Saving the World Isn’t Easy

The Pitch: Economic Update for May 26th, 2022

Friends,

For the second time in two weeks, we must begin with an acknowledgement of a horrific act of violence. All the victims of last week’s white supremacist shooting at a Buffalo grocery store had not been buried before Tuesday’s shooting at an Ulvade, Texas elementary school killed at least 21 people — mostly children — in the worst school shooting since Sandy Hook, almost a decade ago.

Those of us who are not members of the Ulvade community can’t begin to comprehend the size and the scope of this horrendous crime. And there are no words to ease this kind of pain. After a shooting like this, parents around the nation can only hold their children tighter. Everyone feels less safe in their communities. And that horrifying feeling of hopelessness begins to set in.

But for those of us who are miles away from Ulvade, the most important thing we can do is never give up hope. The best way to keep hope alive is through taking action. The best action we can take is through policy change—specifically through common sense gun safety legislation at every level of government—and the best opportunity we have for action is at the state and local level. No matter where you’re reading this in the United States, I guarantee you that there are organizations and leaders who are already working on this issue who could desperately use your time, money, and skills.

And make no mistake: As much as cynics on social media would like you to believe that nothing is being done, these groups are making progress. In my home state of Washington, for example, we have consistently opposed the NRA and other gun lobby organizations through the legislative process and at the ballot box. Just this year alone, the Washington state legislature passed laws including a ban on high-capacity magazines, the outlawing of armed intimidation of lawmakers and protestors, and the updating of laws already on the books to protect abused spouses from gun violence. By initiative we also passed Universal Background Checks, Extreme Risk Protection Order legislation that allows law enforcement to temporarily remove firearms from people who threaten violence or are at high risk of committing crimes with their weapons, a measure that raised the age to 21 for the purchase of semi-automatic firearms, and required additional licensing, training, and safe storage.

None of these laws will undo the horrendous crimes we saw this week, but they could stop the next shooting, or the next gun-related accident, or the next veteran suicide. We have saved an uncountable number of lives. I believe that there are children in Washington state who are returning home to their parents tonight because of all the hard work that our friends and allies have put in over the last 15 years to make this state safer, and led by an organization I helped found, The Alliance for Gun Responsibility. Those saved lives make it a bit easier to get back to this important work.

The Latest Economic News and Updates

The economy shrank last quarter, but spending is still high

This morning we learned that America’s economy actually shrank by 1.5 percent in the first quarter of 2022, which is slightly worse than previous estimates of a 1.4 percent hit to the GDP. Economists attribute this loss almost entirely to a turbulent international trade environment, but most aren’t predicting a recession.

The reason why recessionary fears are so low among the experts: Consumer spending is still way up, growing “at a 3.1% annual pace from January through March,” reports the Associated Press.

We should still keep the typical caveat in mind: Experts can’t predict the economic future with any kind of accuracy right now because nobody has ever lived through a crisis like this, and the models have done a very bad job of measuring the economy of late. But one thing I can say for sure is that consumer spending is still the heart of the American economy — and at the moment that metric is still healthy.

Anything that our leaders can do to keep those spending numbers up will help the economy as a whole. That means supporting the strong labor market and doing anything they can to make sure paychecks continue to grow. Our economy isn’t being saved by CEOs and Wall Street right now — it’s consumer spending that is pulling us through the multiple economic crises that the world is facing.

As the wealthy elite gather at Davos, inequality and uncertainty plague the global economy

Abha Bhattarai at the Washington Post writes about the subdued mood at this year’s Davos gathering, in which the wealthiest people in the world gather to discuss the world’s problems and ignore the obvious solutions, like paying their share of taxes. (That said, the group Patriotic Millionaires did put on a “Tax Us More” demonstration at Davos this year, which earned quite a few headlines worldwide.)

