Setting the Table for 2024

The Pitch: Economic Update for January 4th, 2024

Friends,

Happy New Year! I hope your 2024 is going well, and that you found time to relax and recharge over the holidays. We’re in for a momentous year, and I’m excited to share it with you.

First, it’s important to lay out the state of play as we begin the year. November’s Personal Consumption Expenditures inflation measurement declined month-over-month for the first time since April of 2020, Jeanna Smialek writes at the New York Times. This metric, which she points out “the Fed cites when it says it aims for 2 percent inflation on average over time,” fell to 2.6%, “down from 2.9 percent the previous month, and was less than what economists had forecast. Compared with the previous month, prices overall even fell slightly for the first time in years.”

Experts were concerned that two years of inflationary increases would result in a weak holiday spending season, but those fears proved to be unfounded, writes the NYT’s Jordyn Holman: “Retail sales from Nov. 1 to Dec. 24 increased 3.1 percent from a year earlier, according to data from Mastercard SpendingPulse,” she writes, citing increases in apparel and restaurant sales. “The holiday sales figures, driven by a healthy labor market and wage gains, suggest that the economy remains strong.”

Holman is getting at the most important economic metric to watch: The paychecks of American workers. And while paychecks didn’t increase as much as they did during the period when Covid lockdowns were ending in 2021 and 22, the fact remains that 2023 was a pretty great year for American workers. The final job report of 2023 was strong, with job growth accelerating to nearly 200,000 in November and the unemployment rate dropping back down to 3.7%. Just looking at this chart marking monthly job growth over 2023, it’s clear the year was a strong one for American workers:

And workers are still making gains toward closing the chasm of inequality that opened over the last 40 years of trickle-down economic rule. The Economic Policy Institute finds that the wage gap between the wealthiest 1% of the economy and everyone else continued to close over the past year. But there’s still a long way to go in order to make up the gap created by four decades of trickle-down tax cuts for the rich and deregulation of the powerful: The wages of the wealthy few have grown by 171% since 1980, while the bottom 90 percent have only seen their paychecks grow by 32% over the same period.

In the next segment of this week’s newsletter, we’ll look into the predictions that economists and experts are making for 2024. But we should remember as we read these predictions that some of these same experts were predicting a year of pain and loss for American workers in 2023, when in fact it turned out to be one of the best years in recent history for American paychecks and income equality. There’s still much to be done, but at least we’re starting the year headed in the right direction.

The Latest Economic News and Updates

Predicting the Economy in 2024

At the New York Times, Peter Coy and Paul Krugman have a conversation about what the economy will look like in 2024. It’s a pretty good piece that sets the economic table for the coming year: America’s economic health — and, likely, the presidential election in November — depends on inflation continuing to decline and paychecks continuing to grow.

Krugman seems relatively optimistic. He thinks prices are coming down and consumers will notice over the next ten months: “If inflation really has been defeated, many people haven’t noticed it yet — but they may think differently a little over 10 months from now, even if the fundamentals are no better than they are currently.”

Coy is more skeptical: “Manufacturing is soft. The big interest rate increases by the Fed since March 2022 are hitting the economy with a lag. The extra savings from the pandemic have been depleted,” he writes, adding, “The day after Christmas, the Federal Reserve Bank of St. Louis said the share of Americans in financial distress over credit cards and auto loans is back to where it was in the depths of the recession of 2007–9.”

That last point is probably the most important cause for concern heading into the year, and the St. Louis Fed’s chart showing debt distress makes an excellent case for the Fed to begin lowering interest rates as soon as possible:

Coy asks Krugman what indicators he’ll be closely monitoring over the next few months. “Unemployment, for sure. On inflation, I’ll be watching longer-term measures: Will inflation be low enough to bring down two- or three-year averages?” Krugman concludes, “Oh, and I’ll be looking at consumer sentiment, which as we’ve seen can be pretty disconnected from the economy but will matter for the election.”

To that list, I’d like to add paychecks — always the biggest economic health indicator for middle-out economics — and housing costs. If paychecks continue to grow and home prices and rents decline this year, American consumers will be in a much better position to participate in the economy. If housing costs increase, consumers will likely become more agitated, not less. The housing market has lost a considerable amount of steam over the last year due to high prices and low available housing stock, and that slowdown is beginning to spread into related fields like housing inspection, moving and storage companies, and title insurance providers.

