The Pitch: Economic Update for June 24, 2021

It's time to deflate those inflationary fears.

Friends,

It’s simply shocking that Heather Long and Andrew Van Dam’s report in the Washington Post last week about the “post-covid luxury spending boom” hasn’t garnered wider attention in the press. Just as the coronavirus recession was K-shaped, with wealthy households making money and lower income households losing wealth, the recovery has thus far been K-shaped as well. Rich people and households in the top wealth tiers are spending money on luxury goods and experiences, to the point that some retailers are abandoning lower-cost clothing lines and switching to high-end items in the hopes of catching some of that spending. But of course, luxury spending can’t really drive a full economic recovery. Not all spending is created equal—one wealthy person buying a $2,250 pair of pants does much less in terms of job creation and the circulation of money through the economy than 50 people buying one $45 pair of pants each. 

It would be naive to observe this ostentatious spending on luxury goods and conclude that the economy is bouncing back into a Roaring ‘20s of economic excess. The only way out of the pandemic’s economic doldrums is to reverse the outsize flow of wealth to the richest 10 percent of the country, and to get that cash into the hands of the people who saw almost no gains in the years before the pandemic. The fact that the wealthiest 10 percent of Americans added nearly three times as much wealth over the past three years as the rest of the economy combined is unsustainable, and bad news for everyone. 

The Latest Economic News and Updates

• Republican governors ended federal extended unemployment benefits in 8 more states last weekend - Alabama, Idaho, Indiana, Nebraska, New Hampshire, North Dakota, West Virginia, and Wyoming - cutting $300 a week out of the benefits of more than 440,000 jobless Americans. In the coming weeks, 13 other Republican-led states and one state with a Democratic governor (Louisiana) will needlessly revoke an already-funded federal aid lifeline in a misguided bid to force workers into low-paying jobs. This, as more than 515,000 Americans filed new unemployment insurance claims last week, including both regular UI and the PUA program 26 states are ending. A total of 14.8 million Americans are currently receiving some form of unemployment aid. 

• EPI’s Heidi Shierholz tweeted a chart this morning visualizing how many Americans depend on the additional pandemic unemployment aid that’s being canceled in Republican-run states around the country. It accounts for three-quarters of all Americans currently receiving unemployment assistance:

• Ten Republican-run states have already canceled those federal extended unemployment benefits, with governors arguing that the reduced benefits will inspire unemployed Americans to get back out into the job market. The data, though, seems to be disproving that theory: Online employment search firm Indeed has crunched the numbers and found that job searches haven't increased in those states that canceled the additional $300/week federal unemployment benefits. "We aren't seeing a jump in search activity right around the time that those benefits ended," Jed Kolko, Indeed’s chief economist, told Yahoo Money. "That search activity in those states that have already opted out the enhanced federal UI benefits is a little bit below the national trend."

  Americans just aren’t in a hurry to get back to work for exploitative employers who offer low wages and impractical schedules—especially in states that are lagging behind the national average on vaccinations. It’s very likely, too, that a lack of childcare is making it impossible for women, in particular, to re-enter the workforce at anything resembling pre-pandemic rates. 

• In his Insider column, Paul Constant lambasted the New York Times for uncritically republishing Chipotle’s claims that the fast-casual restaurant chain was raising menu prices by an average of 4 percent in order to raise starting wages up to an average of $15 per hour. Chipotle’s statement placed all the blame for price increases on workers, rather than admitting that the $24 million bonus they paid their CEO last year, or the $150 million-plus stock buyback scheme currently underway, might have also had something to do with those nickels and dimes added to menu prices. Here’s why all that matters: by republishing Chipotle’s claims,  the Times unwittingly opened up the door for a flood of trickle-down nonsense. 

  Specifically building on the narrative advanced by the New York Times, the National Republican Congressional Committee released a statement warning “burrito-lovers” that the increased pay was the fault of President Biden’s “socialist stimulus bill,” and essentially arguing that workers shouldn’t get a raise if it means that the American people have to pay 27 cents more for a burrito. 

  In a great column with the amazing headline “A World of High Wages and Cheap Burrito Bowls Is Possible,” Eric Levitz at the Daily Intelligencer rejects the false premise that higher wages mean higher costs. He makes a number of great points, but this one in particular stands out:

There is an intuitive way in which high wages can lead to higher productivity: When a firm’s workers feel appreciated and economically secure, they may perform better at their jobs, and stay with their employers for longer. For this reason, a firm might find it more profitable to raise wages than to keep them low, since the former yields higher output and lower turnover. In recent years, a variety of studies have suggested that, in several U.S. sectors, wages are lower than consumers or bosses should want them to be.

• It’s remarkable that the anti-worker sentiments of trickle-down economics have so taken hold of the American psyche that a statement as non-controversial as “pay your employees more if you want them to do better work” feels revelatory.

• The past few months of economic recovery brought with them a general sense of panic about inflation. Lumber prices flew frighteningly high, and the price of copper soared. There was a used car drought. News stories about high prices and missing products always projected an air of queasy uncertainty, asking if we were about to go through a period of increased inflation unseen since the Carter Administration. And the best that progressive economists could say at the time was “we’re coming out of the pandemic and that has caused some large supply-chain issues, so let’s wait and see what happens.”

  For Paul Krugman, at least, the wait is over: In his latest New York Times column, Krugman says this week should mark the end of senseless inflation panics. “Lumber prices have plunged in recent weeks,” he writes. “Prices of industrial metals like copper are coming down. Prices of used cars are still very high, but their surge has stalled and they may have peaked.”  

