Friends,
This week, the American Prospect published a special issue about pricing. Specifically, it’s a deep dive into the many ways that corporations have used technology to wring more and more money out of unwitting American consumers.
“Today, the fine-graining of data and the isolation of consumers has changed the game,” writes David Dayen in a column outlining the problem with algorithmic pricing. “The old idiom is that every man has his price. But that’s literally true now, much more than you know, and it’s certainly the plan for the future.”
Economists call it “personalized pricing,” but it’s really just individualized price gouging. Say you’re shopping online for a belt, and you’re browsing on a site that you frequently use. Because the site can track your purchases and knows that you’re willing to pay extra for quality products, they raise the price of the belt higher than average. A first-time shopper, on the other hand, would likely find rock-bottom prices on the exact same belt as a way to inspire them to return to the site as a regular customer.
Dayen explains that companies are finding all sorts of ways to use your data to trap you in their algorithms. “You might be aware that fast-food companies like McDonald’s have begun pushing customers to their app. Deals on the app are extremely good, at least for now: $1 breakfast sandwiches, 20 percent off any purchase above $5,” he explains. “That’s because McDonald’s, whose CEO has talked on earnings calls recently about a ‘street-fighting mentality’ in winning customers, wants to burrow into phones, where they can access more personal data and get people hooked on an app where specific prices can be customized to the user.”
This can get very dystopian very quickly. As Dayen explains, “If the app knows you get paid every other Friday, it can make your meal deal $4.59 instead of $3.99 when you have more money in your pocket,” whereas “If it knows you usually grab an Egg McMuffin before class on Wednesday, or that you always only have an hour to eat dinner between your first and second job, it can increase the price on that promotion. If it knows it’s cold out, it can raise the price of hot coffee; on a scorcher, it can up the price of a McFlurry. And the app gets smarter as you agree to or turn down those offers in real time.”
This kind of individualized price-gouging is hugely unpopular with consumers. You might recall that Wendy’s executives offhandedly mentioned that they were considering the adoption of a “dynamic pricing” model that would raise the prices of food and drinks during busy times and lower the prices when there are fewer customers. The blowback on this announcement was so ferocious that Wendy’s quickly retracted the plan.
But as Vox’s Whizy Kim reports, all sorts of industries have already introduced dynamic pricing into their model but because online shopping is such a siloed experience, consumers don’t even recognize it’s happening. This is a new frontier in corporate price-gouging, and it’s impossible to say exactly how widespread it is.
Coincidentally, the day after the Prospect released their price-fixing issue, the news broke that FBI agents raided the offices of Cortland Management, a corporate landlord based out of Atlanta. It was the first public step in a major Justice Department investigation into dynamic pricing in the property management industry.
“The investigation centers around the use of RealPage, advanced property management software used by many corporate landlords,” writes Judd Legum. “Following a 2022 exposé by ProPublica, RealPage and landlords that use the software have been named defendants in multiple class action lawsuits, as well as actions filed by the Attorneys General of Arizona and Washington, DC.”
Legum explains that RealPage “allegedly facilitates and encourages landlords to work cooperatively to increase rents. An e-book produced by RealPage says that the company allows corporate landlords who are ‘technically competitors’ to ‘work together . . . to make us all more successful in our pricing.’”
That sounds like collusion to me, and it seems as though the FBI might agree. “RealPage bragged that landlords that use its software ‘continually outpace the market in good times and bad,’” Legum continues. “In other words, RealPage helps landlords charge higher rates than they would in a truly competitive market. An executive for Camden Property Trust, a corporate landlord based in Houston, said deploying RealPage's software resulted in ‘pushing people out’ with higher rents but ultimately increased revenue by $10 million.”
The timing of this investigation couldn’t be any better. The Biden Administration is making an example of one of the most egregious forms of algorithmic price-fixing, just as the Prospect releases a special issue explaining how pervasive this problem really is. While prosecuting corporate landlords for collusion is a great start in the war over algorithmic pricing—and seeing RealPage and Cortland face potential consequences for their actions is sure to prevent other firms from starting down the same path—the next step is to introduce ironclad regulations that block sellers from using buyers’ private information to squeeze every last available cent out of their consumers.