Meanwhile, other economics reporters are also making some predictions: Neil Irwin at Axios reports that “the ’24 economy is on track to be described with a word that hasn’t been applicable yet this decade: normal.” Axios also notes that both their readers and American CEOs are predicting a much smaller chance of a recession than they were at this time in 2023.

Joe Rennison at the New York Times finds that Wall Street’s biggest movers and shakers are largely more optimistic about the economic outlook for 2024, too. He begins the piece by highlighting Tom Lee, an analyst for J.P. Morgan who last year bucked the widespread dour sentiments of the economic mainstream — including 85 percent of economists in one poll — by predicting that the economy would not fall into a recession in 2023.

Rennison reports that Lee sees a similarly strong economy in the making this year, and he notes that the mainstream has come around to Lee’s thinking. “Heading into 2024, prognosticators tracked by Bloomberg share Mr. Lee’s optimism more broadly, including analysts at Citigroup and Goldman Sachs. Binky Chadha, an equity strategist at Deutsche Bank who bet against the consensus with Mr. Lee last year, is also predicting that the bull rally will continue. And a Wall Street Journal survey of three major financial institutions finds that most predict unemployment is likely to rise a tick or two to 4%:

Meanwhile, Jeanna Smialek at the New York Times interviews a number of experts who largely find that we’re in a period of disinflation — which, to be clear, is not necessarily a decrease in prices but rather a slowdown or cessation of price increases. Inflation generally started easing in the travel sector before moving into goods like cars, clothing, and furniture.

But the most noteworthy holdout, Smialek notes, is housing, where rents and mortgage payments remain too high for working Americans.

As I noted in the introduction to this week’s newsletter, economic predictions are rarely worth the hosting fee expenses for the websites that publish them. All these predictions should be treated with a huge dose of skepticism and a healthy sense of humor. But if you pay attention to the economy long enough, you begin to understand that a good portion of the economy runs on belief: If enough people believe that the economy is headed in the wrong direction and act accordingly, the economy will begin to flounder. And if enough people believe that the economy is strong and act accordingly, their spending will create strong economic growth.

In short, I’d rather have a strong economy that experts believe is strong than a strong economy that experts believe is weak. When it comes to the economy, perception is often reality, so it’s better news for everyone when the forecasters are seeing sunny skies.

Growing Manufacturing from the Middle Out

On BlueSky, Aaron Sojourner points out that former President Trump likes to brag about an increased investment in American manufacturing during his term. “In data, the decline in inflation-adjusted quarterly U.S. private investment in the manufacturing industry stopped by late 2017 & then bumped up +6% in 2019,” Sojourner explains.

By contrast, he writes, “In the Biden administration — given policy changes in the Infrastructure law, the CHIPS & Science law, & the Inflation Reduction Act — investment in U.S. manufacturing more than doubled, up +108%. It’s 18X the 2019 bump.”

This isn’t about scoring partisan points by pitting one president against another. That skyrocketing investment in manufacturing instead offers compelling proof that middle-out economics works in a way that trickle-down never does. Most major economic models — including the Congressional Budget Office economic models that influence the course of policy in America — have for decades predicted that government investments ‘crowd out’ private investment. The CBO, in fact, assumes that public investment only returns half as much economic activity as private investment.

“Essentially, models assume that every increase in public investment is canceled out by the combination of lower returns and reduction in private investment. Taking this assumption to its logical extreme, there’s almost nothing government should ever invest in,” Nick Hanauer wrote last year in the American Prospect. But what we’re seeing here is that those assumptions are backwards: by investing in bringing semiconductor and green energy manufacturing back to the United States, government is welcoming private investment back into the American economy, not crowding them out — essentially, government is establishing a new frontier for businesses to explore.

The Biden Administration has prioritized the reshoring of manufacturing and the creation of good-paying middle-class manufacturing jobs, and private businesses see the opportunity to profit by building on those investments. That manufacturing boom proves that the old trickle-down assumptions that power our models need to be updated in order to reflect middle-out reality. When government makes smart investments to prioritize desired outcomes, private investment quickly follows.

Trickle-Down Isn’t Dead Yet

You can’t just wipe out 40 years of economic orthodoxy overnight. Despite all the economic good news we discussed above, it’s important to remember that trickle-down economic policy is alive and well, enriching the wealthy at the expense of ordinary Americans.