Bhattarai reports that the Davos crowd are deeply concerned about inflation and the growing threat of recession. “Parties are less ostentatious, dinners are smaller and many company executives report cutting their attendance list by one-third to one-half. Celebrities such as Angelina Jolie, Matt Damon and Bono, all of whom have attended in the past, aren’t on this year’s roster,” she writes.

It’s hard to muster much sympathy for the Bono-free Davos crowd, though, when a new report from the Economic Policy Institute helps dimensionalize how much harm wealth inequality is causing to consumer demand. Simply put, the wealthiest Americans — the sort of people who hobnob at Davos — are hoarding money that used to flow through the economy, and it’s dragging the whole economy down.

“By redistributing income from lower-income households that spend money to higher-income households that have the luxury to save money, the rise in inequality reduces growth in aggregate demand by about 1.5% of GDP annually,” EPI writes. You can see that mechanism in two charts. First, look at income growth by share of wealth since 1979:

The bottom 90 percent of the economy has lost income since 1979, while the income of the top ten percent has skyrocketed. And now here’s how much of that income American households are saving:

So the wealthiest one percent of the population is saving nearly a third of its income. That’s money that people used to use to buy things, to invest in education, and to spend in their communities. Now that money is languishing in hedge funds and off-shore accounts for years at a time. Is it any wonder that Americans are working harder and harder in order to tread water? When money is moving, the economy is strong and energetic. When that money sits still, the economy grows stale. It really is as simple as that.

The high price of market concentration

A new report from the Boston Fed rings an important alarm bell about a rapidly worsening trend: “The US economy is at least 50 percent more concentrated today than it was in 2005,” the authors write. The biggest businesses across the economy are buying each other up and forming monopolies and monopsonies at a rapid clip, and the Boston Fed found that this market concentration is causing “cost shocks” that “could be amplifying the inflationary pressure from current supply-chain disruptions and a tight labor market.”

The full report gets very technical, but the mechanics behind it are easy to understand. In a supply-chain crisis like the one we’re experiencing right now, when the market has been gobbled up by a handful of giant entities with very little competition, it’s easier for those big companies to raise prices. Now that the economy has concentrated by half, the Boston Fed finds “a 25 percentage point larger pass-through of costs into producer prices” than they found 17 years ago. American consumers are paying a quarter more of the burden of higher supply-chain costs than they otherwise would in a less-concentrated economy.

We already knew that corporate price-gouging was a major contributor to inflationary prices that Americans are paying, but this report offers substantial and serious evidence that corporations are inflating prices because they can get away with it.

Investigating the LiveNation loophole

An investigation from Yeganeh Torbati and Tony Romm found that subsidiaries of Ticketmaster parent company LiveNation raked in almost $19 million in pandemic aid meant for small local music and entertainment venues that had to close during the lockdown. It is deeply frustrating that small businesses trying to do the right thing during a global crisis lost out on funds that instead went to organizations backed by an international entertainment conglomerate’s deep pockets — especially since Live Nation is now being investigated by Congress for its role in a deadly concert accident that killed 10 people in Houston.

Working Americans don’t have lobbyists

The Center on Budget and Policy Priorities warns that corporate lobbyists are swarming the halls of Congress right now in order to delay the implementation of a Trump-era tax on research and experimentation expenses. Chuck Marr at CBPP is not opposed to delaying this tax, but he argues that lawmakers should pass the delay with two taxes that will benefit working-class Americans: The return of the Child Tax Credit, which would lift millions of children out of poverty, and the strengthening of of the Earned Income Tax Credit, which would boost the incomes of 17 million Americans. At a time when prices are soaring, it stands to reason that our leaders should never pass a law that benefits wealthy corporations unless they are also simultaneously passing policies that would immediately and directly benefit American families.

How to fix America’s growing retirement inequality crisis

Both the Center for American Progress and the Center on Budget and Policy Priorities wrote about The Securing a Strong Retirement Act of 2022, or SECURE 2.0, a piece of legislation now working its way through Congress that “puts forward some important changes — including expanding automatic enrollment in retirement savings plans and strengthening protections for part-time workers.”

