Welcome to Hot Labor Summer

The Pitch: Economic Update for July 6th, 2023

Friends,

On Twitter, Paul Krugman points out that “the misery index — unemployment plus inflation — is all the way back to where it was when Biden took office.” America’s near-record-low unemployment rate and slowing inflation rates are easing economic pressures for many households, and the Misery Index suggests that many American households aren’t suffering like they were during the worst days of the pandemic.

But while things are looking up for working Americans, the wealthiest handful of households are doing even better. In fact, wealth inequality seems to be growing between the wealthy few and everyone else. Barry Ritholtz at the Big Picture writes that “Wealth disparities get ever more lopsided the higher up the economic strata you climb; there is more disparity with the top 1% than the top 10%, but the biggest spreads are at the top 0.1% (and above).”

Ritholtz continues, “Consider the chart [above], created by Invictus via FRED. It shows “Share of Total Assets Held by the Bottom 90% (red line) versus the Share of Total Assets Held by the Top 0.1% (green line). That spread is currently just about as wide as it’s ever been.”

And based on the first six months of 2023, that spread is set to get even wider. Bloomberg reports that “The world’s 500 richest people added $852 billion to their fortunes in the first half of 2023…It was the best half-year for billionaires since the back half of 2020, when the economy rebounded from a Covid-induced slump.” Bloomberg estimates that each of those 500 wealthiest billionaires, on average, earned $14 million every day of the first six months of the year.

So that’s the better part of a trillion dollars that has been suctioned up to the top of the economy, where it will be put to work in funds that exist solely to grow those fortunes — the super-rich pastime that Civic Ventures founder Nick Hanauer likes to call “rubbing money together to make more money.”

That $852 billion is money that should be circulating through the economy, from worker paychecks to the cash registers of local restaurants to the paychecks of the wait staff, who then start the process all over again. Instead, it’s been captured and held by a handful of history’s richest people.

We’ve seen all manner of middle-out economic successes in the past two years by the Biden Administration’s three big bills investing in working Americans — it’s those working families that saved us from a post-pandemic economic collapse, after all. But the hard truth is that we aren’t going to see the kind of vastly expanding middle class that we saw in the post-WWII economy without circulating more of that captured wealth back through the economy again. That will require more policy shifts to encourage economic investments in the vast majority of Americans, including changes to the tax code.

The Latest Economic News and Updates

The Media Discovers Bidenomics

In his biggest campaign speech so far, President Biden last week rolled out his economic vision for the country in the form of “Bidenomics.” As I wrote in the last issue, Bidenomics shares most of its DNA with the middle-out economics that we discuss here every week — a philosophy that puts working Americans, and not wealthy elites and corporations, at the center of all economic decisions.

On Bloomberg’s Odd Lots podcast, Jared Bernstein, the head of the White House Council of Economic Advisors, discusses the particulars of Bidenomics. In one of the most noteworthy passages, Bernstein suggests that accessible and affordable child care is “something we have to work on going forward. It’s in our budget,” he says. Regardless of your party affiliation, affordable child care is a popular policy, and the Biden Administration should campaign on a straightforward path to providing affordable child care to every parent who needs it.

Bernstein also says something about the Biden international trade strategy that is very illuminating:

If all you thought about was consumer spending, you’d say, ‘Let me import everything to try to increase the supply and lower the price.’ If you thought about consumers — people are consumers, but they’re also workers, you’d think about both. And you’d say, ‘Yes, we want robust trade flows. Yes, we want to work with our partners to lower the costs of goods that are so critical for our future, but we also want to have good jobs here.’ And we don’t want to hollow out our communities. So I think that’s really the way to think about the package.

That holistic view of people as consumers and workers has been missing from the international trade policies of presidential administrations over the last 40 years. The trickle-down trade policy was to do anything possible to increase corporate profits and lower prices of goods, without worrying about who would actually be able to afford those lower prices after domestic jobs and wages were slashed. As we learned in the Fight for $15, when restaurant workers earn enough money that they can afford to eat in restaurants, everyone does better.

