The best indicator of how our economy is doing isn’t GDP or the stock market — it’s the economic health of working Americans. When paychecks are growing, people spend that money, and their growing consumer demand creates new jobs. When people lose jobs and income, that consumer demand dries up and more people lose their jobs in a vicious cycle.
Part of the reason why the economy has been so strong despite inflation over the last year is the fact that the labor market has been tight and wages have been growing. But the Federal Reserve mistakenly believes that your paychecks — not a broken supply chain and corporate price-gouging — are the reason why prices are skyrocketing. They’re explicitly targeting job growth and wage growth in an attempt to cool the economy down, and they’re crystal clear that they will continue to raise rates for the foreseeable future.
There’s no evidence that the Fed might finally be succeeding in its economic self-sabotage. Sydney Ember and Ben Casselman write in the New York Times:
Americans in July quit their jobs at the lowest rate in more than a year, a sign that the period of rapid job switching, sometimes called the Great Resignation, may be nearing its end. Wage growth, which soared as companies competed for workers, has also slowed, particularly in industries like dining and travel where the job market was particularly hot last year.
To be clear, the labor market is still very strong, but for the first time in a couple of years, the arrows are pointing in the wrong direction. Layoffs are up slightly and job openings are declining slightly. And the Washington Center for Equitable Growth shows that these small declines are basically showing up across all industries:
But there’s one job title, in particular, that’s been defying gravity for decades — the one job in the country that is not concerned about wage growth at all. I’m talking, of course, about CEOS. A new study from EPI shows that in 2021, CEOs were paid 399 times the pay of the average worker, and those numbers have skyrocketed since 1990, with another huge bump in the last two years. This chart showing CEO-to-worker pay is breathtaking:
I can assure you that no American CEO works 399 times harder than their average employee. This isn’t the free market allocating value efficiently, as we were taught in our Econ 101 classes. This is a profession that is leveraging 40 years of trickle-down deregulation and wage suppression to its own benefit. CEOs are diverting corporate profit created by workers to their own bank accounts.
The Fed has spent a lot of time recently claiming that millions of Americans need to lose their jobs and accept lower paychecks in order to decrease inflation. But not once has the Fed suggested that CEO paychecks are too high, or that increased corporate executive compensation is driving inflation.
The Latest Economic News and Updates
We Need to Talk About Housing
Because the Federal Reserve is raising interest rates, mortgage rates have spiked to 6.7 percent, making buying a home too expensive for ordinary Americans and driving down home sales. Mortgage applications are declining to below even the worst weeks of the pandemic lockdowns, and nearing the depths of the Great Recession:.
The rental market presents its own special inflationary problems. Small landlords are being pinched by rising costs and interest rates, while corporate landlords are reporting record profits. But no matter who they’re renting from, tenants have been paying much higher rents for the last two years and the slowing rate of increase we’re seeing in rents isn’t enough to relieve affordability pressures. And senior living home prices are soaring, which squeezes families struggling with their own rising housing costs.
With both rents and mortgages at very high levels, Bloomberg has characterized the average American as existing in a state of “housing paralysis,” and that’s a very evocative term — workers are paying a lot for housing, and they can’t afford to make the move to something bigger or smaller. If the Fed succeeds in causing millions of job losses in the next year or so, we could see a dramatic rise in the housing affordability crisis.
For much more on this subject, I’d encourage you to listen to the latest episode of Pitchfork Economics, in which Nick and I talked with economist Jenny Schuetz about how to repair the housing crisis. She explains that housing is in such bad shape in America that it’s going to take policy interventions on the federal, state, and local levels in order to meet the need.
Striketober, Part II
Last October was dubbed “Striketober” in the national media when union elections at Starbucks and Amazon warehouses began to dominate the news. The Guardian reports that this October could be a second “Striketober,” with union elections up nearly 60% over this time last year and a number of high-profile union actions in the spotlight for this fall.
As I write this, there’s also a potential high-profile grocery strike at a Krogers chain in Ohio that could see 12,000 workers take to the picket lines, along with several ongoing union drives at Starbucks, Amazon, and Trader Joe’s locations around the country.