The Latest Economic News and Updates
How Are American Workers Doing?
On Friday, the Department of Labor will release the unemployment report for May, and economists will be watching closely. The general theory is that if employment continues to slow down, the Federal Reserve will likely start to cut interest rates, which will make everything from credit card debt to mortgages more affordable for ordinary Americans.
(I’m obligated to point out here that the Fed believes that the strong job market of the last three years has driven up inflation, despite the fact that there is absolutely no evidence that this is actually the case. In fact, the Fed should have been lowering interest rates for the last few months in order to shrink the price of housing, which is actually the leading pressure that’s holding inflation rates up right now. We’ll have much more to say about the Fed a little later in this newsletter.)
We’re already getting a sense of how the job market is doing. “In April, there were 1.24 job openings for every unemployed American — same as in October 2019, the all-time high reached before the post-pandemic recovery,” writes Axios’s Emily Peck.
While that’s a decline from the pandemic-era job market of 2022 and 2023, it’s still a high for pre-pandemic times. And Peck also notes that “the number of people losing their jobs through layoffs and firing is lower than last year,” which is another strong sign for workers. Or, as Angry Bear characterized this report: “As a share of the prime working age population, quits are as high as they ever were before the pandemic, and hiring was only better in 2000 and 2018-19. In other words, this paints a picture of a labor market that has cooled from White Hot Boom levels to merely very, very good.”
Because quits are incredibly high and hiring is strong, workers in in-demand fields can still negotiate higher wages by switching jobs. Kelly Tyko reports that Walmart, which is struggling to retain workers, “is adding a new bonus for hourly store workers months after hiking store managers' pay and redesigning the bonus program for managers.”
Some 700,000 Walmart employees will be eligible for annual bonuses of up to $1000, depending on performance and experience, though Tyko notes that those worker bonuses “are much smaller than bonuses for store managers announced in January, which can be up to 200% of their salary.”
A small annual bonus simply isn’t the same thing as a weekly pay bump—we want workers to be regularly spending money in their local economy all year long, creating jobs with their consumer demand. That’s why, no matter what we see in this week’s jobs report, the Biden Administration should continue to keep its focus locked on growing the paychecks of American workers—creating jobs, raising standards, and fighting for higher wages.
Retailers and Manufacturers Are Remembering How to Slash Prices
After years of jacking up prices in order to plump up their already-huge profit margins, manufacturers and retailers are finally remembering that they’re supposed to attract consumers by offering great products at low prices. We talked about this a little bit in last week’s newsletter, but the price-slashing continues.
For Axios, Courtenay Brown and Neil Irwin write that executives at the Container Store have finally noticed cooling customer demand. As a result of this "increased price sensitivity," they say that the Container Store will find "opportunities to pass savings on to our customers on certain items as we benefit from decreased costs in raw materials and freight."
Executives at the Sotherly Hotels agree that they “see some pricing sensitivity from those leisure consumers — that's just the nuts and bolts of it.”
Talman Joseph Smith and Jordyn Homan at the New York Times report that Walgreens is slashing prices on 1000 items, and both IKEA and Michael’s craft stores are also rolling back prices to attract customers. “Underwhelming earnings from upmarket brands like Starbucks, which had a decline in foot traffic, and department stores like Kohl’s, which reported net losses, showed that a variety of companies face a consumer base that has grown more selective, searching for value,” they write.
And after roughly four years of skyrocketing car prices, which have driven up the average cost of a new car to nearly $47,000, or $735 a month, Neal E Boudette at the New York Times reports that auto dealerships are finally starting to reintroduce deals and lower prices. “The growing number of incentives on new vehicles has helped pull down prices of used cars and trucks. In April, used car prices declined nearly 7 percent, according to the Bureau of Labor Statistics,” Boudette reports.