Those are worthy causes, but both CAP and CBPP warn that SECURE 2.0 doesn’t do anything to address the inequality baked into our current retirement system. The problem is that wealthy people reap most of the benefits from retirement savings, and poor people are increasingly going without.

“Policies to boost retirement security should focus on the people whose limited earnings make it difficult for them to save for retirement and who are most at risk of financial instability in old age,” CAP notes. “The current system of incentives, however, provides large tax breaks to high-income households relative to middle-income households and little or no assistance to low-income families. This upside-down structure results from structural features that favor high-income households. “

As it is now, our retirement system looks a lot like the rest of the economy: If you’re in a wealthy white family, the system is tipped in your favor. But if you’re a non-white American, or if you were born into poverty, it’s increasingly hard to save for retirement. One-half of all Black families and two out of every three Hispanic families lack retirement plans, while only one out of every four white families don’t have a retirement plan to speak of.

Both organizations offer suggestions for ways to rewrite retirement security programs so that every American is incentivised to continually save an appropriate amount for retirement, and so that the richest families aren’t using retirement programs as yet another tax shelter in which to hoard their wealth. It’s wonky stuff, but these pieces are absolutely necessary explainers of how to avoid a crisis decades down the line in which a majority of Americans are completely unprepared for retirement.

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 Civic Action Live this week, we’ll discuss what the wealthy elite gathering at Davos should have discussed, why growing income inequality is slowing down America’s economy, and how our retirement system rewards wealth at the expense of hard-working Americans at the lower end of the wealth scale. Join us at 10:30 am PST.
• On Pitchfork Economics this week, Professor john a. powell joins the podcast to discuss why “belonging” is a better metric for economic, legal, and democratic equality than “inclusion.” “Belonging” suggests a more meaningful policy goal — one of co-ownership — than many of the laws that we have currently on the books.
• And we were very excited to see Senator Elizabeth Warren once again tweeting out a column by our own Paul Constant this week — this time about the proposed tax that would turn exorbitant Big Oil profits into rebate checks for ordinary Americans. We’re thrilled that Paul has landed on Senator Warren’s reading list.

Closing Thoughts

Last week’s season finale of The Simpsons featured an eight-minute musical number from Hugh Jackman and Clinton Secretary of Labor Robert Reich about income inequality. It was one of those rare moments on network television that pairs escapism with education, all wrapped up in a sugary animated coating that helped the message go down easy.

But the juxtaposition of income inequality and The Simpsons also inspired More Perfect Union to point out a frustrating economic message of the show. When The Simpsons first went on the air 33 years ago, Homer Simpson was portrayed as a kind of everyman, a working-class dad who was the sole provider for his family. Today, the lifestyle in The Simpsons — one working parent and one stay-at-home parent to three kids in a large home with two cars in the garage, all on a salary equivalent to $50,000 per year in today’s dollars — is almost entirely out of touch with the economic reality that Americans face.

To their credit, More Perfect Union found a pair of families whose lives resemble what we see every week in The Simpsons, but those families don’t enjoy the stability that Homer and Marge do — in real life their wages have stayed flat (or even decreased) while housing and education costs have gone through the roof.

From 30,0000 feet, the solution to the Homer Simpson problem of American workers is pretty straightforward — we’ve got to increase paychecks and reduce income inequality. The nuts and bolts of how we do that is what we concern ourselves with in this newsletter every week. But stunts like Reich’s Simpsons appearance and its resulting cultural conversation are vital for alerting people to the problem, too, and getting the message to mainstream audiences that they’re not alone — the economy has gotten measurably worse for nine out of ten Americans who don’t live in Springfield.

Hopefully just a fraction of the millions of people who watched that episode will go searching for solutions. If you happen to be one of them: Welcome. We’re glad to have you aboard.

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

Zach