Kamala Harris Charts a Future for Middle Out

The Pitch: Economic Update for July 25th, 2024

Friends,

The Pitch is not a newsletter about electoral politics. We try to stay laser-focused on economic issues — particularly the rise of middle-out economics and the fall of trickle-down economics. Plenty of other newsletters offer insight into the astonishing political moment that we find ourselves in — I’ve found myself frequently sharing posts from The Bulwark these days, for instance.

But none of that means that The Pitch is apolitical. Politics is not separate from economics, and economics is not separate from politics. In most of the world, they talk about these as a fused system: political economy. And this makes sense because, as Civic Ventures founder Nick Hanauer is fond of saying, economics is the story that we tell ourselves about who gets what and why, and politics is the system that establishes who gets to tell that story.

So, given the remarkable events of the last few days, we turn our attention to the economic policies of Vice President Kamala Harris, who is now at the top of the Democratic presidential ticket. Most pundits expect that Harris will continue the general shape and trajectory of President Biden’s economic plans, but no two politicians are exactly alike.

There are 102 days between now and Election Day, and Harris will use many of those days to lay out her economic vision. We can already find powerful signs of hope for middle-out’s future in a potential Harris Administration. In her first major speech since President Biden announced he was backing out of the presidential race, Harris made a point of spotlighting her economic goalposts. She told campaign staff at her headquarters that “building up the middle class will be a defining goal of my presidency. We here know when our middle class is strong, America is strong.” That sounds pretty middle-out to me.

And in her first full-fledged campaign event in Milwaukee on Tuesday, Harris touched on some economic policy points. “We believe in a future where every person has the opportunity, not just to get by, but to get ahead, a future where no child has to grow up in poverty, where every worker has the freedom to join a union, where everyone has affordable health care, child care and paid family leave,” she announced to cheers, continuing, “This is to say building up the middle class will be a defining goal of my presidency.”

Just today, in fact, Harris made a strong economic case in a speech to a teachers union in Houston, arguing that Donald Trump wants to “take us back to failed trickle-down economic policies.” She then continued to make an optimistic case for investing in and growing the American middle class.

This is a promising start. We’ll be watching for what more comes as she fills out her vision of a middle-out economy.

The thing about optimism is that it’s infectious. Just a few lines down in this newsletter, you’ll see that the media finally seems to be abandoning its dreary economic outlook and instead developing optimism for the results of middle-out economics. It’s remarkable what a single week — and the paradigm shift of a new messenger — can do to change the national mood.

The Latest Economic News and Updates

Working Americans Spur Huge GDP Growth

“The US economy grew 2.8% in the second quarter of 2024, more than anticipated, closing out two consecutive years of growth,” reported Marta Biino at Semafor this morning.

As always, we have to make the clarification that while GDP measures the growth of the whole economy, it’s not always a great indicator of how working Americans are doing in their day-to-day lives. But in this case, it seems clear that working Americans, and not the super-rich, are the ones who are growing the economy.

“The consumer was the key driver of last quarter’s strong economic growth. Personal consumption expenditures increased at a 2.3% annualized rate, gaining from the 1.5% pace in the prior period. That category contributed 1.6 percentage points to the increase in GDP figure,” Courtenay Brown and Neil Irwin write at Axios.

And as I mentioned above, while GDP has grown strongly and steadily throughout the last two years, the media is treating today’s GDP growth a little differently. CNN, for example, headlined its report on the news “The US economy is pulling off something historic,” and reporter Bryan Mena writes that “America’s economy is about to stick what’s called a ‘soft landing,’ which is when inflation returns to the Fed’s target without a recession — a feat that’s only happened once, during the 1990s, according to some economists.”

It’s heartening to see the media finally read these strong economic signals with optimism — and it’s especially great to see the media correctly attribute the growing economy to American workers, not CEOs or giant corporations.

Fifteen Years of a $7.25 Minimum Wage

Yesterday marked a shameful anniversary in the United States: July 24th, 2024, was the 15th anniversary of the last time the minimum wage saw an increase. The federal minimum wage has languished at $7.25 for more than 15 years, now, which NPR reports is “the longest stretch the national minimum wage has gone without an increase since the U.S. instituted the pay standard in 1938.”

Thanks to inflation, the spending power of that minimum wage is now only about 70% of what it was when it was instituted in 2009, meaning $7.25 in 2009 only equals about $5.08 in today’s dollars.

While the minimum wage in states and cities around the country have long since surpassed the federal minimum wage — my home of Washington state hit $16.28 last year, for example, and Seattle’s hourly minimum wage is $19.97 — the fact is that 20 states still sit at the federal minimum. Workers in those states are sinking further below the poverty line with each passing year.