But while customers are becoming more deal-savvy for clothes, groceries, and cars, another industry that was rocked by the pandemic is roaring back this year. “2024 will be the U.S. restaurant industry's biggest year ever in sales — $1.1 trillion by the end of December,” writes Jennifer A. Kingston at Axios.
One of the biggest challenges facing restaurant owners right now? Finding enough employees to do the work. “There were more than a million unfilled jobs in restaurants and accommodations at the end of March,” Kingston writes.
What Will the Fed Do Next Week?
There are a lot of noisy signals in the economy right now, and nobody is really sure what they all mean. Because the job market has started to return to pre-pandemic levels, and because the Fed has kept interest rates high for much longer than expected, we’re starting to see economic commentators like Aaron Back at the Wall Street Journal raise recession concerns again.
Even Paul Krugman at the New York Times warns that “There’s nothing out there that screams ‘imminent recession,’ but there are straws in the wind. Consumer spending, adjusted for inflation, fell slightly in April. A widely followed report on manufacturing hinted at developing weakness,” he writes. “Again, we’re not talking alarm bells yet, but the balance of risks has clearly shifted.”
Krugman also makes a great case that inflation continues to decline, as illustrated by this especially striking comparison of month-to-month inflation reports (the noisy blue line) and the inflation rate compared to the previous year (the more consistent red line.)
Krugman concludes, “it’s time to stop obsessing about inflation, which increasingly looks like yesterday’s problem, and start worrying about the possibility of a recession as the economy’s strength finally begins to erode under the strain of high interest rates.”
As Krugman suggests, a consensus has emerged in the economics sphere that the Federal Reserve should immediately start to drop interest rates—especially with the news that the European Central Bank, the European version of the Fed, just cut their own rates for the first time since before the pandemic. An opinion piece by Mark Zandi and Jim Parrott in the Washington Post today makes the fullest-throated case yet for the Fed to start lowering rates.
“The economy has weathered the Fed’s higher-for-longer strategy admirably well, but there is a mounting threat that the ongoing pressure will expose fault lines in the financial system,” they write, citing the job market’s return to 2019 levels and the intense pressures on the housing market. “There is no reason to take these risks for the sake of hitting a flawed inflation target. Better for the Fed to recognize its hard-fought win against inflation and begin, finally, to cut interest rates.”
This has been our argument for months: The Fed needs to bring down interest rates in order to help debt-heavy Americans who are struggling with the high price of housing.
Nobody expects the Fed to take dramatic action, though. If they do bring interest rates down next week, it will be by a fraction of a percentage point as part of a long-term campaign. In the meantime, it’s up to our leaders to help contain the damage that the Fed has caused by encouraging consumer spending and making sure that Americans can secure housing while interest rates are still high. It would truly be one of the biggest economic own-goals in history if the Fed’s misguided efforts to combat inflation accidentally tipped the economy over into a recession after inflation actually came under control.
How Trickle-Downers Rig the Game
Melissa Jacoby at the New York Times explains one of the biggest trickle-down policy wins of the 20th century: “In 1978, a bipartisan group of lawmakers enacted sweeping reforms to American bankruptcy law. To enhance economic value and keep viable businesses alive for the benefit of workers and other stakeholders, these changes gave companies more protection and control in bankruptcy. This new bankruptcy code also made it easier to alter the legal rights of creditors during and after bankruptcy without their consent,” she writes.
The Supreme Court is deliberating on a case that argues the Sackler family should not have been able to use bankruptcy laws to protect the family’s billions of dollars after their opioid manufacturing company, Purdue Pharma, was found to be liable for deaths and despair caused during the opioid crisis. “The looming question remains whether we the people may be at greater risk — monetarily, bodily, constitutionally — when a system designed for restructuring the debt of financially distressed companies is retrofitted for other policy problems,” Jacoby writes.
