The Good News Is Hard to Ignore

The Pitch: Economic Update for December 14th, 2023

Friends,

I wanted to direct your attention this week to an article that Civic Ventures founder Nick Hanauer published in Time magazine under the headline “Bidenomics Is Real Economics.” In the piece, Nick makes the case that President Biden’s support for a middle-out economics platform is more than empty sloganeering — it’s the natural next step in a paradigm shift away from Reagan-era trickle-down economics and toward something new.

“Like Reaganomics before it, Bidenomics is largely an argument over economic cause and effect. Bidenomics argues that a large and thriving middle class is the primary cause of economic growth. ‘When the middle class does well, everybody does well,’ the President has repeatedly explained,” Nick writes. “This is the core proposition of Bidenomics: that prosperity grows from the bottom up and the middle out. Reaganomics, by contrast, argues that wealthy “job creators’’ are the primary cause of economic growth.”

But plenty of presidents on both sides of the aisle have talked about the importance of centering the priorities of working-class Americans. The difference is that Biden’s policy agenda actually follows through: “The White House website describes Bidenomics as ‘centered around three key pillars’ — public investments, empowering workers, and promoting competition — pillars that stand both in sharp contrast to the Reaganomics regime of tax cuts, wage suppression, and deregulation, and on a far stronger empirical foundation than the trickle-down alternative they seek to displace.”

As an example, Nick points out one major distinction between Reaganomics and Bidenomics: Reaganomics promoted corporate mergers and anticompetitive behaviors as a net plus for everyone, under the grounds that they improved efficiency. “The orthodox economic theories that inform Reaganomics insist that the market functions primarily as a self-organizing tool for efficiently allocating capital, and if efficiency can be maximized through market concentration or automation or offshoring (or union busting), then so be it,” he writes.

The difference is that “Bidenomics is grounded in modern economic theory that recognizes that, while markets are incredibly effective at evolving new solutions to human problems, they are often remarkably inefficient, and that what capital efficiencies they create can sometimes come with unacceptable amounts of economic and societal risk.”

In other words, just because it may be more efficient if one giant entity like Walmart controls retail and grocery operations within large swaths of the country doesn’t mean that it’s a net good. Walmart can jack up prices in areas where they’ve shuttered all their competitors, for instance, and they can suppress worker wages because nobody else is hiring. They’re also less likely to carry local goods, and money spent at Walmart is largely airlifted out of the community and into Walmart’s coffers. And as we learned during the pandemic, having one giant global supply chain dominated by a few corporate powers is a sure-fire way to create snags and disruptions that will then raise prices around the world.

Instead, Bidenomics is interested in investing in infrastructure and the supply chain to ensure that every business can participate in the economy. It’s also investing in factories and ensuring that those factories have good-paying jobs and benefits like on-site affordable child care. Building those semiconductors at home doesn’t just make us less vulnerable for when the supply chain does sputter to a stop — it also grows the paychecks of workers around the country, and those paychecks are spent in local economies, creating jobs.

“Bidenomics is working,” Nick concludes. But “That Biden has thus far failed to get credit from voters for his strong economy should not be surprising. Democrats never receive the credit they deserve for their economic accomplishments because they never before put forward a coherent theory of economic growth,” he writes. “But Biden is finally attempting to change this: ‘When the middle class does well, everybody does well,’ the President relentlessly explains. This is the core principle of Bidenomics.”

This is a piece that sets the stage for next year’s economic conversation, which will in turn be central to the presidential elections. I urge you to go read the whole article and share it with your friends and social groups because Nick is getting at something that too many economic pundits have failed to realize: We’re watching a new economic understanding being born in real-time, and that understanding could shape the next four decades just as much as Reagan’s trickle-down vision has altered the course of the past four decades — only this time for the better.

The Latest Economic News and Updates

Workers Continue to Lead the Way to a Strong Economy

“Employers added 199,000 jobs last month, the Labor Department reported Friday, while the unemployment rate dropped to 3.7 percent, from 3.9 percent,” wrote Lydia DiPillis for the New York Times last Friday. The good numbers, she adds, suggest “that the economy remains far from recession territory despite a year and a half of interest rate increases that have weighed on consumer spending and business investment. Reinforcing the picture of energetic labor demand, wages jumped 0.4 percent over the month, more than expected.”

Strategist Simon Rosenberg took the occasion of the good November jobs report to publish a remarkable thread detailing all the positive economic news we’ve seen over the last year or so.

