The Other Side of Inflation?

The Pitch: Economic Update for April 20, 2023

Friends,

We all saw the reports last week that inflation, happily, declined to 5% — the lowest the inflation rate has been in almost two years. But to put that number into perspective, I want to call your attention to last Friday’s edition of Joseph Politano’s excellent Apricitas Economics newsletter. The title of the newsletter gets right down to the point: “The Disinflationary Process Continues: Headline US Inflation Keeps Cooling Down, and Core Inflation is Finally Showing Some Positive Signs.”

The newsletter is packed with good news. Energy prices are cheaper than they were at this time last year, topline inflation has plummeted from just over nine percent to just below five percent, and Politano notes that “for the first time since November 2020, prices for at-home food items actually declined over the last month.”

This graph from the Bureau of Labor Statistics shows that the skyrocketing egg prices that were dominating headlines earlier this year are now heading in the right direction for most Americans:

Politano also predicts that the rapidly lowering costs of groceries — with some meats and fruits matching the double-digit price declines of eggs over the last month — will hopefully provide some relief in restaurant prices, which have also skyrocketed over the last year and a half.

To be clear, this is not a moment for our leaders to take a victory lap on inflation. Prices for everyday items are still a lot higher for most Americans than they were at this time two years ago, and many of the pandemic-era programs that helped families pay for the food and housing they needed are in the process of expiring across the country this month.

But it is a sign that the Federal Reserve’s campaign of interest-rate increases clearly needs to change to reflect this new reality. Michael Madowitz wrote an article for the Washington Center for Equitable Growth explaining seven ways that the Fed can recalibrate its policy to address the new reality of declining prices. The piece is really a map of potential dangers our economy faces for the rest of the year, with suggestions for how to avoid them. Madowitz suggests repairing the remaining supply chain disruptions, encouraging hiring in the state and local sector, and finding ways to alleviate the pressures put on commercial real estate by the large numbers of office workers who are now working from home.

Whatever may come next, it seems clear that we are turning a corner on the price-increase crisis that has dominated the economic conversation for the past year and a half. Our recovery from these price hikes isn’t guaranteed to be smooth — progress almost never moves in a straight line. But we have an opportunity now to reset the nation’s economic conversation — to identify the biggest problems and potential crises, and to determine meaningful middle-out solutions to those problems.

It’s most important in that conversation to keep the economic fortunes of the majority of Americans at the center of our economic policy, not corporations and the wealthy few. That’s how we recovered from the pandemic lockdowns faster and stronger than nearly any other nation on Earth, and it’s how we can continue to build on that progress to make an economy resilient enough to withstand whatever obstacles we may find in our way.

The Latest Economic News and Updates

Are Immigrants Supercharging America’s Strong Labor Market?

March marked the 27th consecutive month of job growth, with 236,000 jobs added to the economy. The Washington Post notes that this strong labor market “continues to befuddle experts,” who continually expect those numbers to decline any minute now. But workers continue to rejoin the workforce, and almost all labor market metrics are now at or better than pre-pandemic levels. The Washington Center for Equitable Growth created an excellent graph-filled post that helps to dimensionalize the strength and speed of this remarkable labor recovery:

Perhaps the most interesting metric that the Center highlights is the fact that public sector job growth is still lagging far behind the private sector’s pandemic recovery. When it comes to hiring, the public sector rebounds from recessions much slower than privately owned businesses, meaning that there’s still a lot of runway for state, federal, and local governments to hire workers — and hopefully still plenty of room for those employment numbers to keep rising.

It’s also important to recognize that the average wages of American workers are still much higher than they were pre-pandemic, though wage gains have slowed down a great deal since last year. And as we collect more data, we’re getting a better understanding of recent economic activity. Adam Tooze underlines the fact that the growing paychecks of American workers is not causing those inflationary price increases, contrary to the claims of experts who loudly warned of a dreaded “wage-price spiral” if American wages continued to rise. Even the New York Times has noticed that higher wages aren’t driving up prices:

And The Roosevelt Institute took the opportunity of the strong jobs report and the debunking of the wage-price spiral to underscore the point that the Fed doesn’t have to kill jobs to bring prices down.