That little-known bankruptcy policy in 1978 helped some of the wealthiest and most powerful people and corporations in the history of the world avoid the consequences of their own actions. But policy is only one way that trickle-downers rig the game in their own interest. Another thing they do is spend lots of money to contort the public discussion in their favor.
Andrew Dessler explains how Big Oil is currently trying to poison the well against renewable energy. “One technique the industry and its allies have used is to spread falsehoods — for example, that offshore wind turbines kill whales or that renewable energy is prohibitively expensive — to stop projects from getting built,” he writes. “What appear to be ordinary concerned citizens or groups making good-faith arguments about renewable energy are actually a well-funded effort to disseminate a lie.”
Another way for trickle-downers to change the public conversation is to lobby politicians to do their dirty work for them. Marina Botolnikova writes at Vox about how the pork processing industry is fighting to overturn popular laws in California and Massachusetts requiring pig farms to use bigger, more humane cages.
But the “pork lobby refuses to accept even those modest measures and has sought to link Prop 12 to the agenda of ‘animal rights extremists,’” she writes. The lobby “has also claimed that the law would put small farms out of business and lead to consolidation, even though it is the extreme confinement model favored by mega factory farms that has driven the skyrocketing level of consolidation seen in the pork industry over the last few decades.”
The Supreme Court even struck down an attempt by the pork lobby to overturn the popular regulations. Since it’s unlikely that Big Pork is going to win over the hearts and minds of Americans who voted overwhelmingly for more humane treatment of pigs, they’re instead turning to lawmakers. The Farm Bill championed by House and Senate Republicans “includes a narrowed version of the EATS Act (short for Ending Agricultural Trade Suppression), a bill introduced by Republicans in both chambers last year to ban states from setting their own standards for the production of any agricultural products, animal or vegetable, imported from other states.”
We talk a lot in this newsletter about popular policies—and make no mistake, middle-out economic policies are roundly appealing to Democrats, Independents, and Republicans. But these three items are great reminders that popularity isn’t enough. People with power work hard in the shadows to impose their will on the majority of Americans against their wishes, through policy, astroturf campaigns, and working with a few shameless politicians to outright overturn the will of the people. That’s why vigilance is essential.
This Week in Middle Out
This is perhaps the most exciting news of the week: The Internal Revenue Service just announced that last year’s pilot program of free tax-filing software was so successful that the IRS is making their free direct filing system available to all 50 states in 2025. “The idea of filing taxes directly to the government, rather than through commercial software or a paid tax preparer, has been floated for decades; the practice is routine in dozens of countries, including Australia, South Korea and much of Europe,” writes Julie Zauzmer Weil at the Washington Post.
On May 31st, Congress allowed a popular program establishing high-quality internet access for low-income families across the country to expire. The Biden Administration called on Congress to renew the program, but in the meantime, the administration secured “voluntary commitments to customers from over a dozen internet service providers to offer plans at $30 or less to low-income households through 2024, so that families across America can continue accessing low-cost internet.”
“The Labor Department on Thursday sued Hyundai over the use of child labor in Alabama, holding the car manufacturer liable for the employment of children in its supply chain, including a 13-year-old girl who worked up to 60 hours per week making car parts,” reports the New York Times.
While the Biden Administration has forgiven billions and billions of dollars in public student loan debt, those who got their loans from private lenders have largely been left on the sidelines. Until now: “Navient, a large owner of private student loan debt, has created, but not publicized, a program that allows borrowers to apply to have their loans forgiven,” writes Stacey Cowley. “On Thursday, the Project on Predatory Student Lending, an advocacy group in Boston, published Navient’s application form and an instruction guide for borrowers with private loans who are seeking relief on the grounds that their school lied to them.” Make sure to share that information with your social groups—you never know who might benefit from this program.
The Biden administration is working to develop a truly middle-out farm policy that would benefit the small family farms that have been crushed by Big Agriculture over the last few decades. So far, their new policies “Multiply and improve revenue streams to bolster farm balance sheets. Rather than just selling crops and livestock, farms of the future could also sell carbon credits, waste products and renewable energy.”
