Friends,
I want to call your attention to an important new piece in Democracy cowritten by Civic Ventures founder and venture capitalist Nick Hanauer and University of Oxford Professor Eric Beinhocker, whose treatise The Origin of Wealth is a cornerstone of Civic Ventures’ economic thinking. Nick and Eric applaud President Biden’s rejection of trickle-down economics and embrace of middle-out economics in this month’s State of the Union address, and they help to both deeply explain the ideas behind middle-out economics and to contextualize the long road that this new understanding of economics has taken to the mainstream. In the introduction to the piece, Eric and Nick explain that “middle-out is not just a slogan, or even a collection of policy proposals, it is a fundamentally different way of thinking about the economy that has emerged from decades of research, evidence, and theory.”
If you’re looking for a crash-course in this new way of thinking about the economy and why it matters, you need to bookmark this piece and really give it a thorough read. They explain exactly how trickle-down economics became the dominant economic theory, and why middle-out isn’t just a new flavor of trickle-down-ism, but rather a bold departure from the past and an exciting roadmap for the future.
For those who only pay attention to politics in terms of snap polling and which party “won” the day’s news cycle, Nick and Eric’s suggestion that President Biden has an opportunity to be a once-in-a-generation president along the lines of Reagan or FDR might seem odd. But this piece convincingly makes that case, and it’s a stirring call to support the middle-out agenda. As they note, “the Biden team is trying to reinvigorate the middle class, reinvest in America’s intellectual capital and infrastructure, and rebuild our torn social contract.” It’s an impressive argument that President Biden’s instincts are for the first time in decades guiding the country in the right economic direction.
The Latest Economic News and Updates
Politicians Begin the Fight Against Corporate Price-Gouging
This week, in a necessary show of support for the people of Ukraine and a powerful demonstration of international leadership at a moment of crisis, President Biden responded to the Russian invasion of Ukraine with the announcement that America would ban Russian oil. Biden acknowledged that the ban would likely add to America’s already-rising gas prices, but thankfully, Americans seem more than willing to absorb these higher prices. A Wall Street Journal poll found that an eye-popping 79 percent of all Americans support a Russian oil import ban, even if it raises gas prices. Those numbers are high among both Democrats and Republicans—and even a vast majority of hardcore Trump supporters support the ban.
And as gas prices rise, so does inflation. The New York Times’s Jeanna Smialek and Alan Rappeport interview an expert who claims “U.S. inflation could peak at 8.3 percent in March, given the jump in gas prices. Before the conflict, he had expected it to ease down to 2.7 percent by the end of the year, but now he is expecting a rate closer to 4.5 percent.” Any Democratic politicians who had hoped that inflation would be tamed in time for the November midterm elections should now wake up to the new reality: Noticeably high prices will likely continue for the rest of the year.
So let’s talk about those higher prices. As I’ve mentioned in past newsletters, a significant share of the high inflationary prices we’re seeing are the result of nothing more than corporate greed. Corporate profits are higher than they’ve ever been, and many of the price increases that added to those profits are far above consumer price index levels, indicating that it’s fair to say some price-gouging is going on.
Earlier this year and late last year, corporations publicly crowed about the fact that there seemed to be no upper limit to prices that Americans could absorb. But polling indicates that people know who’s to blame for these higher prices, and they want someone to hold these corporations accountable for their actions: “63% of U.S. voters—including 51% of Republicans, 76% of Democrats, and 62% of Independents—believe that ‘large corporations are taking advantage of the pandemic to raise prices unfairly on consumers and increase profits.’”
Thankfully, leaders are taking notice. New York state Attorney General Letitia James announced that her office is “seeking information from experts and advocates to examine this problem and explore creating new, stronger price gouging rules in New York…to crack down on corporate greed and protect hardworking New Yorkers.”
