Red State Refugees

The Pitch: Economic Update for July 7th, 2022

Friends,

If you ever needed proof that economics is an inexact art and not a hard science, here’s a test that should give you all the evidence you’ll ever need in two simple steps: First, find an economist — ideally, someone who has served in at least one presidential administration. Second, ask the economist to state unequivocally whether the United States is entering into a recession or not.

It seems like a simple question, but at Axios, Neil Irwin and Courtenay Brown discuss the confusing economic signals creating uncertainty around whether or not we’re entering a recession. While GDP dipped earlier this year and may be entering another decline this quarter, the job market continues to roar. Axios notes employment levels remain high. Some 4.3 million Americans quit their jobs in May, and that number has remained steady throughout the spring. Black employment has finally recovered to pre-pandemic levels, and there are still almost two open jobs for every unemployed American, a near-record high:

So: Are we on the verge of a recession? No economist on earth could muster a prediction with anything near 100 percent certainty. The best we can hope to get from economists is an accurate reading of present conditions.

And when it comes to present conditions, I can tell you that if you were to give me a choice between the economy we have, with inflation dragging GDP numbers down but a very continuously strong labor force, or an economy with low inflation and high GDP but awful long-term employment and wage numbers, I would choose our current situation every single time. The only absolutely vital component of a 21st-century capitalist economy is that people have income to spend, because consumer spending is the engine that makes everything else go.

The Latest Economic News and Updates

The Supreme Court wants to deregulate everything — except women’s health

Out of the many clever protest signs shared on social media in the days since the Supreme Court overturned Roe V Wade, the one that I keep returning to is a phrase on a hand-drawn sign: “If my uterus was a corporation, the Supreme Court would deregulate it.”

The sign is a reference to the fact that the Supreme Court this year also issued a regulatory decision that weakens the federal government’s ability to create environmental protections. Charlie Savage at the New York Times notes that

The ruling widens an opening to attack a government structure that, in the 20th century, became the way American society imposes rules on businesses: Agencies set up by Congress come up with the specific methods of ensuring that the air and water are clean, that food, drugs, vehicles and consumer products are safe, and that financial firms follow the rules.

This decision is a momentous one that could, with a few further rulings, undermine the power of federal regulations. If the conservative Supreme Court supermajority is all but guaranteed to decide against any challenged federal regulation in the next few years, why should corporations strive to follow those regulations in the first place?

And James B. Stewart at the Times notes that the Court’s activism in the last year has thrown basically every historical decision in doubt. If the Supreme Court eventually revives the century-old decision in the Lochner V New York case, Stewart writes, basically everything from minimum wage laws to the right for workers to unionize could be thrown out. The experts Stewart talks to for the piece argue that a reappraisal of Lochner would be “unthinkable” and “radioactive,” but you could go back ten years to find experts saying the exact same things about the prospect of overturning Roe.

The coming battle over states’ rights

Since the Supreme Court is throwing virtually every federal climate regulation into question, Maggie Astor notes, state and local environmental regulations are becoming hugely important in our fight against climate change. From Phoenix, Arizona to Morris, Minnesota, communities that are seeing real impacts from climate change are fighting rising temperatures on a street-to-street basis, and states like Colorado and California are raising their standards in an effort to basically regulate industry nationwide.

In the economics space, we’ve seen plenty of states step up to improve outcomes for workers. But as states must expand their regulatory work to fill the space that the federal government used to take up, Jonathan Weisman points out, the ideological divide between states are growing ever-greater, from abortion “to climate change, gun control and L.G.B.T.Q. and voting rights.”

There are a number of concerns with this growing divide. First of all, we’re seeing increased “sorting,” through which people leave their home states in order to live closer to people who are in ideological alignment. And secondly, we’re in danger of approaching a time in which states outright refuse to acknowledge federal laws that leaders deem to be disagreeable or unjust, creating a kind of Cold Civil War between the states.

For the time being, though, the state approach is the only real tool in progressives’ toolbox, with blue states forming environmental pacts that seek to step in where the federal government retreats. In the closing to this newsletter, I’ll talk about a policy solution that blue state leaders should embrace if they hope to make their states a haven for people fleeing states that have fallen under regressive, trickle-down leadership.

Even in conservative states, paychecks matter more than ideology

With a few glaring exceptions, which I’ll explain below, you can mostly trace the contours of regressive and progressive states by looking at this Department of Labor map of state minimum wages:

One interesting thing about this map is that most of the conservative states you would not expect to embrace a higher minimum wage, like Florida and Arizona, won that higher minimum wage at the ballot box. In both states, the minimum wage initiative was much more popular with voters than any Republican or Democrat on the ticket. It’s a reminder that middle-out economics is popular with a majority of people, regardless of their political leanings. If we want to break free from this intense period of political division, the best way to do that is by growing paychecks for a majority of people.

Corporate greed, and who is standing up to it

Inflation continues to run amok, and those higher prices are eating into the bigger paychecks that Americans have earned over the last year. “Americans’ income and spending failed to keep pace with rising prices in May, the latest sign that the fastest inflation in a generation is chipping away at the bedrock of the economic recovery,” write Ben Casselman and Jeanna Smialek at the New York Times.