Charlie Dulik at the New Republic writes about a little-mentioned Biden Administration policy: “Even with little fanfare, the implementation of a 10 percent cap on rent increases for the 2.6 million apartments receiving funding from the Low-Income Housing Tax Credit, or LIHTC, represents a significant development in federal housing policy. Though far too high, the cap amounts to an embrace of rent control and—crucially—the president’s ability to advance it.” Dulik argues that Biden could expand the rent control cap to “the Federal Housing Finance Agency, or FHFA, which oversees Fannie Mae and Freddie Mac, the government-sponsored enterprises that do $150 billion worth of business with landlords a year.”
This Week on the PItchfork Economics Podcast
On this week’s podcast, Nick and Goldy talk with Pulitzer Prize-winning New York Times columnist David Leonhardt about his new book, Ours Was the Shining Future. They discuss one of the book’s central points—a history of how the mainstream economic consensus shifted away from the shared prosperity of the post-war era and toward massive income inequality that only benefits a wealthy few. It’s a great discussion of what went wrong and how to repair more than four decades of trickle-down economics.
Closing Thoughts
I wanted to call your attention to Hamilton Nolan’s latest newsletter, in which he talks about an economic issue that we’ve been talking about for a long time here at The Pitch as one of the leading causes of economic dissatisfaction among Americans. Nolan and I are not perfectly ideologically aligned—he argues for socialism early in the piece, while we here at Civic Ventures are dyed-in-the-wool middle-out capitalists—but he’s a sharp observer of the economics world and I couldn’t agree more with him about his diagnosis of the leading economic problem for most Americans:
“Housing is everything. Well it’s not everything, but if you were to pick a single aspect of the economy that has the biggest effect on people’s lives and that drives their perception of the economy more than anything else, the answer would be: housing,” Nolan writes. “Housing is the biggest expense most people have. It is the most inviting target for the government to make people’s lives more affordable.”
A central problem with housing, Nolan notes, is that homes are the primary source of wealth for most Americans, and that has created a system of haves and have-nots. Working Americans are obligated to ensure that their home values continue to rise, and in the short term that means advocating against additional housing.
“At the end of this chain of dominoes are the poorest people, who, when the lowest-priced housing options get too expensive, become homeless. Homelessness is a housing problem,” Nolan writes, and he explains, “Homelessness is correlated most strongly with a lack of affordable housing. Places that have high poverty rates but also have low rents have low levels of homelessness.”
Nolan argues that the United States currently needs an additional five million housing units. When you have a housing shortage as bad as the one currently existing across the United States, there’s only one real solution: Build housing. Lots of housing. Homes, apartments, townhouses, starter homes and studios, and basically any other type of housing Americans might need.
Nolan explains, “There is much to be done. For those of us who consider ourselves progressives, a straightforward thing that we can do is to vocally lend our political support to policies that will increase the housing supply.” He also proposes supporting the candidates who are loudly pro-housing, and he calls on his readers to reject the trickle-down politics of leaders like Donald Trump who try to ensure that suburbs never change—”protecting our suburbs” is literally a Trump policy.
Right now, many homeowners are in a trickle-down fight that considers housing to be a non-renewable, non-sustainable resource, and they’re trying to hold on to their own housing even as they fight to ensure others don’t have access to housing in their communities. As a result, many workers can’t afford to live in the communities where they work, which creates a death spiral that reduces wealth for everyone.
“Build more houses” is the basis of a middle-out understanding of housing. We know that when more people participate in the economy, that economy grows for everyone. The same is true for housing: When more people can live affordably in a community, that community improves for everyone. More businesses open, more amenities like parks and public transportation, and good schools will open thanks to the additional property taxes, and everyone’s wealth will grow as a result. That’s the kind of community I want to live in, and I think most Americans, if offered that choice, would choose a middle-out housing plan for their communities, too.
Be kind. Be brave. Take good care of yourself and your loved ones.
Zach