The High Cost of Housing

The Pitch: Economic Update for August 18th, 2022

Friends,

We talk a lot in The Pitch about how strong the labor market is for workers right now. But of course, just because workers on average are doing better than they were pre-pandemic doesn’t mean all workers are doing better. Workers at fast food jobs, for instance, are still subject to the same low wages, insecure schedules, lack of benefits, and atrocious working conditions as always.

That’s why I’m paying close attention to a bill in the California state legislature that would create sector-wide standards for the state’s fast food industry. For Vox, Rachel M. Cohen explains that if passed into law, bill AB257 would “establish a new state council with the power to set minimum working standards for fast food restaurants across California. It would also create a means to hold companies like McDonald’s and Pizza Hut legally responsible for any labor violations at individual stores, even if those individual stores are owned by franchisees.”

This is big news for multiple reasons. First, big fast food corporations like McDonald’s and Subway tend to use the franchise model to protect themselves from the actions of local franchisees, and this bill would strip some of those protections away. And second, it would establish a kind of European-style sectoral bargaining arrangement for all fast-food workers in the state, giving them much more power to change their working environment for the better.

Of course, the usual trickle-down interests are out with a smear campaign against AB257, warning it would hurt business (even though McDonald’s in Germany that are subject to sectoral bargaining are doing very well) and damage the all-important family dynamic in individual stores (does anyone actually believe that line anymore?) If it passes, AB257 could provide a template for local leaders to empower workers who have been left behind by the strong pandemic-era labor market. And if California leaders are looking for other sectors where they might establish these state councils, they should pay attention to the dozens of California Amazon warehouse employees who walked off the job to protest low wages and unsafe working conditions.

The Latest Economic News and Updates

Be it ever so pricey, there’s no place like home

America is experiencing a housing affordability crisis. Housing starts plummeted by nearly 10 percent in July, which indicates that Americans are feeling skittish about buying new homes. At the same time, home prices hit an all-time high in the second quarter of this year, climbing more than 14 percent over the previous quarter. In 80 percent of all American metro areas, home prices increased by percentages in the double-digits, and mortgage payments are skyrocketing thanks, in part, to the Federal Reserve’s decision to raise interest rates to cool off the economy.

And wherever home prices go, rent costs follow. Rent in America rose by a whopping 23 percent in the second quarter of this year, and rents are rising everywhere — not just in the booming metro areas with high-wage employers.

The housing market in general is showing some of its worst numbers since the period following the Great Recession. As an expert told CNN, “In short, the whole housing sector is now in retreat.”

Actually, that’s not quite true. There’s one number that looks very strong: As Karen Heller reports for the Washington Post, the luxury ranch market is booming in the American west as billionaires scoop up hundreds of thousands of acres to build huge ranches. “In 2007, the 100 largest private landowners owned a combined 27 million acres of property,” Heller writes. “Fourteen years later, they control 42.2 million acres, according to the Land Report, the publication of private land ownership — an increase of 56 percent.”

Bad things happen when your policies treat housing like any other commodity in a capitalist economy. Housing, like air and water, is a necessity for everyone, not an investment whose value needs to continually rise. Our leaders need to find and promote solutions that ensure everyone can have a stable home for a reasonable share of their income, or else those tent cities that have erupted in major US cities will spread to every corner of the nation, like Depression-era Hoovervilles.

Taking the economy’s temperature

While not every metric is a harbinger of doom or salvation — especially in these weird times, when the pandemic has scrambled many of our most reliable economic signals — it’s still important to keep an eye on the numbers and watch for trends. One important metric is consumer sentiment, in which ordinary Americans report how confident they are in the economy’s progress. This number in the past has predicted the onset and departure of recessions, but it’s not always a reliable metric because it’s self-reported — partisanship has made the number less reliable in recent years, because Republicans report feeling worse about the economy under Democratic presidents and (to a lesser extent) vice versa.

One example of the unreliability of self-reporting: in recent months consumer sentiment plummeted while actual consumer spending stayed very high. But last month, the metric increased by a half-percentage point, up considerably from an all-time low in June. “All components of the expectations index improved this month, particularly among low- and middle-income consumers for whom inflation is particularly salient,” the director of the consumer sentiment survey explained.

In July, the New York Times warned that the yield curve, which it called “a recession alarm bell,” was sounding. The yield curve is, basically, the divide between sales of three-month, two-year, and ten-year bonds, and it shows the confidence of investors and corporations in the economy. But now, Axios notes that investors are “pouring back into the U.S. high-yield market, a signal that they’re dialing back recession fears.”

Basically, companies are no longer hoarding cash to survive through a recession. Instead they’re putting that money to work, trying to profit from a volatile economy. On this FRED chart of the high yield index, you can see the alarm-bell moment, which arrived as a peak on July 5th, and then the steady decline that’s continued ever since.

And if you needed a reminder that skyrocketing inflation is a global phenomenon and not a uniquely American problem, the Economic Policy Institute shows that the United States remains at about the even middle of the pack when you line up every nation’s core inflation acceleration.

This chart is a reminder that our inflation wasn’t caused by stimulus checks or what the Wall Street Journal characterizes as the “vexing challenge” of our strong labor market. Some nations that didn’t do stimulus payments have been hit by much higher inflation than us, while other nations that did more stimulus investments have less inflation, and some nations with higher unemployment numbers have higher inflation rates than us.