“We continue to see very elevated wage gains, new business starts and prime-age worker participation rates,” Rosenberg writes. “ Real wages firmly in positive territory, best time to find a job since the 1960s, uninsured rate lowest ever recorded.” And our economic recovery from Covid has blown past every other nation:

We cannot deny that many American families are suffering, with grocery prices still rising and housing prices staying very high. And in fact we should be bringing back some of the Covid-era investments like the Child Tax Credit and higher unemployment payments that our leaders put in place to invest in those Americans who are struggling to get by.

But at some point you have to acknowledge that the economy is vastly outperforming what nearly any pundit would have predicted when Biden was elected. In fact, on November 8th of 2020, the New York Times’s Neil Irwin anticipated that as the United States dug its way out of Covid, Biden was unlikely to lead a lively economic recovery and “something like the Obama recovery is more likely: in short, a long slog back to health.”

And granted, if the Biden Administration response to Covid was anything like the Obama Administration response to the Great Recession, with bailouts for the banks and limited investments in the American people, we likely would be making that long slog right now. It’s the investments in working Americans that occasioned this remarkable economic turnaround. And while we still have a long way to go and a lot to do before we can say the economy is on solid ground, we should note that we have already come a very long way in a very short time.

Even the Fed Has to Admit The Inflation Numbers Are Good

The Consumer price index inflation rate “declined to 3.1% year-on-year, growing 0.1% month-on-month,” Joey Politano posted on Bluesky Tuesday. The core CPI inflation rate, which removes food and energy from the market basket of goods that the Department of Labor uses to measure inflation, “declined slightly to 4% year-on-year, the lowest level since August 2021, growing 0.3% month-on-month.”

Economist Arin Dube points out that if you shorten the window of measurement for Core CPI to six months rather than the standard year, inflation has dipped down into the Fed’s favored two-percent range, at 2.9%.

Even the Federal Reserve seems to be pleased with the direction of inflation. Though the Fed opted to leave interest rates flat for their last meeting of the year yesterday, Fed officials signaled that they might make as many as three interest-rate cuts next year. At the New York Times, Ben Casselman reported on the Fed’s surprising announcements in real time, writing “Mere weeks ago, the dominant discussion in economic circles was whether the Fed was done raising rates. Now they’re penciling in three cuts next year. It’s a remarkable shift,” and noting that “A year ago, Fed officials expected gross domestic product, adjusted for inflation, to grow just 0.5 percent this year. Now as the year wraps up, they think G.D.P. grew 2.6 percent — faster than in 2022.”

In perhaps the best news of all, none of the Fed’s members predicted that interest rates would be higher at this time next year, and that unanimity is striking — even though the Fed is good about keeping its members largely in line, member predictions are often all over the map.

So pivoting back to this month’s inflation report: what prices are still keeping inflation up? Largely rent and other housing costs. More renters than ever spend more than half their income on rent — an unsustainable percentage for low-income workers who also need to buy food, transportation, and other necessities. Reuters talks to an economist with an interesting take on this development: “‘Ongoing housing price pressures and their outsized influence on inflation overall tell a large part of the story of why calls for early and rapid Fed monetary policy easing should be viewed with significant scrutiny,’ said Kurt Rankin, senior economist at PNC Financial in Pittsburgh, Pennsylvania.”

All due respect to Rankin, but that conclusion doesn’t really make sense to me. Mortgages have declined a little bit but are still incredibly high right now, and that’s because the Fed has raised interest rates relentlessly over the last two years. The best thing the Fed could do to make housing more affordable is to lower interest rates to make money cheaper to borrow — and it finally looks like that will begin to happen in 2024.

It’s getting near impossible to argue that inflation is a flashing warning sign for the greater economy — even Jason Furman and Larry Summers, who have both consistently warned about the dangers of inflation and recession for the past two years, recently put the chances of an inflation resurgence or an impending recession, respectively, at about 25 percent. (As recently as September, Summers attacked the Fed for being too optimistic and warned that stagnation was a very real possibility.) Treasury Secretary Janet Yellen, who has been consistently arguing that inflationary price increases were transitory, now says that the economy is on the path to a so-called “soft landing” of lower prices without a recession and/or massive layoffs.