“According to the Bureau of Labor Statistics, around 869,000 workers in the U.S. earned the federal minimum wage or less in 2023, more than two-thirds of whom were women,” reports NPR. If they work a full-time job at that pay rate, those workers are only making $290 a week and $15,080 per year. The current poverty line of annual income for a single-family household in America is $15,060 per year.

Sylvia Allegretto at the Center for Economic Policy and Research writes that even though many states and localities have long since raised the wage, the low federal wage is harming some Americans more than others. “The geographic distribution of the $7.25 minimum wage states matters–especially as they are concentrated in the Southern Region,” she writes. “For example, while Black workers represent 11.5 percent of the workforce, 45.7 percent live in states that follow the $7.25 federal policy; comparatively 36.0 percent of the non-Black workforce live in those states.”

Keeping the federal minimum wage locked into poverty levels also depresses paychecks of workers at the lower end of the wage scale. Three years ago, the Economic Policy Institute calculated that “ raising the federal minimum wage to $15 an hour by 2025 would lift pay for 32 million workers across the country — that’s 21% of the U.S. workforce. The increases would provide an additional $107 billion in wages for the country’s lowest-paid workers, with the average affected worker who works year-round receiving an extra $3,300 a year.”

But the federal minimum wage has been allowed to stagnate for so long that even raising the minimum to $15 isn’t enough anymore. The Center for American Progress sums up the 15th anniversary of the $7.25 minimum wage by calling for immediate action: “It is far past time that Congress increase the federal minimum wage through the Raise the Wage Act, which would gradually increase the minimum wage to $17 per hour, index it to median wages thereafter, and eliminate subminimum wages for tipped workers, workers with disabilities, and young workers so that they are no longer paid less than the minimum,” CAP concludes.

Allowing the minimum wage to stagnate for so long is a national disgrace. Every worker in America should be able to make enough to get by. Imagine if those 869,000 workers were able to make enough money to spend in their local communities. Raising wages creates jobs, which is why states that have already gotten to $15 see stronger job growth, while the states that have anchored themselves to the federal minimum wage are dragging their own economies down.

Home Prices Continue to Rise

“Home prices hit a new high in June for the second straight month, the latest sign that the housing market is unaffordable to millions of Americans,” writes Nicole Friedman at the Wall Street Journal.

“The spring home-buying season, usually the busiest time of year for the housing market, was a dud this year,” Friedman writes. “Home sales declined in June for the fourth straight time on a monthly basis. The combination of high prices and elevated mortgage rates has made homeownership less attractive to renters and deterred current homeowners from moving.”

But those prices are staying high because housing inventory is historically low. There aren’t enough houses (and apartments and condos) for everyone, which keeps the housing market tight and prices untenably high. Add to that the fact that mortgage rates are still very high, and you have a market that is incredibly punishing for prospective home buyers.

And it’s not much better for renters. Danielle Kaye at the New York Times writes that renters are suing property owners for using software that they say is killing competition and driving rental costs up. “The plaintiffs argue that real estate software from a company called RealPage is being used by apartment owners to increase rents,” Kaye writes.

“Through the Texas-based company’s YieldStar product, plaintiffs say, landlords share rental pricing data and occupancy rates — information the company funnels through algorithms to spit out a suggestion for what landlords should charge renters,” and of course “Those figures are often higher than they would be in a competitive market.”

The renters argue that YieldStar is aggregating all that rental information between landlords who otherwise would be competing with each other, essentially creating an anti-competitive monopoly.

Some policies are already emerging to help renters with those out-of-control costs. President Biden has proposed pulling back tax breaks on corporate landlords who raise annual rents by more than 5%, for instance.

But one thing that would directly help prospective homeowners and indirectly help renters would be if the Federal Reserve finally started to bring down interest rates, making money cheaper to borrow. The Wall Street Journal’s Greg Ip called on the Fed to lower interest rates at their July 30th meeting, urging the organization not to wait any longer. Michael J. Hicks at the Indy Star agrees, along with a growing number of economists.

Lowering interest rates, probably by a quarter-point, would not result in a dramatic day-to-day shift for most Americans, but it would likely serve as a signal that the Federal Reserve sees inflation as a largely settled issue, and it would invite investment back into the economy, bringing mortgage rates down for homebuyers and taking some of the uncertainty out of the economy for big employers, thereby helping to stabilize the labor market.

By this time next week, we’ll know the Fed’s decision. If they do not decide to bring rates down at that meeting, we’ll have to wait until their September meeting. Let’s hope they hear the growing drumbeats calling for lower rates and make the right decision.

The Dog Days of Summers

And on a lighter note, you might remember that former Clinton Treasury Secretary and Obama economist Larry Summers has spent the last few years warning virtually any media outlet that would listen that President Biden’s economic policies would worsen inflation and throw the country into a recession. Summers is a dyed-in-the-wool neoliberal who believes that only investments in the wealthy few at the top of the economy will result in economic growth — in fact, his prescription for ending inflation was that ten million Americans would have to lose their jobs.