It’s safe to say that the new branding of “Bidenomics,” and the press rollout with Bernstein and other administration officials explaining what “Bidenomics” means, has achieved its purpose: It inspired the media to reinvestigate the accomplishments of President Biden’s economic record. The Week’s Rafi Schwartz laid out the particulars behind the Bidenomics rollout in a good explainer:

Bidenomics, as the White House explained in a recent press release, is “an economic vision centered around three key pillars: Making smart public investments in America; Empowering and educating workers to grow the middle class; and Promoting competition to lower costs and help entrepreneurs and small businesses thrive.” The platform is an overt rejection of the Reagan-era policies that cut taxes for the wealthy in the purported belief that the profits would simply “trickle down” to everyone else was a “failed approach led to a pullback of private investment from key industries, like semiconductors to solar,” Lael Brainard, director of the White House Economic Council, explained on Tuesday. Instead, Bidenomics is “an approach that grows the economy from the middle out and the bottom up” with a particular focus on “growing the middle class,” she added.

Ezra Klein writes in the New York Times that Bidenomics represents a break with the economic policies of the last two Democratic presidents, who allowed corporations to ship jobs overseas to countries with few or no worker protections. He also praises President Biden for promising that in the economy he’s building, “we don’t need everyone to have a four-year degree. It’s great if you can get one; we’re trying to make it easier for you to get one. But you don’t need it to get a good-paying job anymore.”

Heather Cox Richardson wrote an excellent Substack post explaining the historical context for Bidenomics as a natural heir to the economic legacy of both Presidents Roosevelt. And at the American Prospect, Harold Meyerson finds parallels with Alexander Hamilton’s ambitious infrastructure plans, Abraham Lincoln’s push for a transcontinental railroad, and Thomas Jefferson’s calls for sharing the nation’s wealth with working Americans.

Meyerson also quotes an unnamed White House official who explains the single driving principle behind Bidenomics, “referencing the now famous graph that the Economic Policy Institute first published in 1994, showing that the nation’s level of productivity and the level of its median hourly wage rose in tandem from 1947 through 1979, and then, as productivity continued to rise, the median wage barely rose at all thereafter.”

“What Joe Biden is about,” the official said, “is closing that gap” so that the nation’s prosperity could be broadly shared, as, however imperfectly, it was when rates of unionization were high and New Deal legislation that boosted workers and constrained finance were still in place.

Two years ago, many of these same pundits were dumbfounded by the Biden Administration’s economic approach, but now that Biden has rebranded his policy successes under the umbrella of “Bidenomics,” they’re finally able to grasp his middle-out economic vision. What a difference a name makes.

So, How’s the Economy Doing?

Wall Street expects that the next six months will bring with them a renewed sense of economic growth, while corporate executives are more pessimistic about the near future. I can’t mention Wall Street’s feelings about the economy without adding my usual caveat that Wall Street is not the economy, and what happens there often has no relationship to the everyday lives of ordinary Americans, which is what matters most. But it turns out that, right now, ordinary Americans are currently feeling optimistic about prices dropping in the near future, too.

The economic experts are in a state of disarray. Federal Reserve Chair Jerome Powell basically had to apologize for misreading the arc of inflation at a recent meeting of the European Central Bank, and leading economists from all over the world had to use big words and long sentences to admit that they have no idea what’s going on. Eshe Nelson at the New York Times writes that “Inflation expectations are hard to decipher; energy markets are opaque; the speed that monetary policy affects the economy seems to be slowing; and there’s little guidance on how people and companies will react to large successive economic shocks.”

The latest numbers are largely encouraging. As the New York Times reports, inflation dipped below 4% in May — the first time inflation has dipped below 4% since 2021, which is good news. But consumer spending also cooled in May, which the Times says is…good news?

Slower spending may sound like bad news: Consumption is, after all, the engine of economic growth in America. But Fed officials have been raising interest rates to try to restrain consumer and business demand, hoping that such a weakening will force companies to stop raising prices so quickly.

Yeah, about that last bit: It’s heartening that the Times has finally acknowledged that the higher prices we’re all paying are in large part due to “greedflation,” which is to say companies raising prices higher than costs and pocketing the outsized profits. But there’s no proof that the Fed’s raising of interest rates will ever “force companies to stop raising prices.” Many big-name consumer brands have decided that it’s okay to sell fewer products to a smaller and wealthier consumer base that’s willing to pay more, and the one tool the Fed has been using to control inflation doesn’t help with that.

In Europe, policymakers are finally considering other tools that will help bring outrageous profit margins under control. Paul Hannon and Noemie Bisserbee write at the Wall Street Journal that European nations have begun to demand accountability from the big corporations who are jacking up prices at grocery stores.

“The French government has asked 75 industrial companies to each send by the end of this month a list of products on which they will cut their prices,” they write, adding that “In the U.K., leading retailers were asked to account for their profits before a panel of lawmakers Tuesday, while Wednesday saw the government’s treasury chief meet with competition and other regulators to find ways to tackle what is known as the cost-of-living crisis.”

