We Live in Unpredictable Times

The Pitch: Economic Update for January 13th, 2022

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

Friends,

At the Washington Post, David J. Lynch writes about how the pandemic has rendered economic forecasts essentially useless. “Ideally, economists make predictions by comparing current conditions to a previous period when the underlying structure of the economy was similar,” Lynch writes. “But there is no precedent for determining what happens when a globalized economy operates amid a lethal respiratory virus that has killed more than 5 million people worldwide.”

Basically, and regular readers of this newsletter have likely already noticed with their own two eyes, it’s impossible for experts to predict how economic conditions will fare on a month-to-month basis. Monthly employment reports come in much lower than predicted, then are corrected to much higher than anyone could have guessed. Inflation rises and, against the consensus view of economists, stays aloft long after it should have already begun to decline. All the economists Lynch interviews for the piece are confounded, frustrated, and even dispirited by their failure to prognosticate how the economy will perform in days ahead.

But as Lynch points out, it’s not as though economists enjoyed a perfect predictions track record before the pandemic — they were blindsided by the 2008 recession, for instance. This uncertainty is not new. It’s simply more pronounced. Perhaps the best response our leaders can have to this moment is to embrace the uncertainty. They should accept that the inflow of information is unpredictable and incomplete, and instead base their actions on best economic principles like ensuring that people have money in their pockets and the ability to spend that money in their local communities. In good times, bad times, and uncertain times, you can never go wrong by betting on the American middle class.

The Latest Economic News and Updates

Inflation continues to pinch consumers and confound experts

“Inflation jumped at its fastest pace in nearly 40 years last month, a 7% spike from a year earlier that is increasing household expenses,” writes Christopher Rubager at the Associated Press. It’s the largest inflationary increase since 1982, and the increase in prices — for clothing, food, and rent — has essentially wiped out all the good created by America’s recent spike in wage increases. While keeping everything in mind that I just wrote about the uselessness of predictions, the monthly inflationary increases do look as though they might be slowing down, though that was also the case in June and July of last year:

But no chart can ease the financial pressures that ordinary Americans are feeling due to this increase. The Washington Post explores the way that inflation affects four important sectors of American life — food, housing, energy costs, and health care — and it’s easy to understand why President Biden’s approval ratings have been suffering. The results of this year’s midterm elections will very likely hinge on how the Biden Administration handles two factors this year: the pandemic and prices.

At Democracy Journal, Richard Vague explains the historical causes of inflation in a clear and thoughtful piece, and he also explains why these price increases may be different than other historical models. Vague warns readers to “prepare for inflation for a year or two or more, depending on COVID and how well we learn to live with it, and a return to moderate or lower inflation after that.” I don’t know if Vague’s prediction is right, but it’s probably a good idea to expect inflation to continue and prepare for that reality; that way if inflation does recede, we can be pleasantly surprised.

When it comes to employment, the public sector is being starved to death

The Economic Policy Institute’s economists explore last month’s employment numbers in a great roundup that looks at what the jobs numbers mean for Black workers, women, and the continuing story of the Great Realignment. I especially appreciated this data visualizations which illustrates the sectors of the economy that still have the furthest to go to return to pre-pandemic levels:

We already knew that the low-wage hospitality industry and the education and health services sector have been hugely impacted by the pandemic, but look at the government workers bar — that’s nearly one million government employees who have not come back to work since the pandemic began. Given that public sector employment had not yet bounced back from the 2008 Great Recession before the pandemic began, our city and state governments must be a skeleton crew by now.

Government is and has always been a major employer in the United States, and if elected leaders wanted to contribute to rebuilding the economy, they should get to work filling those positions that were wiped out by austerity measures in 2009. As it is, this long-term drain on public sector workers could create a negative feedback loop that slows the whole economy down.

Labor inequality threatens the gains made during the Great Resignation

Vox’s Rani Molla heralds “A new era for the American worker” in terms of wage growth, increasing worker power, and increased interest in labor unions — but she warns that this moment won’t last forever, and that workers need to gain a lot of ground quickly.

And in fact for every story about increasing worker power, like this account of New York agricultural workers forming the state’s first farmworkers’ union to combat wage inequality, readers can find another story lamenting the fact that work in America is quickly becoming as unequal as the rest of our economy.

Consider a new report which found that over three-quarters of all workers at Krogers grocery stores cannot routinely afford to buy healthy food. An eye-popping 14 percent of Kroger workers surveyed had been homeless within the last year, and 36 percent of Kroger employees were worried about losing their homes due to low pay. And it’s not just Kroger: Nearly a third of all American grocery workers live near or at the poverty line.

This labor inequality isn’t just about wages: Even when it comes to something as routine as Covid testing, which is an essential part of the in-person work experience in 2022, workers near the bottom of the wage scale are struggling to find tests, while wealthy employees at Google, BlackRock, and JP Morgan Chase have all the free, convenient Covid tests that they need.

America’s affordable housing conversation is about to change

In the wake of the horrifying Bronx apartment-building fire that killed 17 people and put at least 15 more in the hospital last week, Henry Grabar at Slate points out that the building was at one time praised as “affordable housing done right.” And the Bronx fire wasn’t even the first deadly fire to break out in a city’s affordable housing this week — 12 people died in a Philadelphia rowhouse fire just four days before the fire in the Bronx. It’s too early for experts to identify the specific failures that caused these unnecessary deaths, but you can expect much more conversation about affordable housing in America in the months to come — especially as nearly every American city continues to struggle through a housing crisis exacerbated by rising rents and the pandemic. Expect opponents to use the fires as a rhetorical weapon against building more housing, even as pandemic-era eviction moratoriums continue to end.

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.

• Join us on Friday at 10:30 am for Civic Action Live, in which we’ll discuss how to navigate the economy’s inherent unpredictability, the growing threat of wage inequality and what it means for America’s workers, and the huge cuts to public-sector employment that threaten to harm our economic recovery. We’ll also take your questions and comments live.
• On the Pitchfork Economics podcast, business reporter Christopher Leonard breaks down the major points of his excellent new book investigating how the Federal Reserve’s policies may have actually worsened income inequality in America. The Fed is expected to take action to end economic downturns in America, but Leonard argues that the way it creates and distributes money may have a hand in creating those downturns.
• And in his Business Insider column, Paul explains why this year, when the Fight for $15 celebrates its tenth anniversary, Congress must act to raise the federal minimum wage to $15 from $7.25 per hour.

Closing Thoughts

It’s been a rough week, so let’s end on a positive note: Bank of America will stop charging overdraft fees this year, finally joining Capital One and other major banks. Big banks pull in tens of billions of dollars every year by charging their poorest customers a few dollars every time they get hit with an unexpected expense. It’s an exploitative practice that gouges the poor few while leaving the wealthiest customers completely unscathed.

It’s highly unlikely that Bank of America would have ended this pernicious practice under its own steam. President Biden’s Consumer Financial Protection Bureau has recently been turning up the heat on big banks to end overdraft fees, and their relentless shaming campaign will likely save millions of the poorest Americans billions of dollars in the next few years.

This is the kind of unsexy but important work that government is supposed to do: reigning in unethical behavior by throwing a spotlight on the worst actors and standing up for people who don’t have the power to defend themselves. It’s great economics, too: The money that used to pad the profit margins of the biggest banks in the history of the world will now stay in the accounts of all those customers, where it will be spent locally, creating jobs and building economic stability. You won’t see this story leading the evening news, but it will have a tremendous impact on the day-to-day lives of ordinary people. I call that a win.

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

Zach