This Is What Inequality Looks Like

The Pitch: Economic Update for February 3rd, 2022

(The Pitch is a weekly economics newsletter written by Zach Silk. Follow here on Medium or sign up for free on Substack to receive a new issue in your inbox every Thursday.)

Friends,

The economic conversation lately has been consumed by inflation, the housing crisis, and other headline-grabbing metrics. We talk at length about those issues in this newsletter, and we’ll continue to participate in this conversation in the weeks and months to come. But I find that every once in a while, it’s vital to step back from the headlines and take a look at the big picture. It helps remind me exactly why I do the work that I do.

That’s why I was glad to see this Washington Center for Equitable Growth post which quantifies the expansion of income inequality in the United States over the last two decades. If you look at these six charts, you’ll see exactly how the wealthiest ten percent of the country — and the wealthiest one percent in particular — managed to capture most of the nation’s wealth while the bottom 50 percent languished.

If you only had time to look at just one, check this out:

It’s an important reminder that virtually every problem we discuss on a weekly basis in this newsletter could be at least partially addressed by fixing America’s vast and growing income inequality. If those 50 trillion dollars in wealth hadn’t been transferred from ordinary Americans to the wealthiest one percent over the last 40 years, our country would have been better prepared for the pandemic and its economic aftereffects. The very real economic misery we see on the streets of every American city won’t just go away if we resolve the skyrocketing inflation that’s in all the headlines. It’s only by closing the yawning gap between the haves and the have-nots that we can recapture the prosperity that built the great American middle class.

The Latest Economic News and Updates

Choked by the supply chain

The latest issue of the American Prospect is devoted to exploring “How We Broke the Supply Chain,” which is a complex problem that is affecting virtually every aspect of American life right now, from rising prices to the recent shortage of available Covid tests and the shift in power in the labor market. I’d encourage you to spend an afternoon reading the whole special issue, but at the heart of it is this paragraph written by David Dayen and Rakeen Mabud:

The roots of the supply shock lie in a basic bargain made between government and big business, on behalf of the American people but without their consent. In 1970, Milton Friedman argued in The New York Times that “the social responsibility of business is to increase its profits.” Manufacturers used that to rationalize a financial imperative to benefit shareholders by seeking the lowest-cost labor possible. As legendary General Electric CEO Jack Welch put it, “Ideally, you’d have every plant you own on a barge,” able to escape any nation’s wage, safety, or environmental laws.

This one-two punch of shareholder primacy and rampant globalization have made the world much smaller and corporations much bigger, and it transformed the robust supply chains of the past into a delicate international latticework, shipping pieces across hemispheres from the lowest-bidding manufacturer to the lowest-bidding assembly plant.

The usual nationalists will of course use this supply chain crisis to suggest that America should close its borders and lock itself away from the world. The truth is that we should pursue policies that enforce strong worker power and environmental regulations in nations around the world — not just at home. Just as clean air regulations only work when everyone obeys them, worker exploitation anywhere in the world results in weaker labor protections at home.

The labor protections that keep us all safe

Last week, in light of widespread increased interest in worker power and labor unions, I suggested that our leaders should enact new laws to make it easier for workers to unionize. While that push has yet to happen, it’s heartening that state and local elected officials around the country are pushing to protect workers from exploitative employers. The Economic Policy Institute compiled a useful roundup of new labor enforcements, including actions in Chicago and New York to protect domestic workers, efforts to defang noncompete agreements in California, and multiple pushes to reclassify independent contractors as employees.

And Capital and Main’s Mark Kreidler spotlights an important bill in California that would charge the state’s largest employers — those with over 1000 employees — to publish employment metrics including “what percentage of their full-time workers earn above the U.S. living wage…to break down median pay by gender and ethnicity, and to show what percentage of workers below the median are offered a minimum of 12 weeks of paid medical, parental or caregiving leave. Employers would have to report how many of their salaried managerial positions get filled internally, and how far in advance work schedules are published.” This transparency would help applicants understand the quality of the workplace, and it would likely encourage employers to improve their metrics.

But there’s still a lot to be done. Writers at the Center on Budget and Policy Priorities and Capital and Main argue that the pandemic has proven that America must adopt paid sick leave for all workers. As we can see here, the Omicron wave, which is infecting even vaccinated workers, has cut a giant swath through the workforce:

Consider the fact that one out of every four of those workers has no access to paid sick leave — and that number rises to half of all workers when you narrow down to low-wage workers — and you can see the problem: Workers are having to choose between protecting public health or putting food on the table.