  Krugman admits that inflation could potentially become an issue later on, but he personally isn’t losing any sleep over inflation fears—which means that, unless you have a Nobel Prize for economics, you probably shouldn’t either.

• “Surveys show anywhere from 25% to upwards of 40% of workers are thinking about quitting their jobs,” Axios warns in a piece about a potential "great resignation" coming for American businesses. This isn’t just a matter of someone taking the same job for a different company across town that pays a buck or two more an hour: Many of these workers want to switch careers, or even industries, altogether in the hopes of substantially raising their pay. With over nine million open jobs in the United States right now, there’s certainly not been a better time in recent memory to try to find better employment. 

• Almost 650,000 American retail workers left their jobs in April, a number that we haven’t seen in over two decades. Abha Bhattaraiat the Washington Post spoke with workers about why they left their jobs, and while the answers were not necessarily surprising, they were illuminating. Retail jobs have for too long been thankless, low-wage pursuits, with most workers feeling pinched between an uncaring or aggressive management and a downright hostile consumer public. Retailers have long slashed worker hours so they don’t have to pay benefits, instead scheduling people (often at the last minute) to come in and work shifts on nights and weekends. And when you put the pandemic on top of everything else, with a small but vocal group of people getting aggressive with workers when asked to follow mask mandates, that’s a losing formula. Or, as one former pet store clerk from Tennessee told Bhattarai,  “My life isn’t worth a dead-end job.”

• One of the most contentious pandemic stimulus programs in the last pass through Congress was the relief aid to states and cities. Republicans, on the whole, hated the idea of sending federal money to localities, while Democrats insisted that it was essential to the recovery of local economies. In my home city of Seattle, lawmakers have just approved a plan to spend  some $128 million in stimulus funds sent by Congress. The allocations look to me like wise investments in the areas of the economy that will need the most attention as we recover from the pandemic: Almost $50 million to housing and homelessness matters, $23 million for small businesses, $17 million for childcare, and $25 million for direct cash assistance to those who have been hit the hardest by the pandemic. Anyone can quibble about the actual dollar amounts, but if you asked most of our economist friends which sectors required the most investments right now to get the economy roaring back to life, those four buckets would be at the top of everyone’s list.

REAL-TIME ECONOMIC ANALYSIS 

Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have drastically 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 Skunkworks; and follow us on Twitter and Facebook.

• Join us on Facebook Live tomorrow morning at 10:30 a.m. PDT, in which we’ll be discussing inflation fears and the flood of retail worker defections, and answering viewer questions in real time.

• Because global pandemics (thankfully) don’t happen every year, it’s easy to think of our current situation as something ahistoric, standing unique and alone in time. But that’s not actually true: The historical record is full of moments like ours, when the economy is poised to recover from a non-financial disruptive crisis. On this week’s episode of Pitchfork Economics, Nick and Goldy talk with Economist reporter Callum Williams about an excellent article that he just wrote which looks at similar historical moments and uses them to predict what we can expect from our economic recovery. Callum finds three significant similarities between economic recoveries after the Spanish flu, World War II, the Black Death, and the present day: He expects that spending will increase, but in unexpected ways and not in a flood of affluence; that entire business models will be changed or rendered obsolete; and that political upheaval can be expected to continue and even worsen over the next two years.

• In his Business Insider column, Paul ripped into the media for their coverage of the Chipotle price increases: “Despite the fact that Chipotle has dedicated nearly $200 million to executive and shareholder payouts in the last few months, the New York Times credulously reprinted the company's claims that an average $15/hour wage is the reason why the company is increasing menu prices by 4%,” he writes.

Closing Thoughts

In a rare moment for these contentious times, the Supreme Court’s unanimous ruling that the NCAA violated antitrust law by limiting the benefits that college athletes can earn was met this week with near-unanimous praise. Americans of all parties have a keen nose for a rotten deal—and colleges making over a billion dollars a year on the achievements of students, while not allowing those students to benefit in any material way from their efforts, smells particularly rotten. This decision was celebrated as a success for workers, and a step toward these players finally being paid. 

But lost in the celebration was one sentence in Justice Brett Kavanaugh’s concurring opinion, which was widely hailed as pushing the argument even further toward compensation for the players: “Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate,” Kavanaugh wrote.

On the face of it, Kavanaugh’s argument seems awfully naive. Look no further than the Republican dissent against Chipotle’s higher wages that I mentioned in the beginning of this newsletter, or consider the dismissive way that people argue “burger-flippers” aren’t “worth” a $15 dollar minimum wage. In the trickle-down mindset, low wages are a feature, and not a bug. The fact that fast-food workers are paid less is considered by some to be part of the value of the food, right along with low prices—even though there are plenty of fast food restaurants, including In-N-Out Burger and Seattle’s own Dick’s Drive-In, that provide affordable, quality fast food while paying much more and providing better benefits than their rapacious competitors. Kavanaugh’s concurring opinion, with its repeated deferential nod to “fair market rate,” isn’t the defense of workers that some have interpreted it as—it’s a defense of trickle-down free markets, and I’d be inclined to bet that Kavanaugh would make basically the same argument against raising the minimum wage. 

So let’s be glad for the college students who won a huge victory against an unfair system this week. But let’s also continue to be wary of leaders who claim to channel the wisdom of the free market. Nine times out of ten, their interpretation of that wisdom represents nothing less than the best interests of the wealthy and powerful, at the expense of everyone else.

Be kind. Be brave. Get vaccinated.

Zach