Now that inflation is headed in the right direction and a recession doesn’t seem to be on the horizon — and perhaps more importantly now that President Biden has announced he’s not running for a second term and endorsed VP Harris for the job — Summers has quickly changed his tune:

The best response to this rapid about-face came from Barry Ritholtz of the Big Picture blog, who tweeted:

Summers is ridiculous, of course, but he does remind us that a lot of the establishment economic hacks who promote trickle-down economics do so because it serves their own financial interests. The richest people in the world are likely to shower you with power and opportunities if your economic theories tend to argue that the economy will benefit if the rich and powerful become even richer and more powerful. Summers loves power and attention, and he’ll happily twist his economic worldview in order to get more.

This Week in Middle-Out

• “A federal judge has rejected a tree-trimming company’s bid to block the Federal Trade Commission’s (FTC) ban on noncompete agreements from taking effect,” reports Taylor Giorno at The Hill. This decision means that the FTC’s ban on worker noncompetes can continue as planned. (And let’s be serious, here: What proprietary knowledge could a tree-trimming company possibly possess that would require a noncompete agreement?)
• The Consumer Financial Protection Bureau has created new transparency regulations on predatory payday lenders. The regulation “requires lenders to disclose information to borrowers including fees, interest and the total costs they incur by using the product,” reports The Hill.
• A federal appeals court blocked another Biden Administration student loan repayment plan, and the Biden Administration responded by placing all eight million loans affected by the block into an interest-free forbearance plan, ensuring that the holders of the loans won’t rack up extra costs while the Biden Administration continues to fight for loan forgiveness in court.
• The Federal Trade Commission has opened an inquiry into so-called “surveillance pricing,” by which tech companies can observe customer behavior and demographic data and change prices accordingly. “The decision to commence a study was unanimous, with both Republicans on the commission authorizing it as well as the Democrats,” writes David Dayen, who helped bring the problem of surveillance pricing to the public’s attention.
• Massachusetts voters approved a 4% tax on a portion of residents’ annual income over $1 million. That tax raised over $1.3 billion last year, and its proceeds are going toward investments in “Free lunches for Bay State public school students, free community college, expanded financial aid, and more money for the MBTA,” reports MassLive. That’s a tiny portion of the income of millionaires that will make a huge difference in the lives of working Massachusetts residents.

This Week on the Pitchfork Economics Podcast

President Biden’s chief economist, Heather Boushey, joins Nick and Goldy to talk about the economic achievements of the Biden Administration. Though this podcast was recorded before Sunday’s announcement that Biden was standing down from the presidential campaign, it serves as a meaningful overview of everything that his administration has accomplished in less than a single presidential term. President Biden, as Vice President Harris has argued in her speeches this week, has managed to do far more than most presidents have managed to accomplish in two terms: Investments in working Americans, infrastructure, manufacturing, and a cleaner economy for future generations.

Closing Thoughts

I don’t often link to the American Enterprise Institute here in The Pitch because AEI is one of the leading trickle-down think-tanks in Washington, DC. In their own words, AEI argues “ for expanding freedom, increasing individual opportunity, and strengthening the free enterprise system in America and around the world.” That’s a whole lot of trickle-down dog whistles that should tell you what you need to know about AEI: Their policies are libertarian, anti-regulation, anti-tax, and deeply invested in enriching the wealthy and powerful at the expense of everyone else.

So you can imagine my surprise when I saw AEI’s latest report, which was published last Friday as a response to the Republican National Convention. In the report, AEI Senior Fellow Desmond Lachman argues that Trump “has indicated that, if elected, he will impose a 60 percent tariff on all Chinese imports. At the same time, he will impose a ten percent across-the-board tariff on imports from all other countries.”

Lachman doesn’t mince words about what Trump’s economic policies will mean for the US: “One obvious disadvantage of aggressive import tariff increases is that they will add to inflation by increasing the cost of imports. Another is that a large part of the burden of those tariffs will fall unduly on those in society least able to bear them.”

In other words, Lachman is correctly arguing that Trump’s proposed tariffs would punish Americans in the most regressive manner possible: Just like with sales taxes, imposing huge, broad tariffs on all imports means that Americans at the lower end of the income scale would pay more than wealthier Americans.

This isn’t a surprise to readers of The Pitch. But it is a huge surprise that one of the leading conservative economic think-tanks is so robustly arguing against the economic policies of the Republican presidential nominee. At the end of the paper, Lachman concludes, “All of this does not bode well for the country’s long-term economic outlook should Trump get a second term. Repeating the misguided trade policies of the 1930s is once again likely to end in tears.”

I’d like to congratulate Mr. Lachman and the staff of the American Enterprise Institute on this paper. I don’t know if I could have made this case any better myself.

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

Zach