Noam Scheiber at the New York Times explains that economic security is still not available to millions of workers around the nation. In particular, too many workers are trapped in unpredictable part-time jobs, which make it impossible for employees to plan their lives or even budget for expenses. Axios’s Emily Peck explains that in a survey of 100,000 service employees at large employers, “About two-thirds of workers received less than two weeks’ notice of their work schedule,” and nearly 60 percent of those workers experienced last-minute changes to their schedules. In my home of Seattle, lawmakers passed a secure scheduling law that requires large employers to post schedules at least two weeks in advance and to pay workers for cancelled shifts and for shifts in which they’re sent home early. It would be relatively easy for other cities and states to adopt similar legislation — or they could pass laws that encourage unionization, since labor unions tend to protect employee schedules as a matter of course.

Rents are climbing higher and faster than we’ve ever seen

The Washington Post’s Abha Bhattarai reports that rents have climbed more than 30 percent in some cities, forcing families to make painful choices: Some have to leave the only city they’ve ever lived in, while others wind up on the streets. The average rent in the United States is nearly $1900 a month, an increase of nearly $300 over this time last year — and that’s the average, remember, while some cities like Miami have seen a 40 percent year-over-year increase of rents.

Even if you own your home outright, these rising rents are affecting your cost of living by throwing the inflation numbers out of whack. Bhattarai notes, “Higher rent prices are also expected to be a key driver of inflation in coming months. Housing costs make up a third of the U.S. consumer price index, which is calculated based on the going rate of home rentals. But economists say there is a lag of 9 to 12 months before rising rents show up in inflation measures. As a result, even if inflation were to subside for all other components of the consumer price index, rising rents alone could keep inflation levels elevated through the year.”

What’s doing more harm: Inflation, or panic over inflation?

These days, all economic conversations really do come back to inflation. The New York Times’s Ben Casselman notes that skyrocketing prices are obscuring our understanding of the United States’ economic recovery. Yves Smith at Naked Capitalism goes one step further and accuses inflation “paranoia” of threatening the health of the recovery. Rather than raising interest rates and slowing the economy down, she argues for targeted policy prescriptions to assuage individual pandemic-inspired price increases.

There are plenty of differing arguments about both the prognosis and the cure for inflation. Chad Stone at the Center on Budget and Policy Priorities says that the rising prices we’ve seen are largely due to an economy-wide shift during the pandemic away from services and toward goods. Because we couldn’t leave the house to travel, mingle, and participate in the economy, we shifted instead to having goods sent to us, which created aftereffects that we’re still seeing today in higher prices. And Hal Singer at the American Prospect says that robust antitrust protections would be the best way to undo the rising prices — an interesting point, given that corporate profits have skyrocketed in tandem with prices.

For what it’s worth, I thought the below graph from conservative economist Mark Perry showing the wide array of price increases and decreases that go into the inflation number was informative. It really demonstrates that prices aren’t going up across the board — instead, they’re skyrocketing almost entirely in businesses relating to the pandemic, like healthcare and education. This chart makes the case that the inflation we’re seeing is a blend of real supply-chain issues and corporations raising prices even though they’ve earned record profits during the pandemic.

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.

• This week on Civic Action Live, we’ll be discussing policies that state and local lawmakers could pursue to improve outcomes for workers, why the housing crisis is threatening America’s economic well-being, and how panicked attempts to solve inflation might wind up being worse than inflation itself. Join us at 10:30 am on Friday.
• On the Pitchfork Economics podcast this week, California Assemblymember Ash Kalra joins Nick and Goldy to explain his bill that would have established single-payer healthcare as the law of the land in California. Unfortunately, the bill died in the Assembly this week, but Kalra explains why finally divorcing health insurance from employment would not just be a more efficient healthcare program — it would also make good economic sense.
• In his Business Insider column, Paul explains why the economic definition of what is and is not a public good is too strict — and why that matters in establishing economic policy.

Closing Thoughts

We opened this newsletter with a big-picture look at the biggest economic problem facing America today — the extraction of wealth from ordinary Americans, and the hoarding of wealth by the top one percent. So let’s close with a closer look at how that wealth is actually extracted in practice: Specifically, let’s talk about Walmart. A new paper from Justin Wiltshire at University of California, Davis looks into the economic impact on communities when a Walmart Supercenter opens in the area.

Kate Bahn at the Washington Center for Equitable Growth explains that five years after arriving in a community, a Supercenter “reduces aggregate employment levels by 2.9 percent and reduces labor force participation by 1.4 percent.”

“Retail earnings increase by 1.5 percent at the time of Supercenter entry then fall back to pre-entry levels, while county level earnings decline by 5.2 percent by 5 years after entry,” Bahn writes.

This is extraction at its purest: Parasitic employers like Walmart land in a community and almost immediately begin draining it of its wealth, strip-mining value from the economy and lowering employment and earnings numbers with each passing year. That money leaves the community, never to return. When I talk about trillions of dollars being leveraged from the American working class and to the rich, this is the mechanism that makes it all possible: The destruction of jobs, small businesses, and communities. It’s not about the money — it’s about people’s lives.

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

Zach