The good jobs news wasn’t greeted rapturously across the media. The New York Times led with a sobering observation that “the red-hot labor market continues to cool off somewhat.” But even that wet blanket couldn’t douse the enthusiasm of economists, including the Times’s own Nobel-winning economist, Paul Krugman, who a week after his paper’s dour observation of a cooling job market, took a moment to recognize “the awesomeness, the historic nature of last Friday’s employment report,” adding that “the speed and extent of America’s recovery from the pandemic shock have been incredible.”

In a later column, Krugman praises “a sudden, salutary rebound in net immigration, which soared in 2022 to more than a million people, its highest level since 2017, for helping create that labor boom. It’s definitely not a coincidence that the most openly racist, anti-immigrant president in living memory discouraged immigration numbers. Krugman argues that the spending power of those new immigrants helped keep the labor market strong even while prices rose last year.

This huge mass of data is the latest in a growing body of evidence that disproves the Fed’s longstanding assertion that gains for American workers caused inflation. If anything, the opposite is true. American workers helped to fend off job losses with their spending during that time of high price increases while keeping America’s exceptional economic recovery from pandemic-era lockdowns on course. The American economy succeeds because of its workers — never in spite of them.

This Week in Recession Panics

Around the same time that all the good inflation and unemployment numbers were dropping, some other economic signals were setting off alarm bells among experts. The Washington Post’s David J. Lynch summarizes all the bad news in a couple of succinct sentences: “Retail sales fell for the second straight month, as Americans bought fewer cars, clothes and pieces of furniture. Manufacturing output dipped. And commercial bank lending rose only slightly after two weeks of declines,” Lynch writes. He adds, “New business loans in March increased by just $30 billion, the smallest monthly gain since mid-2021, when the pandemic was gathering force, according to the Federal Reserve.”

Anyone with a lick of common sense could have predicted that banking would be in flux right now. Though the media coverage of Silicon Valley Bank feels like a distant memory, SVB actually collapsed a little over a month ago, on Friday, March 10. As a result, banks are being cautious about the money they’re loaning out.

“Taking out big mortgages is getting harder, industry experts report. The commercial real estate industry is bracing for trouble as the midsize banks that service it become more cautious and less willing to lend,” writes Jeanna Smialek at the New York Times. “Used car loans are more expensive. And a recent survey by the Federal Reserve Bank of Dallas showed a sizable share of banks in the region reporting stricter credit standards.”

So the new catchphrase rocking all the business news headlines is “credit crunch” — meaning a time in which it’s harder for businesses, potential homeowners, and consumers to get access to credit. The big question here is whether banks will continue to operate under extreme caution for the foreseeable future, or if this is a temporary hangover from SVB’s collapse. In any case, these credit crunch fears are inspiring the latest round of every economics reporters’ favorite game, “Is the Recession Finally Just Around the Corner?”

Peter Coy led the charge this time with a story titled “Why We’re Probably Headed for a Recession.” Bank of America CEO Brian Moynihan says his staff expects a “shallow recession” this year. On the other hand, St. Louis Federal Reserve President James Bullard disagreed: “Wall Street’s very engaged in the idea there’s going to be a recession in six months or something,” Bullard said, “but that isn’t really the way you would read an expansion like this.”

Don’t Listen to Wall Street Executives’ Dire Economic Predictions — Watch What They Do, Instead

We spend very little time talking about the stock market in this newsletter because it turns out that Wall Street’s feelings about the economy actually have very little impact on the economy. But as James Bullard noted above, economics reporters sniffing around for downbeat economics news can always find warnings of recessions if they hang around Wall Street long enough. Joe Rennison wrote a story for the New York Times about corporations warning investors that they will see lower profits this quarter. (Remember, though, that last year saw record profits across industries.)