How can this possibly be? It turns out that American workers kept the economy afloat long enough to heal — first with their pandemic-era savings accounts, and then with their higher wages. Abdallah Fayed writes at Vox:

According to a report from Moody’s Analytics, pandemic savings didn’t quickly vanish because households benefited from serious wage growth: Average pay increases peaked at 6.4 percent for people overall and rose as high as 7.5 percent among the lowest-wage workers. That potentially allowed them, in some cases, to keep up with inflation without needing to resort to their excess savings. Even more promising is the fact that, in the post-pandemic economy, the wage growth for the bottom half of earners outpaced the wage growth for the top half at a faster rate than any time since at least the 1990s.

At the New York Times, Tressie McMillan Cottom digs into why Americans aren’t feeling the benefits of the strong economy just yet. Many of the points she makes are topics we’ve discussed in this newsletter as recently as last week, but this point about diminished corporate customer service caught my attention: “the consumer experience sucks. It is hard to schedule things, hard to get customer service, hard to judge the quality of what you are buying and hard to get amends when an experience goes bad. There is a reason industry analysts have reported that customer brand loyalty is low and customer rage is high.” It’s hard for consumers to feel good about the economy when they feel like they’re getting ripped off.

And while it’s impossible to accurately and objectively measure how consumers feel about their customer service, there are some good signs that Americans are at least starting to feel more hopeful about the economy. Rebecca Picciotto writes at NBC about two positive signs on that front: “The New York Federal Reserve’s November consumer survey, released Monday, found that consumers expect inflation will be 3.4% over the coming year. That’s a drop of 0.2 percentage points from what consumers predicted in October, and the lowest expected level of inflation the survey has seen since April 2021,” she writes, adding that “A separate survey from the University of Michigan released Thursday recorded an even sharper shift in consumer confidence.”

Workers Are Striking, and Employers Are Striking Back

For as long as the job market and paychecks continue to grow, workers will feel more emboldened to fight for better wages and working conditions. Union actions have even spread to red states: “More than 1,100 workers at DHL Express’s global air cargo hub at Cincinnati/Northern Kentucky International Airport went on strike [last week] after months of failed negotiations with the parcel carrier.” writes the New York Times’s J. Edward Moreno.

Even though unions are enjoying near-record highs in popularity with the American people, corporations are fighting back against these labor movements. The United Auto Workers has accused three auto manufacturers — Hyundai, Volkswagen, and Honda — of union busting. (Perhaps most frustrating about this behavior is the fact that these automakers have unionized workforces outside the United States, which proves that they’re only opposing UAW actions out of trickle-down preference, not because unions imperil their business model.)

Other famously anti-union employers like Amazon are redoubling their efforts against labor organizing. Union workers accuse Amazon of illegally disciplining and even firing workers who are visibly involved with organization efforts at a Kentucky air hub that could be seeing increased labor action thanks to the DHL strike.

And now that the tech industry is starting to see more union actions in fields like video game and special effects production, employers appear to be engaging in more desperate union-busting behaviors. For the American Prospect, Ramenda Cyrus writes that one worker at eBay-owned TCGplayer, an online video game marketplace, “recalled large posters with anti-union statements, constant anti-union chatter rotating on televisions in their workspace, and thinly veiled threats to remove certain benefits, like massage chairs at the office.”

Despite all those alleged illegal union-busting activities, “None of this worked. In March, the three-year unionization drive culminated in the membership voting 136–87 to unionize with CWA,” Cyrus writes. Workers are incentivized to fight for better jobs right now because they see other workers winning the bigger paychecks and better working conditions that they demand.

This Week in Middle Out

• In a ruling that shook Silicon Valley, Google lost an antitrust case brought by Epic Games, which argued that Google’s cut of purchases made on apps in its Android mobile operating system are excessive and the result of anticompetitive actions. “It was the first test of how Google might fare in the antitrust gauntlet it faces in the United States — and the company was routed,” Nico Grant writes. “The courtroom loss could portend Google’s legal fate in two, more significant antitrust cases in the United States that could weaken the world’s most influential internet business and reshape the tech industry for years to come.”
• The Biden Administration this week issued a warning to manufacturers of drugs that were funded with US government research dollars: “if drugmakers refuse to make their products ‘reasonably’ available, then the government is prepared to give other companies license to produce those drugs at a lower cost.” In other words, they’re using the goverment-run drug patent system as a tool to ensure that Big Pharma doesn’t price-gouge on important medications that taxpayers helped to pay for in the first place.
• In one of the most underreported stories of the week, Congressional Republicans voted down President Biden’s plan to tie student loan repayments to income levels, allowing lower earners to make smaller payments. The Biden Administration should do more to let the American people know that trickle-downers are combating their efforts to control expenses for Americans on the low end of the income scale.
• The Biden Administration is stepping up its war on the junk fees that have invaded every sphere of American life, from concert and plane tickets to hotel rooms and cable bills, and the Chamber of Commerce, predictably, is declaring that Administration officials are “radicals” for wanting corporations to clearly list the full cost of products and services for consumers to see before they agree to purchase them.