President Biden took the appeal directly to corporations in his State of the Union address, calling on them directly to “lower your costs, not your wages,” and Senators are following his charge. “We can never forget raising prices is a choice,” Senator Sherrod Brown announced in a report to Congress. “There's no law saying if the cost of an input goes up or transportation costs increase, companies have to raise prices. They have options. They could cut costs elsewhere by making executive bonuses or stock buybacks just a little bit smaller. Of course, they don't.”
Brown is joining a chorus of Democratic Senators, including Elizabeth Warren and Raphael Warnock, who are correctly identifying pandemic profiteering, including this price-gouging epidemic, as a huge problem. And they’re identifying the source of the problem as a lack of competition—corporations have gotten too big, and they’re using their monopoly-like powers to jack up prices for working Americans.
“Lowering your costs also means demanding more competition,” Biden said last week. “I’m a capitalist, but capitalism without competition isn’t capitalism. It’s exploitation—and it drives up prices.”
And Brown elaborated on that idea in his report: “There's not enough competition in the economy,” Brown said. “Corporations don't face the fair, capitalist free-market competition we need to keep prices low and wages high, and when you combine current inflation with the expenses that have been rising for decades—drug costs, childcare, housing—it's little wonder that many middle-class families in Nevada and Massachusetts and South Carolina and Alabama and Pennsylvania and Ohio don't feel stable.”
Brown again proves that he’s one of the most gifted economic communicators in the Senate by pinpointing the missing component in most of these inflationary discussions: while corporations brag that consumers will pay whatever prices they set, there’s an actual silent majority of consumers who are cutting back, stretching every resource to and beyond the limit, and simply going without. By jacking up prices in the middle of a real inflation crisis and an international oil crisis, these corporate leaders are kicking out the supports that have been holding the economy aloft throughout the pandemic: ordinary American consumers.
Repairing the Supply Chain Through Policy
Meanwhile, the supply chain issues causing inflation still persist. The Roosevelt Institute points out that the Biden Administration last week issued 1358 pages of plans for smoothing out supply chain snags, spread across seven federal agencies.
The Department of Health and Human Services, for instance, has proposed creating a sort of “control tower” to take a bird’s eye view of production and logistics information for health providers around the country, putting an end to shortages and addressing threats before they become major crises. It’s the kind of role that only government can play, providing an overview of an industry with no profit motive in mind—only the public good. And the Department of Energy has put together an ambitious plan to prioritize American clean energy and to ensure that America has its own capacity to create and distribute 11 key clean-energy technologies so that we’re not dependent on foreign supply chains in moments of crisis.
These kinds of wonky reports rarely make headlines. But thoughtful papers like this can make a tremendous impact on the future of the country, and many Americans would be relieved to learn that experts are hard at work making sure that America doesn’t get caught short in a moment of crisis again.
America Is (Mostly) Back to Work
The Biden Administration announced another stellar jobs report last Friday, with 678,000 jobs added to the economy in February. Additionally, a large number of workers reentered the workforce, and the unemployment rate ticked down to 3.8 percent. February’s jobs report made significant strides toward closing the gap between the pre-pandemic and post-pandemic workforces, with about 90 percent of the February 2020 workforce back on the job.
Now that so many Americans are back to work, it’s especially interesting to explore the categories of workers who haven’t returned to normalcy. Elise Gould points out that “leisure and hospitality remains 1.5 million below pre-pandemic levels. Public sector employment--losses in state and local government--remain 681,000 below pre-pandemic levels.” Education and health services, too, is down by hundreds of thousands of workers:
I’m especially interested to see next month’s report, as every single American state will have lifted mask mandates this month. Will workers rejoin the workforce as most leaders encourage a return to normalcy? Or will high-risk Americans and workers with young children be more skittish as they see Covid protections disappear?
Tax Cuts for the Rich and Voter Discrimination Go Hand in Hand
Whitney Tucker at the Center on Budget and Policy Priorities highlights the continuing push to cut taxes for wealthy people at the state level—and she points out that many of the states that are most egregiously handing tax cuts to the wealthy are the same states that are restricting the public’s right to vote in free and fair elections.
