Grounded By Corporate Greed
The Pitch: Economic Update for January 5th, 2023
Friends,
Happy New Year! I hope you had a relaxing and rewarding holiday break. Like my coworkers at Civic Ventures, I (mostly) unplugged and spent quality time with family and friends. But during the time off, one news story in particular captured my attention.
When bad weather struck most of the country in the week before Christmas, thousands of flights across the United States were canceled, ruining hundreds of thousands of holiday plans. Even as most airlines recovered from the weather delays, which were essential for keeping customers and workers safe, Southwest Airlines suffered an egregious meltdown that lasted more than a week. If you were one of the tens of thousands of Southwest passengers left scattered across the nation over the holidays, you have my sympathies.
Southwest’s failure goes beyond mere bad weather: Over the last decade, the company had allowed its own technology infrastructure to erode to the point of disaster. Southwest received billions of dollars in a bailout from the federal government during the pandemic, but it was a profitable company before and after 2020. Why didn’t the airline devote some of those profits to updating its computer systems and preparing for a crisis like the one they experienced last month?
It seems that Southwest’s corporate leadership was too busy giving away some $5.6 billion dollars to shareholders, with no strings attached. You guessed it—corporate greed strikes again. Stock buybacks are the primary mechanism through which corporate executives and CEOs turn corporate profits into handouts for the shareholder class (and remember, most CEOs take most of their salary in the form of stocks, meaning that they are among the biggest beneficiaries of the buybacks that they approve.)
A longtime Southwest pilot wrote a viral post explaining exactly what this extractive profiteering looks like for workers and customers: broken systems, frustrated people, and disillusionment. And let’s be clear that this isn’t just a problem for one airline. Many huge companies are destroying their own value—and the quality of their customer experiences—in the name of a huge payday for a handful of self-interested investors.
Corporate greed deserves to be a top story of 2023, if not the top story. If you scratch the surface of many of the biggest headlines in the business world, you’ll find it lurking just underneath. A few diverse examples from the last few weeks:
Those record electricity prices that consumers were paying last year were likely due to the deregulation of states’ energy systems. “Average retail electricity costs in the 35 states that have partly or entirely broken apart the generation, transmission and retail distribution of energy into separate businesses have risen faster than rates in the 15 states that have not deregulated,” writes Ivan Penn at the New York Times. Those rising rates aren’t providing better service—they’re padding the profit margins of private energy companies.
Wells Fargo was fined $3.6 billion at the end of last year for intentionally causing countless repossessions, bankruptcies, and outsized finance fees affecting some 16 million customers by illegally overcharging account holders. (The bank announced an $18 billion buyback plan in 2021.)
Private equity firms are driving up the costs of child care for American families by tens of thousands of dollars apiece while paying child care workers poverty wages.
It took nearly a year for experts and the media to concede that corporate greed was a major contributor to the higher prices we were all paying at grocery stores and gas stations in 2022. Now it’s time to expand that understanding to the rest of the economy. Corporations shouldn’t be locked into a mindless race in which the goal is to drive up the profit margins higher every quarter at the expense of customers, workers, and the long-term sustainability of the business. We all pay the penalties for runaway profits.
The Latest Economic News and Updates
No jolts in the latest JOLT data
The Bureau of Labor Statistics’ latest Job Opening and Labor Turnover report, which reflects the health of the job market in November of 2022, shows that the job market is relatively stable. “Job openings remained steady in November 2022 at 10.5 million,” writes Anthony DeRosa on Mastodon. “Quits rose slightly to 2.7%, and layoffs were flat, at 0.9%.”
Despite some high-profile layoffs in the tech sector at the end of last year, it looks like Americans are still enjoying a significant amount of the power that they accumulated last year: They’re quitting jobs that pay less, and they’re able to get new jobs relatively easily because there are more job openings than there are people trying to find work.
Economist Elise Gould at the Economic Policy Institute points out that while the openings and quits numbers are still significantly elevated over pre-pandemic numbers, they are slowly but steadily declining back to normal.
“Job openings and hires are down about 12% from their peaks earlier in 2022,” Gould notes. So while workers still have a lot more power than they did in 2019, that leverage may be slowly diminishing.
In 2023, will the Fed continue to play games with the economy?
In the New York Times, Paul Krugman shared some imagery that helps to explain the mainstream understanding of inflation. Think of an exciting football game or soccer match that brings the crowd to its feet: “Everyone stands up to get a better view, but this is collectively self-defeating — your view doesn’t improve because the people in front of you are also standing, and you’re less comfortable besides,” Krugman writes.
Just as fans stand up at games because fans are standing up, then, prices are rising in this scenario simply because prices are rising. With this image in mind, the Federal Reserve is trying to make the game boring in order to coax the audience into sitting down. By raising interest rates, they hope to calm the economy down and cool consumer demand through higher unemployment.
But for a number of reasons—especially the supply chain disruptions that drove prices up in the first place and the corporate greed that kept them aloft even as the supply chain disruptions were repaired—Krugman argues that this inflationary image doesn’t apply to our current situation.