The mechanisms that wealthy people use to hoard wealth are still in place. It’s easier now than at any point in living memory for super-rich people to pass their fortunes on to future generations. Thanks in large part to the Trump tax cuts for the rich of 2017, writes Molly Redden at HuffPost, last year “more people became billionaires by inheriting wealth than became “self-made” billionaires by running a successful enterprise, according to a UBS annual report on billionaires — the first time that trust fund billionaires outnumbered “self-made” ones since UBS began keeping tabs about a decade ago.”

And since 1980, the American regulatory power structure has tilted in favor of corporations, with self-regulation taking the place of government oversight. “In the past two decades, private audits have become the solution to a host of public relations headaches for corporations. When scandal erupts over labor practices, or shareholders worry about legal risks, or advocacy groups demand a boycott, companies point to these inspections as evidence that they have eliminated abuses in their supply chains,” writes Hannah Dreier at the New York Times. “Known as social compliance audits, they have grown into an $80 billion global industry, with firms performing hundreds of thousands of inspections each year.”

These private firms are paid billions of dollars, Dreier reports, but their audits failed to uncover rampant child labor at some of the highest-profile corporations in America. “Auditors did not catch instances in which children were working on Skittles and Starburst candies, Hefty brand party cups, the pork in McDonald’s sandwiches, Gerber baby snacks, Oreos, Cheez-Its or the milk that comes with Happy Meals.”

If, as the free-marketers like to argue, private industry is always more efficient than government, why aren’t these auditors more efficient at doing their jobs? And along those lines, why are private equity firms actively making health care worse in the hospitals they bought?

“The rate of serious medical complications increased in hospitals after they were purchased by private equity investment firms, according to a major study of the effects of such acquisitions on patient care in recent years,” notes the New York Times. You should absolutely at least check the toplines of the report, which finds that if you should become unlucky enough to get placed in a hospital owned by a private equity firm, you will have a greater than one-in-four chance of being hurt or getting sick in a hospital-acquired condition including “falls and central line–associated bloodstream infections” than you would in a non-PE-owned hospital.

From further sickening patients to failing to stop child labor, this wide array of policy failures only has one thing in common: They are all the end result of the trickle-down restructuring of the relationship between business and government that began with the Reagan administration in the 1980s. You’ve doubtlessly heard that famous Reagan quote: “I’ve always felt the nine most terrifying words in the English language are ‘I’m from the Government, and I’m here to help.’”

I’d rather hear those nine words any day than what I believe are nine even more terrifying words: “The free market will efficiently solve all these problems.”

This Week in Middle Out

• We celebrate January 1st for being the first day of the new year, but it’s also one of the most underrated national holidays in the United States: The day when minimum wage increases go into effect in states and cities around the country. “Higher minimum wages will go into effect on January 1 across 22 states, giving an economic boost to almost 10 million workers, according to a recent estimate. The higher baseline wages will deliver almost $7 billion in additional annual wages to about 9.9 million workers,” writes Aimee Picchi at CBS News. New York State is also raising its overtime threshold to ensure that working Americans who earn less than $64,000 per year are paid time-and-a-half for every hour worked over 40 hours per week.
• Millions of Americans with diabetes had more money in their pocket beginning on January 1st, when major manufacturers capped the cost of insulin at $35. “The inflation-adjusted cost of the medication has increased 24% between 2017 and 2022, and spending on insulin has tripled in the past decade to $22.3 billion in 2022, according to the American Diabetes Association,” writes Tami Luhby at CNN. David Dayen at The American Prospect notes that this insulin price-cut is thanks in large part to the American Rescue Plan.
• In the Biden Administration’s ongoing battle against junk fees, the FCC “proposed a crackdown on cable television companies’ billing practices [last month] as it announced plans to ban early-termination fees and to introduce fresh rules that could lead to consumer refunds if a subscriber cancels a plan mid-month,” reports CNN.
• “Resident assistants, known as R.A.s, are on the march, part of a wave of unionization by undergraduates who work in places like dining halls and libraries, and attend schools like Harvard, the University of Oregon and Western Washington University,” writes Alan Blinder at the New York Times. “This year alone, around 20,000 undergraduates, many of them at California State University, the largest four-year public university system in the country, have cast ballots in union elections or secured the opportunity to vote.”
• Last year, the Biden Administration cracked down on big corporate mergers across industries, and anecdotally rumors have suggested that the Administration’s renewed thirst for antitrust has chilled several potential big mergers before they could ever happen. Let’s hope Biden directs his staff to be just as tough, if not even tougher, on several impending mergers in the coming year. For instance, Choice Hotels is trying to swallow up their closest competitor in the hotel industry, Wyndham Hotels and Resorts. (“Even some Wall Street analysts have expressed skepticism that Choice’s proposal is a good idea,” writes Lydia DiPillis.) And if oil and gas companies like Occidental Petroleum keep buying up their competition at their current pace, experts predict that there will only be ten American oil companies left by the end of the decade. The American people are generally against monopolistic mergers like this, and the Biden Administration has thus far made a very compelling argument that antitrust legislation saps the free market of the competition that keeps our economy lively. This is exactly the kind of fight you want to pick in an election year.