This week on the Pitchfork Economics podcast

After Donald Trump was elected president in 2016, many news outlets argued that he was riding a wave of economic populism powered by disenfranchised Americans. This week’s guest on Pitchfork Economics, Clara Mattei, argues that those Americans were left behind by austerity measures, and that Trump’s current dictatorial leanings are a direct result of 40 years of mainstream economists carrying the water for trickle-down economics. In her new book, The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, Mattei argues that the recent global wave of far-right populist candidates are the natural result of economists arguing against the betterment of the working class.

Closing Thoughts

“Housing that is affordable provides a vital foundation to achieve other goals, such as securing a good job, engaging in training and education, providing for children, and building a financial cushion,” Biden Administration National Economic Adviser Lael Brainard announced in a speech last week.

Brainard was speaking directly to what might be the biggest single economic issue of 2024 (and by extension the 2024 elections) — housing inequality. Wages have climbed for the last two years and prices have leveled out this year, but home prices have skyrocketed from the beginning of the pandemic, and those rising prices are threatening all the good work that’s been made in other economic areas. Just look at this graph of home sale prices since the Great Recession and you can see what working Americans are up against:

And while rents haven’t risen as dramatically as home prices since the pandemic, they’re still far above prepandemic levels all over the country.

So Brainard’s speech was important because it signals the Biden Administration’s intentions for the next year in regards to housing policy. “Our first major priority is increasing the supply of affordably priced homes in order to lower housing costs. We are using every lever at our disposal — legislative proposals, our administrative authorities, our convening power, and our bully pulpit — to do so,” she said.

Brainard cited several policy proposals that are already awaiting Congress’s approval, including a tax credit that would make housing more affordable for over a million low-income Americans and programs that would invest in homeownership, allowing a half-million American families to buy homes. But with Republicans in charge of the House as we enter a presidential election year, it’s unlikely that Congress will successfully provide any aid for American families.

So the White House is working with local governments around the country to pass “local zoning reforms that will mean more quality, affordable housing near good jobs and transportation hubs.” The Biden Administration is making ten billion dollars in transportation funding available to city and state governments that relax their zoning laws to allow for more housing to be built near those transportation projects, and they’re also offering low-cost loans to firms that want to develop that housing.

Brainard says the Administration has launched a program to convert commercial space to housing in downtown urban areas that have been emptied out in the age of remote work, and they’re also changing banking rules to incentivize private investment into housing in rural areas and small cities. Other tweaks to financial rules will “help address persistent racial homeownership and wealth gaps, and bring much needed capital, including mortgage credit, to credit deserts” that will help communities of color make some gains toward closing the massive racial housing gap.

Brainard listed a number of other policies, including rental assistance immediately available for 100,000 families, the elimination of junk fees for rental applicants, and new rules that would regulate “algorithmic price-fixing” of rents, which has already priced an uncountable number of Americans out of their homes.

It’s heartening to see the Biden Administration using every bit of its power to promote housing — from executive orders to the power of the purse string to fine-tuned rulemaking. But Brainard makes it clear that these methods alone aren’t enough to bring down the price of housing in America. We’re going to need big ideas next year in the 2024 election, up and down the ballot, to get housing prices in line — and of course we need to continue to make sure that worker paychecks continue to increase.

It’s outdated, trickle-down thinking to operate under the assumption that the economy is made up of distinct, walled markets that don’t influence each other. We can’t have a truly healthy middle-out economy unless quality affordable housing is available to working Americans. What better time to promote a transformational middle-out housing agenda than right now, with middle-out economics making great strides across the economy in the form of manufacturing investments, infrastructure projects, and rising wages? Brainard’s speech is a signal that housing is at the forefront of the Biden Administration’s economic agenda. Soon, we’ll see if they can bring the same kind of transformational policies to housing that they are already delivering for American workers.

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

Zach