At around this time last year, economists started to predict that a recession was lurking right around the corner and would unfurl before Halloween. That target date was then moved to Christmas, and to April. For Insider, Neil Dutta wrote a must-read piece calling out the doomsayers on their wrong-headed predictions of recession, going through and debunking each of the claims made by Wall Street analysts and elite economists.

“The near-term recession risks are fading rapidly,” Dutta concludes. “There will be no recession in the next six months, and it’s increasingly likely that we won’t see one in the next year, either.”

In fact, if you look at the strongest indicator of whether the economy is doing well — the economic health of American workers — you’ll find that paychecks are finally above prices for the first time since 2021.

Now the number of experts predicting a recession is much smaller, but there are still some stalwarts out there. A piece in the Wall Street Journal suggests that a quirk in the way payroll data is collected has resulted in massive misreadings of the employment numbers, and that a recession is right around the corner. (Anecdotally, I’m not seeing those millions of invisible people who just can’t find a job, but it’s always smart to investigate the way we measure the economy because our systems will never be perfect.)

But the funniest take on the economy comes from a Wall Street Journal piece by Justin Lahart which argues that we’re in the middle of a “richsession.”

Yet while the better-off are, by definition, better off than the poor, they have been hit harder by layoffs, have been less able to secure wage increases that keep up with rising prices and have been more affected by the slump in profits that began to take hold last year. In other words, it is still looking like a richcession, where amid economic uncertainty, the rich feel more of the sting. And this, in turn, is beginning to have knock-on effects, with richer Americans reining in their spending relative to others.

In other words, Lahart threatens, the richcession might trickle down to the rest of the economy. (That’s not how the economy works, but okay.) In order to visualize the pain of the wealthy 1%, the WSJ illustrated Lahart’s piece with this chart showing that New York City securities-industry employees had to take a $75,000 cut to their bonuses this year, with the average annual bonus dipping to “only” $175,000 in 2022:

Forgive me if I can’t muster sympathy for people who earned an annual bonus that is more than double the median annual income of the average American household. During every recession in my lifetime, working Americans have been asked to cut corners and make ends meet with less. If New York financial industry types are indeed in the throes of a “richsession,” they can take the advice that newspapers doled out for middle-class Americans in the economic doldrums of 2008, 2001, 1992, and so on: Start clipping coupons, budget all your household expenses, and maybe take a more modest family vacation this year.

Los Angeles Workers Kick Off a “Hot Labor Summer”

This July 4th, hotel workers in Los Angeles took to the streets to demand better pay and benefits. Those workers were joining Hollywood screenwriters, who have been striking to protest job security cuts and the intrusion of AI into the film and TV development process for two months now. And the Screen Actors Guild may join the LA picket lines as early as next week if actors vote to join writers in protesting the big video streaming sites. Now hotel workers have joined the picket lines, too.

“Hotel workers and creative workers have vastly different demands, but they’re battling the same unforgiving system, in which they are seen as cogs. Since the pandemic, hotels across America have seen cuts, with workers forced to do more with less help,” writes David Dayen at the Prospect. “Dishwashers and bellhops and cleaning staff in Southern California endure commutes of up to two hours because they can’t afford housing any closer. The middle class among actors and writers has been hollowed out as well, an especially precarious situation in a company town.”

“The unemployment rate remains below 5 percent in California, so workers know they have leverage,” notes the New York Times. “And numerous contracts are expiring this year, forcing California employers to negotiate with unions as they watch picket lines form daily in Los Angeles.”

California labor leaders are calling this the “hot labor summer,” but the picket lines could be about to stretch far beyond Los Angeles city limits. Talks between UPS and the Teamsters union representing drivers and warehouse workers have fallen apart, increasing the possibility of a strike.

The Washington Post notes that “Roughly 6 percent of the country’s gross domestic product moves through UPS each year,” so the effects of the strike would spread across the economy. “The negotiations come as UPS faces declining revenue and significant competition for its core business. The company reported first-quarter revenue of $22.9 billion, down 6 percent from last year. Operating profit fell 21.8 percent to $2.5 billion,” notes the Post in an attempt to both-sides the labor negotiations on behalf of the employer. Personally, I find it hard to feel bad about a shipping and delivery company’s decline to a $2.5 billion profit margin in the first quarter of 2023, when many Americans finally shook off pandemic restrictions and began regularly leaving the house again.

