Wall Street executive went to jail, despite the fact that Wall Street frauds cost the economy trillions while the typical union misappropriation was in the thousands or low millions.

You really can tell who in a society has the power by looking at where the laws are enforced and where they are not.

Policy Matters

In case there was any doubt, the New York Times’s Jeanna Smialek connects the dots from the Trump Administration’s deregulation of mid-sized banks and the collapse of Silicon Valley Bank. “Silicon Valley Bank’s difficulties also appear to have come to the fore too late to fix them easily, in part because of the Trump-era rollbacks,” Smialek writes, adding that the Trump Administration “had created a system that treated even sizable and rapidly ballooning banks with a light touch when it came to how aggressively they were monitored.”

When you’re trapped in the perspective of a 24-hour news cycle, it’s hard to remember that policy choices create outcomes long after they’ve been adopted. A president’s tax policy, for instance, affects the economy for decades after their final term in office. The Center for American Progress reports that tax cuts for the wealthy that have been adopted in Republican presidential administrations over the last quarter-century have resulted in some $10 trillion added to the national debt — the same debt that Republicans in Congress are now using as an excuse to threaten America’s economic well-being.

And positive policy choices have real-world effects, too. Jacob Bogage at the Washington Post took a look at the positive morale at the Internal Revenue Service, which received a huge boost in funding as part of President Biden’s Inflation Reduction Act.

[The IRS has] hired more than 5,000 workers and posted jobs for 5,300 more. It’s reopened walk-in tax clinics that shuttered as staffers quit over the years. Workers rejoiced in Cincinnati when the agency replaced almost two-dozen copy machines that had been down for almost three years. No longer must agents queue up in front of the machines to print and scan taxpayer notices.

That means less of a wait time for taxpayers seeking guidance during tax season. Bogage reports that “the IRS had opened all its incoming taxpayer mail as of March 25, 2023. At the same point in 2022, it had more than 314,000 pieces of unopened taxpayer mail.” And let’s not forget that those 5000 new IRS employees are now spending their wages in their local communities, creating jobs with their consumer demand.

Another trademark Biden policy is already creating jobs and investments in communities around the country according to historian Jay Turner, who created a graphic showing how the Inflation Reduction Act’s investments in the electric vehicle supply chain are already creating economic growth:

Emboldened by these investments in the American people, policy experts are starting to think about how they can refine the creation and implementation of new policy. For Democracy Journal, Saule Omarova and Todd Tucker argue that in the face of SVB’s collapse, “We need a twenty-first-century ‘public option’ for private equity-type investment” that would encourage businesses to become more environmentally sound.

The authors argue that a publicly owned private equity competitor would need to be “well funded, nimble, and staffed with top-brass business and science talent — a formidable market player rather than a bureaucracy.” And while private equity spends too much time investing in environmental dead ends like crypto, this federal PE firm “would be politically accountable and operate under an explicit mandate to promote America’s long-term economic growth and resilience.”

And for The American Prospect, Senator Elizabeth Warren argues that it’s time to reform the Congressional Budget Office’s economic models, which score proposed policy using a strict financial lens. Warren argues that rather than simply measuring how much money a policy like universal Pre-K would cost taxpayers, CBO models should also reflect our values as a nation.

“I believe that with accurate modeling, high-quality child care pretty much pays for itself,” Warren writes. “But even if not, such care helps us create an America in which everyone has opportunities — and ‘everyone’ includes mamas.”

Why Have Housing Prices Stayed High?

Real-estate data aggregator Altos’s CEO Mike Simonsen posted an interesting Twitter thread this week exploring housing prices. You’d think that with the Fed raising interest rates at an unprecedented rate over the last year, and with mortgage rates rising along with them, that the American demand for homes would decline. And as we’ve reported before in the past, home prices have dipped over the last couple of years in many parts of the country.

But Joe Weisenthal notes that February actually saw a 1.9% increase in home prices. How can this be? Home buyers, who have been buoyed by the strong labor market, are facing a home market with very limited supply. Simonsen notes that there were only 410,000 single-family homes on the market in America last year, which is much lower than pre-pandemic home availability — it’s less than half the number of homes that were on the market at this time in 2019, for instance:

“The further in to Q2 we go without substantial inventory increase means it’s less likely that we’ll emerge from our shortage this year,” Simonsen writes. America is in the throes of a serious housing shortage, and even if we started to build our way out right now, we wouldn’t see those numbers start to budge until at least this time next year.

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 this week’s episode of Pitchfork Economics, economist Evan Starr joins the podcast to share his research into the many positive economic outcomes of banning noncompete agreements. Starr used data from our home state of Washington, which led the country in the charge against noncompetes.

Closing Thoughts

Last week, I wrote about the Washington State Supreme Court approving my home state’s first-ever capital gains tax. I also noted that one of Seattle’s major news outlets, the tech-oriented site Geekwire, provided excellent coverage debunking the popular claims that wealthy people would leave the state to avoid paying the tax.

This week, I hope you’ll indulge one more thought on this topic, because Geekwire offered column space to two Seattle-area venture capitalists to debate the capital gains tax, and the pieces were particularly illuminating. Civic Ventures founder Nick Hanauer offered Seven Reasons why the Capital Gains Tax Is Good for Washington State, and tax opponent Matt McIlwain countered with Seven Reasons Why the Capital Gains Tax Is Bad for Washington State.

Even if you don’t live in Washington State and couldn’t care less about our capital gains tax, I encourage you to read both pieces, because they offer an excellent overview of two opposing economic worldviews: One which believes that wealthy people are the center and engine of economic growth, and one which believes that the economy grows from the bottom up and the middle out.

Amid several other complaints about the constitutionality of the capital gains tax, McIlwain argues that Washington state’s tax code (which is the most regressive in the nation) “encourages investment, job creation, and economic growth,” presumably because he believes the wealthiest 1 percent’s tax savings trickle down to everyone else. And against an abundant body of evidence proving otherwise, he perpetuates the false threat that wealthy people and businesses will leave the state if they’re forced to pay the tax.

By contrast, Nick argues that “Rich people like me are not the true job creators — middle-class consumers are,” which means that “increasing tax rates on the wealthiest, while annoying to wealthy people, is not harmful to growth — in fact, it leads to economic growth because it gives us the resources to invest in and grow the middle class.”

That’s the classic middle-out argument that has been popularized by President Biden. But Nick takes it one step further: “businesses flock to Washington because we invest in our people, our infrastructure, our world-class universities, and our spectacular parks and public spaces. That’s why our state is consistently ranked as a top state to do business and the number one economy in the nation, including since the passage of this tax on capital gains profits,” he writes. In other words, wealthy people paying taxes improves the economy for everyone — including wealthy people.

That’s the central argument that emerges when you pit trickle-down economics against middle-out economics: Do you want an extractive economy that benefits an ever-shrinking sliver of the wealthiest population at the expense of everyone else, or do you want an economy that builds a better community for everyone, including the wealthy few?

Nick is my friend and collaborator, so I’m clearly biased. But when these two arguments are lined up against each other side-by-side in a fair fight, I’m convinced that the vast majority of people would choose the middle-out side. It’s a clear case for making investments that benefit everyone — and unlike the scary threats of the trickle-down side, the middle-out argument also happens to be true.

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

Zach