It’s no surprise that the people are sick of lawmakers cutting state revenue by lowering tax bills on the wealthy. In many states, including my home state of Washington, wealthy people pay a significantly smaller share of taxes than the rest of the population. Tucker points out that the people of Arizona in 2020 approved a 3.5 percent tax on the wealthiest Arizonans, only to have the state legislature essentially void the tax the next year. Now, a new measure seeks to undo the legislature’s move by reinstating the tax, but the legislature is trying to work around that measure as well, with lawmakers tirelessly and creatively shielding their wealthiest constituents from the will of the people.
These moves to cut taxes on the wealthy run against the will of the people, and are tremendously unpopular. That’s why the states that are passing the most egregious tax cuts are also leading the charge on onerous voting restrictions, making it harder for people to make their displeasure known.
The Case for a Four-Day Workweek
I enjoyed this fun Washington Post video explaining the origins of the 40-hour workweek and exploring the possibility of normalizing a four-day workweek or a five-hour workday in America. Some companies including Microsoft Japan are exploring flexible work hours and finding that productivity has increased. While it seems unlikely that a four-day workweek will become a rallying cry in the 2022 midterm elections, it’s still important to constantly reassess our economic norms—to ask why we do things the way we do, and to explore whether we could do them differently.
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.
On Civic Action Live this week, we’ll talk about Nick and Eric’s piece contextualizing Bidenomics as the potential next great economic movement in American history—and what needs to happen for middle-out economics to become the dominant economic theory in America. We’ll also discuss corporate price gouging, America’s willingness to pay more at the pump to aid Ukraine, and more. Check in with us on Facebook at 10:30 am (Pacific) on Friday.
On the Pitchfork Economics podcast this week, Nick and Goldy talk with economist Mark Paul about the Congressional Budget Office—the organization that releases cost-benefit analyses for legislation that Congress considered. As we saw when Senator Joe Manchin used CBO reports to explain his decision not to support President Biden’s Build Back Better bill, a bad CBO report can signal the death knell for potential legislation. But did you know that the assumptions the CBO uses to make its reports weigh private investments as 50 percent more productive than public investments? The podcast explores these and other biases that the CBO incorporates into its model, thereby putting its thumb on the scale against spending bills.
In his Business Insider column, Paul discusses how the wealthiest few people in the world love to talk about their role in creating solutions to enormous global problems—as long as none of those solutions involve the wealthy paying more in taxes.
Closing Thoughts
You may very well have some choice words for Trump-appointed Postmaster General Louis DeJoy—his clear conflicts of interest and his move to de-green the USPS’s new fleet of delivery vehicles are particularly shameful—but it is noteworthy that this week the Senate easily approved sweeping reforms of the United States Postal Service with bipartisan support. The bill, which President Biden is expected to sign into law, not only undoes a toxic George W. Bush-era law forcing the USPS to prepay billions in future retirement costs, but it also strengthens the USPS’s ability to offer non-mail services in rural areas.
Despite its mismanagement and years of trickle-down legislation intended to weaken the service, the USPS remains incredibly popular. The American people understand that it’s essential to have an affordable and reliable common delivery system—and they also understand that the system doesn’t have to be run like a business, with a profit motive.
The USPS were heroes of the pandemic, delivering our packages—and, in the 2020 election, our ballots—in a moment when public health demanded that most of us stay home. And while we’ve all heard horror stories of long lines in post offices and packages that were never delivered, the fact is that millions of letters and packages are delivered without incident and in a timely manner to homes in every single state in the nation every week. This is a duty that UPS, FedEx, or any other private delivery service could never fulfill. I find the easy passage of this legislation to be an optimistic moment in a hyperpartisan time—a bipartisan agreement that the government can and should work in all our interests, no matter how wealthy or poor we are. This agreement is a foundation that we can build on in the weeks, months, and years to come.
Be kind. Be brave. Get vaccinated—and don’t forget your booster.
Zach