Workers are willing to walk off the job right now because they feel as though they have options. And in fact, the job market is so good that it’s benefitting workers who have previously been left behind. “Black workers have found better-paying jobs with benefits and professional and office positions that offer more work-life flexibility — opportunities that help explain why the Black unemployment rate in the United States fell to the lowest point on record in April,” notes the Washington Post, adding that “The share of prime working-age Black women in the workforce is now far higher than any other group of women, according to the Bureau of Labor Statistics.”

And workers are enjoying more flexibility in their jobs. Despite return-to-office mandates from big tech companies like Apple, Amazon, and Google, for example, the share of remote work has drastically increased since the pandemic began.

While we spend a lot of time thinking about how the job market has changed for white-collar office workers, it’s important to remember that the labor market has been buoyed by incredible wage growth at the bottom of the income scale. Workers who were deemed “essential” during the pandemic are now in short supply, and employers are paying more and offering more humane working conditions.

On July 1st, those workers at the lower end of the income scale received a boost in 19 states and localities around the country that are raising their minimum wages. The lowest such increase, in Nevada, climbed to $11.25 per hour. The highest, in West Hollywood, hit $19.08. Here in the greater Seattle area, the city of Tukwila climbed to $18.99 an hour. These minimum wage increases are great news for workers who have been left behind by trickle-down wage stagnation.

“For the workers impacted by the state increases, 19.6% are in poverty and 46.2% are below twice the poverty line. A disproportionate number of affected workers are women (57.6%), who make up less than half (48.4%) of the wage-earning workforce in the states with increases,” notes the Economic Policy Institute. “Meanwhile, 13.7% of the affected workers are Black and 31.1% are Latino, despite making up 9.9% and 17.6% of the state workforces, respectively.”

And raising the minimum wage is great for businesses, too. A refreshing report from CNBC interviewed business owners who were excited about the wage increases that arrived on July 1st. Gina Schaefer, who owns 13 Ace Hardware stores in and around the Washington DC area, explained why she supports a strong minimum wage: “We will hopefully have more customers because people in town will be making more money. The city will have more tax revenue. And I like to hope and think that the employees who are making more money will have a more comfortable living existence in a lot of communities.”

Amen!

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.

• As the southern US struggles through yet another record-breaking heat wave and cities throughout the eastern half of the United States choke on wildfire smoke, the Pitchfork Economics podcast this week revisits an interview with Sarah Bloom Raskin, former deputy secretary of the U.S. Department of the Treasury and a former governor of the Federal Reserve Board. She explains how economic policy can help us combat climate change by “get[ing] us through the passageway of transition to a net-zero [carbon neutral] economy in the most stable and least dangerous way possible.”

Closing Thoughts

The Angry Bear Blog did a great overview of how the New York Times has consistently promoted the Federal Reserve’s false narrative that millions of Americans need to lose their jobs in order to get inflation back under 2%. It includes an eye-opening quote from former Fed Chair Paul Volcker, the Reagan-era official who is widely praised for taming inflation in the 1980s:

Referred to as the Great Inflation, this era lasted from 1965 through 1982, and was finally brought to an end by Fed chair Paul Volcker. After assuming leadership of the Federal Reserve in 1979, Volcker announced, “The standard of living of the average American has to decline.” He then proceeded to curb inflation through a brutal campaign against the working class.

Imagine the field day the media would have if one of President Biden’s economists announced this morning that “the standard of living of the average American has to decline” to bring inflation in line. But Volcker has instead been elevated to the economic status of sainthood for his inflationary cure, which did, in fact, put millions of Americans out of work at the beginning of the 1980s.

The Volcker approach to fixing inflation — which is no different from the modern-day Fed’s approach to fixing inflation today, remember — is by definition a trickle-down approach. It cures inflation by immiserating ordinary Americans in the form of high interest rates, lower wages, and rampant layoffs, even as wealthy Americans and corporations thrive.

The Times never acknowledges that Volcker’s path to curbing higher prices isn’t the only path available to economic leaders. Angry Bear notes, “the US has dealt with inflation differently in the past. During World War II, for instance, the government established the Office of Price Administration, which kept inflation in check through price controls.”

Given that at least half of the price increases Americans are paying at grocery stores right now are due to greedlfation, common sense dictates that the price-control approach would do more to lower prices than the zombified Volcker strategy the Fed is currently pursuing. Middle-out economics argues that working Americans are the real wealth creators in the modern economy.

Ultimately, we’re left with one big question: Why are our economic leaders in the Fed working so hard to smother the true source of economic prosperity while simultaneously protecting corporations that are price-gouging to protect their record-breaking profit margins?

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

Zach