While the whole world is seeing inflationary spikes due to pandemic-related issues, it’s important to remember that corporate greed plays a significant role in the higher prices Americans are paying at restaurants, homes, and even hospitals. “According to a new report from the North Carolina treasurer’s office, the state’s seven largest hospitals reaped $5.2 billion in profits last year, with all but one hospital making higher net profits than before the pandemic,” writes Dan Crawford. None of those profits were returned to patients by lowering costs, and employees likely took home a tiny slice of the profits in their paychecks —i f they received raises or retention bonuses during the pandemic at all.

We’re not going to get prices under control until our leaders do something to penalize corporate greed. John Nichols writes at The Nation that Democrats in the House have passed a bill which directly addresses Big Oil’s price-gouging, but the bill has been stalled out at the Senate level by Republican leadership, who stands to make big gains in the November midterms if prices at the pump stay high.

Meanwhile, Moody’s Analytics reports that Americans are having to eat into the $2.7 trillion they saved up during the pandemic in order to make ends meet. The stimulus checks that the federal government sent to help people cope with pandemic-era lockdowns are basically all gone now, and American savings accounts are back to where they were before 2020, if not a little bit worse:

What happens when those savings dry entirely up, or when student loan payments start back up again? The idea of additional payments to ordinary Americans as they weather the inflationary storm might seem unpopular right now, but a few more months of Americans scraping the bottom of the barrel might change public opinion in a considerable way.

In the meantime, the Biden Administration is considering a move to make mortgage costs more affordable for low-income buyers, to the tune of $50 to 70 a month savings for qualified homebuyers. In the middle of a crisis that’s seen rising prices on virtually every front, it’s smart that Biden is focusing directly on necessities like housing and fuel — the kind of expenses that are absolutely necessary for people to participate in the economy.

Without Congress’s help, Biden should be directing his team to take as much action as possible through executive orders, programs like the Federal Housing Administration that can lower costs directly, and other nontraditional techniques. Even if those workarounds eventually wind up in court — not unlikely, given the current political climate — it would be better for Biden to make the case that he’s helping ordinary Americans than for him to appear to be gridlocked by the opposition party. The goal should be to drive down immediate costs on necessities, even as the labor market continues to make big gains for American paychecks.

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.

• We return to Civic Action Live this week to catch up on all the topics we’ve missed over the holiday break: The economic impact of Supreme Court decisions, what our leaders can do to curb the corporate greed that’s worsening the inflation crisis, and how individual states are doing the important economic work that has become impossible on the federal level as Congressional Republicans have become increasingly recalcitrant. Join us at 10:30 am PST.
• On the Pitchfork Economics podcast, Nick and Goldy answer listener questions on a wide variety of topics including whether stimulus payments inspired high inflation, whether more worker-owned co-ops would improve the economy, and whether high gas prices are just a result of supply and demand.
• And in his Business Insider column, Paul writes about the fact that while Chile has one of the strongest economies in South America, it also has the largest wealth gap in the world—and its libertarian constitution, which was adopted in the 1980s, has resulted in the only wholly corporate-owned water supply in the world. Now, the country is trying to strip neoliberalism from its constitution, and the process has been fairly turbulent.

Closing Thoughts

On the 4th of July, California Governor Gavin Newsom placed an ad on Florida television stations urging Floridians who are nervous about their governor’s recent steps to ban abortions and LGBTQ-themed books, and combat so-called “woke” companies like Disney to instead “join us in California, where we still believe in freedom — freedom of speech, freedom to choose, freedom from hate and the freedom to love.”

We’re going to see more of this open competition between states in the months and years to come. And as the federal government’s right to regulate is called into question by the Supreme Court, we’ll also see more regulatory pacts between like-minded states — such as the “West Coast Offense” that recently formed to protect and strengthen the right to abortion up and down the west coast. This increased competition will play out in the form of leaders urging people to move to the state that best matches their ideological perspectives, as we saw in Newsom’s ad.

One policy that leaders should consider as they begin to openly appeal for new residents is the idea of waiving license fees and relaxing the regulatory burden for workers (anywhere from dentists and lawyers to hairdressers and plumbers) who want to pack up and move. Right now, someone with a cosmetology license who wants to move from one state to another must navigate a patchwork system of regulations that could require them to take additional classes or pay a steep set of fees before they can set up practice in their new state. If west coast leaders are serious about wanting to encourage people to move to their states, they need to streamline and simplify their regulatory burdens, while still keeping important health and safety standards in place.

Longtime readers might be shocked to hear me agitate for deregulation of any sort — we at Civic Ventures know that smart regulations create stronger economies. But many of these regulatory burdens placed on workers when they cross state lines have nothing to do with health and safety. They’re often a way for cash-strapped state and local governments to make a little bit of extra revenue that isn’t tied to an unpopular tax increase. But in the long run, the state will generate much more revenue from the consumer demand created by an influx of new workers escaping increasingly regressive states than they ever would take in from an exorbitant license fee.

If blue-state leaders are serious about taking in refugees from red states, they should take a close look at the regulations and costs that are currently impacting new residents — including soaring housing costs. By making that move as affordable and frictionless as possible, they’ll be supercharging their state economies for generations to come.

Be kind. Be brave. Get vaccinated — and don’t forget your booster.

Zach