Closing Thoughts

In their first episode of 2024, Goldy and Civic Ventures founder Nick Hanauer explain why the Pitchfork Economics podcast is freshening up its branding and approach a little bit. When the podcast began, middle-out economics was still on the outside of mainstream economics and all but a handful of politicians were captured by neoliberal, trickle-down thinking. But now that middle-out economics has proven to reflect how the economy works, more and more people are starting to take notice.

They note in the episode that President Biden has helped to legitimize middle-out economics. Bidenomics is a suite of policies that focuses relentlessly on growing the paychecks of working Americans, which is to say that it’s a policy framework built on top of a middle-out economic understanding of the world. Biden has also helped to debunk the fallacious trickle-down understanding of the economy that places a wealthy few at the center of the economic universe, and the Reaganomics policy framework that prioritizes growing their already-outsized wealth, in the form of tax cuts for the rich and deregulation for the powerful.

“We started working together right around the time that original Pitchforks piece came out in Politico,” Goldy says to Nick during the episode.”Your argument there was, if we don’t do something about rising inequality, there’s going to be a revolt. There’s going to be a rebellion, and that doesn’t work out well for anybody.”

With the refocusing of the podcast, Goldy says, “part of what we’re saying right now is the pitchforks are kind of here….

…We’re in this moment where it’s going to go one way or the other. Both metaphorically and, unfortunately, literally, you can see an outcome in which the fascists take over, the Trumpists take over, and that is the end of American democracy. If that happens, that is largely a consequence of the mistakes that were made during the neoliberal era where we have torn this country apart through rising economic and political inequality. It is a reaction to it, and nobody will do well from that.

The alternative is that, in fact, we reverse the mistakes of the past 40 years and we build an economy and democracy based on a better understanding of how economics and, well, democracy works. We’re really hopeful.

When you work with Goldy as long as I have, you learn that he’ll never miss an opportunity to go dark with his predictions. There is truth in his assessment of the stakes of the 2024 election, but he undersells the potential positive outcomes.

“The rebranding of the podcast to a certain extent just represents a posture change. When we first started doing this, we knew very clearly what we were trying to get people to see, what was the enemy,” Nick explains. “It was much clearer than what we were against. Today, we very much know what we are for, and so the podcast needs to reflect not just attacking what’s bad, but encouraging what’s good because we are at that moment where there’s a lot of good to talk about.”

One of the reasons that I signed on at Civic Ventures was the fact that I realized Nick’s optimism resonated with my own, and his explanation of the moment in the podcast goes right to the heart of his economic optimism:

I do think that if we can get through this next election cycle, there’s going to be a lot in the United States of America to be incredibly optimistic about because the legislation that has been passed in the last three years will absolutely, positively transform America in some very positive ways over the next five to 10 years. If we could get another round of that passed in the next four or five years, the country will be immeasurably better off in the future. I think that we may be in for the best years of our lives, if we can get this right.

It felt important in this moment to re-establish the stakes, and to recognize the impressive gains that middle-out economics has made over the last decade. And while I’m certain that there will be many moments in the coming year in which we all fall prey to our pessimistic inner Goldy, we also have to remember, as Nick says, that we’re closer than we’ve ever been to building a glorious future with an economy that includes everyone. I don’t know about you, but I think that’s worth fighting for.

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

Zach