While these strikes and union drives were likely inspired by a tight labor market that saw ordinary American workers emboldened to speak up en masse for the first time in decades, it’s unlikely that a Fed-inspired recession would quell the thirst for unions. With 71 percent of the American public in favor of unions, and with workers stretched thin over the course of the pandemic while corporate profits skyrocketed, it doesn’t seem likely that service and warehouse workers will quietly go back to work.
Will a Global Slowdown Be America’s Number One Export in 2022?
Last week, we talked about new UK Prime Minister Liz Truss’s universally reviled trickle-down budget, which proposed huge tax cuts for wealthy people with the promise that those cuts would generate wealth for everyone else. That trick never works, and even international financiers revolted against Truss’s plan. Earlier this week, Truss made the remarkable decision to pull the tax cuts. This is the latest sign that trickle-down is losing persuasive power around the world, and that even the corporate establishment understands that economic growth does not come from the wealthy few at the top.
But there’s another threat to the global economy, and it’s one that won’t be so easily thwarted as Truss’s plan. The Fed’s decision to raise interest rates is pushing up the value of the dollar against virtually every other currency in the world, which is causing headaches everywhere.
Peter Coy at the New York Times notes that “the strength of the dollar is driving up the prices of imported food, fuel, and medicine in Nigeria and Somalia while pushing Argentina, Egypt and Kenya closer to defaulting on their debts,” and even wealthy nations are stumbling as their own currency crumbles in comparison to ours.
In effect, as Lee Harris writes at the Prospect, we are “exporting” inflation to poorer countries around the world. The problem is that “as central banks raise interest rates to keep up with the dollar, [the United Nations] predicts continued social unrest, more food riots, and a global slowdown that could skid into recession.”
In fact, the United Nations is now basically pleading to the Federal Reserve and other central banks to stop raising interest rates, threatening a possible large global recession and/or an elongated period of economic stagnation if they continue down this path. Adam Tooze at the Times agrees that the Fed is “courting the risk of a global recession that at its worst could bring down housing markets, bankrupt businesses and states, and throw hundreds of millions of people worldwide into unemployment and distress.”
The world has become a very small place, and American economic policies have very direct impacts on even the smallest and poorest nations on the other side of the planet. But what our leaders seem to be forgetting is that the opposite is true, too — the pandemic proved that an outbreak in China can have ramifications that touch every corner of the globe. If we cause a global recession in an effort to save our own economy, there is a hundred percent chance that our own economy will eventually suffer consequences from that recession.
Meanwhile, middle-out is still working
We’ve spent longer than usual in this newsletter focusing on doom and gloom. It’s necessary to examine economic policy failures, but it’s doubly important to highlight the policies that are working to build a better economic future for the middle class, and therefore the entire economy. Here are just a few of the success stories in the news this week:
- The Atlantic’s Weekly Planet newsletter points out that Credit Suisse has crunched the numbers on the environmental portion of President Biden’s Inflation Reduction Act, and the bank found that the popularity of the clean energy tax credits was most likely undervalued by the Congressional Budget Office. “In fact, so many people and businesses will use those tax credits that the IRA’s total spending is likely to be more than $800 billion, double what the CBO projects,” Weekly Planet author Robinson Meyer writes. “And because federal spending tends to catalyze private investment, that could send total climate spending across the economy to roughly $1.7 trillion over the next 10 years.” That’s a tremendous investment in the environmental future of the country.
- David Dayen points out that the House successfully passed three antitrust bills that would update our antitrust laws for the 21st century. The Merger Filing Fee Modernization Act would make it more expensive for giant corporations to merge while making it easier for mid-sized firms to merge. The State Antitrust Enforcement Venue Act would reform a loophole in how antitrust laws are litigated, and the Republican-proposed Foreign Merger Subsidy Disclosure Act would require greater transparency of Chinese involvement in firms that are merging. Dayen predicts that the three bills should pass the Senate in the lame-duck session between midterms and the seating of the new Congress.