Indeed, Krugman notes that inflation appears to be on the decline, even while the job market stayed relatively hot compared to historical numbers and consumer spending slid in November. These trends don’t support that image of a standing crowd at a sports stadium—wages are still up and people are still employed, but prices are coming down.
Ira Regmi of the Roosevelt Institute recently argued against the Fed’s action of rate increases, calling instead for investments in the middle class, in the form of “fiscal policy and other targeted measures that increase investment, curtail market power, and ensure the provision of essential services that will not only address inflation but also provide long-term benefits to people.” You can learn more of the specifics from Regmi’s conversation with economist Joseph Stiglitz on Roosevelt’s site.
So now, to strain the sports metaphor well past the breaking point, the ball is in the Federal Reserve’s court. Will they continue to try to cool the economy down and drive Americans out of work? Or will they instead charge our leaders to try to take steps more intelligently tailored to the realities of last year’s inflationary rise?
Wage inequality seems to have reversed in 2022—but will it last?
In the close of last year, the Economic Policy Institute published the final word on earnings inequality for 2021, and it was the same story we’ve been hearing for the last 40 years: The top one percent grew their earnings while the bottom 90 percent lost ground. This graph charting wage growth since 1979 is a real eye-opener:
There are some signs that 2022 might have marked a break in the trend, however: wage growth outpaced inflation for both the highest and lowest-paid American workers last year. In fact, we might have just lived through the first year in four decades that saw wage inequality reverse, led by rising wages in service and hospitality jobs at the bottom of the income scale.
“We don’t know if this narrowing in inequality will last,” writes Greg Ip at the Wall Street Journal. “Perhaps it is a function of labor shortages that, like semiconductor shortages, will disappear as the pandemic recedes. Maybe it is the result of a tight labor market whose days are numbered as the Federal Reserve seeks to cool the economy.”
“But there are reasons to think something more profound is at work,” Ip continues. “For decades, technological change, globalization and the rise of the information economy favored society’s top earners. Those forces may be stalling.”
Let’s hope that’s true.
Policy can save rural America
I wanted to call your attention to this excellent New York Times piece by Brookings Senior Fellow Tony Pipa about the importance of fostering smart policy to promote rural economic development.
First, Pipa debunks the myth that strong agricultural policy is all that’s needed to revitalize rural areas: “Farming now accounts for just 7 percent of rural employment. Service jobs, retailing, manufacturing and government employment all outweigh agriculture,” he writes. Next, he points out that this isn’t a problem that solely affects aging white Americans: nearly a quarter of all rural Americans are people of color, with a higher proportion of Black Americans in rural areas facing poverty than those in urban areas.
And then Pipa establishes some criteria for rural development policy that will sound familiar to anyone who understands the tenets of middle-out economics: He wants policies that “put local assets to creative use, unleash entrepreneurial activity, share the benefits widely and retain the value locally.”
With one full year until the 2024 primary season gets underway, I hope that every politician considering a run for office reads Pipa’s editorial and develops a suite of policy solutions that can help create broad prosperity in rural America. This is a national conversation that can speak to the better natures of both parties—and popular rural economic development policy might just be the key that unlocks victory in the 2024 presidential election.
Trickle-down isn’t dead yet
As I write these words, House Republicans can’t seem to reach an agreement on who their next Speaker will be. But no matter who they eventually vote into office, it’s clear that Republicans will attempt to use their razor-thin majority to attack Social Security.
Robert Kuttner warns that prominent Congressional Republicans are calling for Social Security cuts, or unreasonable demands that would require Congress to annually debate and approve spending on the retirement program. These are hugely unpopular ideas, but modern Congressional Republicans have repeatedly shown an eagerness to pass unpopular policies into law.
Kuttner suggests that Democrats need to get ahead of Republican attempts to cut Social Security by passing funding for the program, and he offers up two sources of revenue that would strengthen Social Security for generations to come. The first of his proposals, a value added tax (VAT,) would require an overhaul of the entire American tax code, which is a much broader conversation.
But the second proposal is very straightforward: “We could get rid of the cap so that all earned income is subject to Social Security taxes, as Congress did with Medicare taxes in 1993. Even better, we could subject capital income as well as wage income to Social Security taxes,” he writes.
Americans don’t have to pay into Social Security for any annual earnings over $160,200— meaning the top one percent doesn’t contribute much at all to the program. And reforming our tax laws to seriously address capital gains—the profits people take home from the sale of stocks and bonds—would finally reflect how our wealthiest citizens actually grow their wealth.
The fact that we’re even having a discussion about cuts to Social Security in the year 2023 is important. In this newsletter, we’ve talked a lot about the rise of middle-out economics and the global decline of neoliberal policies that enrich the wealthy under the false promise that their wealth will trickle down to everyone else. And while the rise of middle-out is real, the fact remains that too many politicians and super-wealthy people are unwilling to let trickle-down die without a fight.