Everything that we don’t know about this inflation crisis would fill a whole set of encyclopedias. So it’s best to ignore those politicians and pundits who are using inflation to incite fear and anxiety in order to serve their ideological beliefs.

How IRA will change the IRS

We dug deep into the Inflation Reduction Act’s many benefits last week, but there’s been some excellent new analysis of the IRA’s impacts on taxes that I wanted to share with you.

• Kevin Schaul at the Washington Post did some brilliant data visualization of the corporations that will be affected by the IRAs 15 percent minimum tax on ultra-profitable businesses. Schaul found that of the S&P 500, 83 corporations that earned more than one billion dollars in annual profits paid less than 15 percent in taxes over the last three years. Thanks to the IRA, those companies are estimated to generate more than $220 billion in tax revenue over the next decade.
• Jacob Bobage at the Washington Post looked into the IRA’s one percent excise tax on stock buybacks, which he says “opens up an entirely new arena for corporate taxes” and which former Biden Treasury Department Assistant Secretary of Tax Policy Mark Mazur says is “going to raise a ton of revenue and it has the potential to change behavior.” Stock buybacks have gone untaxed since they were made legal in 1982. Now, the biggest companies in the world use them to transfer hundreds of billions of dollars to the shareholder class every year:

• Republican politicians used the IRA’s expansion of the Internal Revenue Service as a scare tactic, warning ordinary Americans that the IRS would be coming for them. In fact, Madeleine Ngo writes for Vox, that investment in the IRS should improve the tax experience for most people. “Natasha Sarin, a counselor for tax policy and implementation at the Treasury Department, said that for Americans making less than $400,000 a year, their chances of being audited wouldn’t increase from typical levels in recent years. Instead, Sarin said, average taxpayers should have an improved experience filing their taxes because the funds would allow the agency to add staff.”
• The only people who have to worry about IRS expansion, writes Samantha Jacoby in the Center on Budget and Policy Priorities, are wealthy tax cheats in “the highest-income 1 percent of filers, who account for fully 28 percent of the tax gap. With the funding, the agency could hire and train audit staff equipped to conduct the complicated audits of large corporations and very high-income people.”

When Big Brother is your boss

If you haven’t yet, you should definitely read this excellent New York Times article about workplace productivity tracking. The online version of the article actually tracks the reader’s “productivity” as they scroll through the piece, giving a score at the end ranking how productive they were. This mimics the experience of millions of workers around the country whose job performance has been broken down into measurable metrics. We all know that many warehouse workers and delivery drivers are continuously recorded for purposes of tracking their productivity, but even high-paid creatives who work from home are tracked relentlessly by software that records their every keystroke and mouse movement.

Combine this Big Brotherization of workplaces with continuing fears of automation coming for workers’ jobs — Lyft is testing robot taxi drivers in Las Vegas, for instance — and you’ve got another source of anxiety for modern workers.

But David Leonhart added an interesting layer on top of the Times productivity story. Worker productivity is way up — –and enforced through strict surveillance — and stock prices are soaring as a result of all that extra effort that every worker is putting in. But the median family income has remained stubbornly fixed for the last 80 years. This chart is breathtaking in its message:

This is the economic challenge of the 21st century: Ensuring that workers are properly compensated for all the productivity that their managers are jealously guarding. This current moment, with workers enjoying more freedom and possibility than American workers have had in decades, is a great time to begin that process.

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.

• In his Business Insider column this week, Paul explained why the Inflation Reduction Act’s 1% excise tax on stock buybacks is such a big deal for all Americans.
• And this week’s episode of Pitchfork Economics is an encore presentation of an interview with a co-author of one of the most important economic reports to be published the last five years: The groundbreaking RAND study showing that the wealthiest one percent have taken some $50 trillion from the paychecks of the American working and middle class over the last four decades. When we talk about income inequality in America, this is the smoking-gun report that explains how much that inequality has cost the average American worker, and where the money has gone.

Closing Thoughts

Despite predictions of partisan gridlock from pundits, Congress has produced a remarkable amount of successful legislation over the summer — much of it passing with bipartisan support. From gun responsibility to semiconductor manufacturing to the IRA, Congress has passed a historic slate of bills on to President Biden’s desk.

But an elected official’s job is never done, and for The Nation, Bryce Covert outlines an important piece of legislation that has already passed the House and would pass the Senate with bipartisan support if it moved forward. That bill is called The Pregnant Workers Fairness Act, and Covert explains that it would require employers to ease some physical hardships currently placed on pregnant workers, providing for “light duty assignments, more frequent bathroom breaks, unpaid leave for doctor’s appointments or recovery from childbirth, even things as small as a stool to sit on or the ability to carry a water bottle.”

Perhaps, like me, you read that list with a mild sense of shock that those rock-bottom protections weren’t already enshrined in law. But thousands of pregnant workers around the country right now have no guarantee that their employer will provide even the slightest accommodations for them.

Senate Majority Leader Chuck Schumer tells The Nation that he’s looking to pass the Pregnant Workers Fairness Act “as soon as possible,” and 13 Republican Senators have already committed to passing the bill into law. While our leaders have yet to affirm basic protections like paid family leave on a national level, this bill could serve as the beginning of a larger conversation about parenthood and family responsibility in the workplace. If that’s a priority for you, you should contact your senators and tell them you want them to pass the Pregnant Workers Fairness Act as soon as the Senate is back in session this fall.

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

Zach