Timothy Noah points out at The New Republic that though the stock market declined, “S&P 500 companies were this year more likely to reward rather than punish chief executives for their companies’ lousy stock performance,” Noah writes. That’s right: CEO pay went up at a majority of firms that reported lower profits and saw stocks decline. So looking to Wall Street for cogent economic guidance might just be a fool’s errand.

And those looking for turmoil in the banking industry or on Wall Street will also have to conveniently ignore the fact that three of the biggest banks in the world — JPMorgan, Citigroup, and Wells Fargo — reported enormous earnings for the first three months of the year. “Even as the banks warned that the economy was on tenterhooks and that credit could become scarce, they said they would keep making loans and expected stronger profits if interest rates continued to rise,” reports the New York Times.

The State of the Union for Working Women

There’s no way to sugarcoat this news: The Economic Policy Institute reports that working women in America earn roughly 22% less on average than their male counterparts. Even though women on the lower end of the income scale made large gains last year, the gender wage gap has actually widened in general over the pandemic years.

Many analysts are quick to blame the wage gap on women taking time off work for pregnancy and childcare issues, but EPI argues that women are operating at a loss from the minute they enter the workforce: “Even straight out of college, women with a college degree are paid $4.50 less per hour than their male peers.” And of course the numbers are even worse for Black and Hispanic women, who earn $8.35 and $9.84 less per hour than their white male counterparts, respectively.

There’s no one solution that will comprehensively close this gender pay gap. It will take a variety of policies and programs to achieve gender pay parity. One obvious way to make it easier for women to work is to fix childcare, which has grown even more expensive and even less accessible during the pandemic. The Biden Administration made some progress on that front this week when President Biden signed an executive order that will make child care cheaper and more accessible for working parents while also raising wages for care workers, who are predominantly women.

To learn more about the Biden Administration’s goals to improve outcomes for women, I recommend this New York Times profile of the Labor Department’s former Chief Economist, Janelle Jones. “Because Black women have historically been concentrated in low-paid caregiving jobs, which are often excluded from labor laws and benefits like Social Security, they have accumulated less wealth and experienced worse health outcomes,” explains Lydia De Pillis for the Times. “Furthermore, Ms. Jones argues, helping Black women — through measures like raising wages in care professions and canceling more student debt — is the best way to construct an economy that functions better for everyone.”

In Phoenix, a Fight for Workers’ Rights

Lee Harris writes in the Based newsletter for the American Prospect that one of the semiconductor manufacturing facilities being built in Phoenix as part of the Biden Administration’s CHIPS Act has become the center of a tense labor dispute. The Taiwan Semiconductor Manufacturing Company is refusing to hire union construction workers to build its new $40 billion facility.

“So far, TSMC has declined to sign a deal with labor, which union leaders stress would ensure a supply of skilled workers for the Phoenix plant,” Harris writes. In the process of passing the CHIPS Act, Congressional Republicans pulled out demands that workers at the new semiconductor manufacturing facilities should be unionized and instead shifted unionization to a “nice-to-have” status, meaning that employers wouldn’t have to work with unions in union-unfriendly states like Arizona.

At the same time that TSMC was stonewalling union construction workers, Harris notes that Phoenix’s city council passed a standard that will raise wages for construction workers on city projects. “Phoenix’s ordinance takes the prevailing-wage system that the Department of Labor already uses on federal projects and applies it to city development,” Harris writes.

This kind of tug-of-war is unfortunately all too familiar in the workers’ rights space. For decades, Republicans worked on the state and local level to strip powers from unions. Workers are finally seeing some success in pushing back against these deregulatory actions. The fact that Phoenix, in the heart of once deep-red Arizona, is becoming a hotbed of worker rights conflicts is a clear sign that the tide is beginning to turn, and workers are striking back.

House Republicans Deliver Their Hostage Note

For months, Congressional Republicans have threatened to destroy America’s economy by refusing to raise the debt ceiling. Yesterday, House Speaker Kevin McCarthy finally rolled out his party’s demands, and it’s the most extreme trickle-down document I’ve seen since the Trump administration passed its tax cuts for the rich.