- President Biden’s semiconductor manufacturing act is already seeing big results, with Micron committing to spending $100 billion to build a new semiconductor factory in New York.
- Binyamin Appelbaum reports that the state of California is embracing middle-out housing policy, with a suite of new laws that promise to build a massive amount of new housing in the state.
- Clair Cain Miller notes that American investments in children shot up to $10,710 per child during the pandemic, an increase of over four thousand dollars from the pre-pandemic total. Most of those investments either already have expired or are expiring soon, but hopefully researchers are hard at work examining how those investments — ranging from tax credits to food and housing subsidies to affordable health care — will affect the course of their lives. We are very likely to see those investments pay out in big ways across health, economic, and educational spheres, creating another compelling data point for middle-out economics.
- And President Biden is focusing on perhaps the single most pressing economic need for low-wage Americans by vowing to end hunger and improve nutrition by 2030.
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 Civic Action Live tomorrow, where we’ll be discussing the impending housing crisis, runaway CEO pay, and how new middle-out policies are already paying off. We’ll also answer your questions live. Join us at 10:30 am PST.
- As I mentioned earlier, this week’s Pitchfork Economics podcast features a great conversation with economist Jenny Schuetz about the complicated reasons behind America’s housing crisis, and the multi-tiered policy response that’s necessary in order to build homes for everyone who needs them. By current estimates, we’re nearly 4 million homes behind current needs, and that number is only going to grow as construction continues to fall behind.
- If you’re a salaried worker who earns more than $36,000 per year, the odds are good that your boss can make unlimited demands on your time, and offer zero extra pay in return for the extra hours that you work. Over at Business Insider, Paul explains why President Biden should restore overtime protections for millions of middle-class Americans, the way it was when our economy was at its strongest.
Closing Thoughts
We spend a lot of time here criticizing the Fed’s actions to rein in inflation, but it’s important to note that many leaders on all levels of government are already employing a wide variety of methods to combat inflation, and we can learn a lot from their actions.
Farhad Manjoo writes that the Child Tax Credit, which sent money to American families last year, has changed the conversation about how government can invest in people, opening up the conversation to include direct cash payments. Dan Avary at CNET has compiled a list of all the states that are following the Biden Administration’s lead by sending out stimulus checks this fall. That’s nearly 20 states — led by Democrats and Republicans alike — that are encouraging spending by sending checks to middle-and-working-class families.
Of course, there were some kinks in the Child Tax Credit system: a new report finds that some 4.1 million eligible families didn’t get their checks. But it should be noted that the IRS’s impressive 98% accuracy rate in distributing CTC checks puts the lie to the trickle-down canard that government can’t do anything right.
We rarely hear when policies work as they should. Case in point: Thanks to the Affordable Care Act, the uninsured rate in America has matched an all-time record low of 8.6% last year. We still need to do more to ensure that everyone has health insurance — especially considering the fact that the uninsured are largely Native Americans and other nonwhite Americans who frequently lose out on large federal investments like this.
The happy truth about governance is that there’s always more to do, and we can always learn from failures in the system. Last year, Senators Ron Wyden, Michael Bennet, and Sherrod Brown announced a new bill that would reform the unemployment system, fixing many of the problems that were revealed during the pandemic when millions of Americans suddenly lost their jobs.
Last week, National Employment Law Project Executive Director Rebecca Dixon testified before the House in support of the bill, which would ensure that workers in all 50 states — including part-time workers — have access to 26 weeks of benefits, and it would make it easier for people to access their benefits on mobile devices and in multiple languages. Extended unemployment benefits are a big reason why the US had one of the best pandemic recoveries in the world because they ensured that more Americans had more money to spend in their communities, thereby saving and creating jobs. Wyden’s Unemployment Insurance Improvement Act would apply those pandemic-era lessons to our current unemployment system, ensuring that nobody falls out of the economy because they lose their job.
Be kind. Be brave. Get vaccinated — and don’t forget your booster.
Zach