Vox journalist Whizy Kim reports that trickle-downers in many states are changing their state tax codes to reward the super-rich. States like Delaware, South Dakota, Texas, and Florida are trying to turn themselves into tax havens for billionaires, often under the argument that their wealth will create jobs.
Kim responsibly notes “there’s little evidence that becoming a trust-friendly tax haven boosts job growth for states.” That debunking of the job-creation talking point is noteworthy, because up until recently the media always dutifully reported trickle-down scare tactics as fact. But just because the atmosphere has changed and the idea that investing broadly in workers is good for the whole economy has become hugely popular, we can’t expect trickle-down to go down easily.
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.
This week’s Pitchfork Economics podcast features a wide-ranging Ask Me Anything (AMA) session, in which Nick and Goldy address listener questions about inflation, the possibility of a recession in 2023, and how educators should responsibly teach Econ 101 students the truth behind who gets what and why.
Closing Thoughts
“With the passage of four large spending bills over his first two years — the American Rescue Plan, the Infrastructure Investment and Jobs Act, the Chips and Science Act and the Inflation Reduction Act — President Biden has inaugurated something of an economic policy revolution,” Paul Waldman wrote in the Washington Post at the end of last year. “Their near 2,000 pages of programs and initiatives contain a profound shift in how the federal government intervenes in the economy.”
For a while now, we’ve been arguing that Biden’s middle-out economic agenda is transformative. Nick Hanauer wrote that Biden is the first true post-Reagan president, refuting 40 years of trickle-down orthodoxy. And others are speaking out about this, too: Historian Allan Lichtman gave an interview to Aaron Rupar’s excellent Public Notice newsletter framing Biden as “one of the most successful under-the-radar presidents in US history.”
But Biden has just passed the first half of the term that he won in 2020. Some are worried that with Republicans in charge of the House of Representatives, his window to promote real economic change has effectively ended.
With all due respect to the doubters and cynics, I believe that the next two years will bring plenty of middle-out victories for the American people. Even if House Republicans were to spend the next two years locked in a bitter dispute to nominate a Speaker that left government entirely deadlocked, the fruits of Biden’s signature legislation would still be paying out.
This month, for instance, Americans can access billions of dollars in tax credits that will encourage them to adopt green technology like heat pumps, solar panels, and electric vehicles. Americans will save thousands of dollars on the initial investments thanks to the tax credits, they will save money on energy bills for years to come, and their initial spending will pump millions of dollars into local economies as these products are created, delivered, and installed—and along the way, they will reduce our dependence on fossil fuels and combat climate destruction.
Don Clark and Ana Swenson report for the New York Times on the American chip-making revolution:
Across the nation, more than 35 companies have pledged nearly $200 billion for manufacturing projects related to chips since the spring of 2020, according to the Semiconductor Industry Association, a trade group. The money is set to be spent in 16 states, including Texas, Arizona and New York on 23 new chip factories, the expansion of nine plants, and investments from companies supplying equipment and materials to the industry.
There’s more to be done to reestablish America’s global dominance in chip manufacturing, experts warn the Times, but they correctly hail this “tsunami” of investment as an unprecedented step toward rebuilding America’s tech manufacturing sector.
And at the end of the year, Congress funded the National Labor Relations Board, which enforces laws that help American workers unionize their workplaces and which penalizes employers that violate labor laws. Combine these three developments with the new 1% tax on stock buybacks and 15% minimum corporate tax that went into effect on January 1st, along with increased funding for the IRS to actually enforce these new tax laws and catch tax cheats, and you have an economy that has already significantly changed.
The White House can also pass regulations that don’t require approval from Congress. Just this morning, in fact, the Federal Trade Commission announced a major policy change, one which would, as Noam Schieber explains for the New York Times, “ban provisions of labor contracts known as noncompete agreements, which prevent workers from leaving for a competitor or starting a competing business for months or years after their employment, often within a certain geographic area.”
Noncompetes directly affect nearly half of all private-sector workers, and some economists estimate that they cost American workers some $300 billion annually in lost wages. This legislation as written would also protect traditionally vulnerable employees like independent contractors, volunteers, and interns from nondisclosure agreements. It directly grows wages and gives power back to workers—and the Biden Administration can pass it without getting involved in the mess currently gumming up the works in Congress.
There’s more that the Biden Administration can do on its own to invest directly in American workers. First of all, they can restore the overtime threshold to historic levels, giving the salaried workers of the American middle class more of their time back, more money for the time they work above 40 hours in a week, or a little bit of both. And then there’s a broad array of policies the Biden Administration can enact through rulemaking, including climate-friendly regulations, changes to make it harder for employers to exploit contract workers, and reducing the predatory fees and penalties that Big Banks use to exploit their customers.
Biden passed a significant amount of economic policy last year. This year, he can do even more, and he should also devote himself to economic storytelling—explaining how and why his policies will benefit everyone in the economy, from top to bottom. For elected leaders like Biden, this is the fun part: It’s time for the president to pitch middle-out economics directly to the American people.
Be kind. Be brave. Take good care of yourself and your loved ones.
Zach