Chelsey Cox reports for MSNBC that the so-called “Limit, Save, Grow Act of 2023” calls for “limiting discretionary spending, retrieving unspent pandemic-related funds, eliminating Biden’s student loan forgiveness plan and cutting funds earmarked for the Internal Revenue Service…in exchange for a one-year debt ceiling increase.” Reuters points out that McCarthy’s plan specifically calls for rolling back some of the investments the Biden Administration has made in the green economy by “repeal[ing] green-energy incentives signed into law by Biden last year,” and “boost[ing] domestic oil and gas production”

In other words, the plan would take hard-fought investments away from the middle class and make it easier for wealthy people and corporations to cheat on their taxes with no repercussions, and it would only buy the Biden Administration a year before Republicans could threaten to tank the economy all over again.

The last time Republicans tried to use the debt ceiling to shape America’s economic fortunes, Democrats didn’t have a clear and cogent explanation of how the economy worked. Now that we’re in the middle-out era, this is a conversation that the Biden Administration should welcome — a chance to delineate the importance of investing in the American middle class, rather than pumping up the fortunes of the wealthiest one percent. That’s a distinction that the American people can clearly understand.

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 this week’s episode of Pitchfork Economics, Nick and Goldy talk with Abigail Acheson and Nouhaila Oudija from Rethinking Economics about a new study showing that American college students are deeply dissatisfied with the economic curricula available to them. The four explain why Econ 101 classes are stuck in the ancient past, and why neoclassical economic classes are disastrous for the real world.

Closing Thoughts

Last month, Republican leadership in Arkansas rolled back child labor protections in order to make it easier for children to work longer hours without parental permission. This week, Republicans in the Iowa State Senate worked overnight to pass an act that would allow employers to work teens for longer hours.

“​​The bill would let kids under 16 work up to six hours a day, two more than the current maximum of four hours a day. And they could work longer into the evening — until 9 p.m. during the school year and until 11 p.m. during the summer,” writes the Des Moines Register’s Stephen Gruber-Miller. “Sixteen and 17-year-olds could work the same number of hours per day as adults.”

As someone who grew up in the midwest, I’m not surprised to see these laws take root in places like Iowa. Hard work is ingrained in the culture — it’s a mix of the strong Protestant work ethic and the original agricultural economy that required everyone to throw in a helping hand come harvest time.

But I’d argue that Arkansas and Iowa don’t represent a good-faith effort to teach kids about the satisfaction of fulfilling the responsibilities of a hard days’ work. Something much more sinister is at play. In fact, child labor laws are under attack from Republican lawmakers in states across the country. While state legislators might claim that these laws are being passed as a response to the “labor shortages” of last year, the truth is that repealing child labor laws has long been a goal of trickle-downers.

First of all, this has nothing to do with a high school student scooping ice cream at the mall for a few hours a week in order to earn some extra gas money. Those kinds of jobs are and have been available to teens in every state in the union. The relaxed child labor laws that are being passed now allow unethical employers to exploit migrant children, putting them in dangerous jobs in slaughterhouses and meatpacking plants for a few dollars an hour.

And it’s also part of an ongoing trickle-down campaign to reduce worker power. By flooding dangerous jobs with impoverished and migrant children who earn less than minimum wage, lawmakers are giving employers a continually replenished labor force that is unaware of their rights as workers and highly unlikely to organize. It’s a shameless attempt to turn back the clock to the days before labor rights, further undermining the agreement between workers and employers that basically built the shared prosperity of the 20th century.

The Biden Administration has recently taken action against exploitative employers of migrant children, but middle-out leaders around the country need to start ringing the alarm bell against this organized campaign to legalize child labor. It’s a moral imperative for all of us because these laws exploit vulnerable people who have no voice to advocate for themselves, and it’s an economic imperative because if child labor laws can crumble, a century’s worth of progress will be at risk.

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

Zach