A Matter of Interest

The Pitch: Economic Update for January 27th, 2022

Friends,

Yesterday, the Federal Reserve indicated that they would begin raising interest rates in an attempt to cool the economy and curb rising inflation. This would be the first interest-rate increase since 2018, which feels like a lifetime ago. This decision doesn’t come without some amount of danger: Raising interest rates also increases the risk that companies will lay off workers and cool down hiring. If rates go up too high too quickly, they could even trigger a recession.

In advance of the Fed’s announcement, our friends at the Economic Policy Institute issued a full-throated warning against raising rates too aggressively. EPI disproves the common talking point that rising worker pay is dragging inflation up along with it. The American economy has bounced back so strongly from the pandemic—in 2021 it grew faster than any year since 1984, in fact—because people had money to spend, first through stimulus checks and the Child Tax Credit, and then through rising wages. The recovery was powered from the middle out, not the top down. 

If the Fed’s actions accidentally disrupt the ongoing upswing in wages by weakening the labor market, they put the entire economy in peril. The metric we should all be watching intently over the next few months as the Fed twists the dials isn’t the Dow Jones average or any other Wall Street benchmark—it’s the economic health of the average American worker. If paychecks start to shrink and unemployment begins to climb, all the forward momentum we built over the past year could fade away and the economy could stumble.

The Latest Economic News and Updates

The pandemic isn’t done with the economy just yet

For the New York Times, Ben Casselman and Sydney Ember explain how the Omicron wave of Covid has shaped economic expectations for the beginning of 2022: “Forecasters have slashed their estimates for economic growth in the first three months of 2022. Some expect January to show the first monthly decline in employment in more than a year. And retail sales and manufacturing production fell in December, suggesting that the impact began well before cases hit their peak.”

Economic predictions are often worth less than the paper they’re printed on, but it stands to reason that the economy would reflect Omicron’s impact of more hospitalizations, more deaths, and more people wary of going in public and engaging in pre-pandemic behavior. The numbers seem to reflect that most states are at or near a peak in this wave of hospitalizations and deaths, but economic indicators necessarily lag behind current conditions. 

You can expect some choppy numbers ahead, and for that reason we shouldn’t take any economic response—yes, including more direct payments to American families—off the table just yet. For that reason, I’d like to direct you to this Washington Post article from Tony Romm which documents the varied ways in which states spent their federal stimulus response funds. Some states invested directly in the people who needed aid the most. Other states did not. Florida built a golf course. Alabama rebuilt a state prison. Hopefully researchers are paying close attention to the economies of states and how they spent their stimulus funds—the results of such a study could forever change the way we deliver economic aid in the future.

Big investments in low-income Americans will pay off for decades to come

With no renewal of the Child Tax Credit and little hope of stimulus payments to ordinary Americans in the near future, we could see a big decrease in the spending power of the lowest third of all Americans—and an attendant increase in housing and hunger crises. Fortunately, the 2022 budget from the House Appropriations Committee has significantly increased investments in low- and moderate-income families, which will hopefully help make up for some of the lack of pandemic stimulus. The Center on Budget and Policy Priorities has put together a chart showing how dramatically support payments will rise year-over-year:

As we already know, investments in families don’t just put an end to immediate economic misery—they also pay out for decades in terms of increased child development, with better educational outcomes and more earning power in their adult years. Jason DeParle at the New York Times writes up another new data point proving that economics have a very real effect on child development: “A study that provided poor mothers with cash stipends for the first year of their children’s lives appears to have changed the babies’ brain activity in ways associated with stronger cognitive development.” 

Just to connect the dots, here: Parents who don’t have to panic about making rent and getting food on the table every month are able to spend more quality time with their children, and children who spend more time with their parents tend to learn more and learn faster than children who don’t. 

Inflation is deflating your paycheck

Even though workers saw their biggest raise in decades last year, Abha Bhattarai reports in the Washington Post that inflation has wiped out those gains. Commendably, Bhattarai talks to workers for her story—not always a given in the economics media world—and a hotel worker in Milwaukee tells her that last year’s “raise meant nothing…I’ve got student loans. My roommate’s got medical debt. Most of my co-workers work two or three jobs, and they’re still having difficulty making ends meet.” 

The data back up the hotel worker’s claims:

Perhaps worst of all, a new Gallup poll shows that nearly four out of five Americans expect inflation and interest rates to increase for at least the next six months. They also expect the stock market to rise and unemployment to go up in that same period—a troubling expectation that will likely bleed into consumer confidence surveys in the months to come. In short, the American people are feeling bad about their economic prospects, and those feelings can often turn into a self-fulfilling prophecy if leaders don’t intervene with good economic policy.

Unionization is very popular. Let’s make it easier to unionize.

Just because workers are feeling down on their economic prospects doesn’t mean they’ve lost all hope in better outcomes. The Economic Policy Institute says that the American people feel more positively about unionization than at any recent moment in history: “almost half of nonunion workers polled (48%) said they would vote to create a union in their workplace tomorrow if they could.” 

At the same time that high-profile strikes captured the attention of the nation, the rate of unionization in American workplaces actually fell in 2021. EPI characterizes this as “a wake-up call to lawmakers.” Unionization is increasingly popular, but the last 40 years have seen a concerted effort by trickle-down lawmakers to make it legally impossible for workers to unionize. By reversing this anti-union push and making it easier for workers to collectively bargain, our leaders would be fulfilling the wishes of the American people—and as a reminder, leaders who enact popular policies tend to win elections. 

In the meantime, the drumbeat of labor stories continues on from last year’s boom: Workers at a Manhattan REI Store received national attention this week by moving to form what would be the outdoor retailer’s first-ever union. 

America’s healthcare inadequacies have been exposed by the pandemic 

Like many people, I was thrilled to receive my free Covid-19 tests in the mail from Washington state last weekend—and coworkers report receiving the free tests from the federal government this week, too. Vox’s Dara Lind says these free test rollouts offer a hidden lesson for policy experts: It’s possible to create programs that don’t burden the people who need them most, Lind notes—and when they work, those programs are actually incredibly popular.

The pandemic has permanently changed the way we will think about policies in the future—especially as they relate to health care. The Washington Center for Equitable Growth has made an excellent case for paid sick leave and paid family and medical leave, both as an economic policy and as a public health policy. Just look at the striking table below, showing the difference in Covid infections among workers in states offering paid sick leave versus states with no paid sick leave. It’s very clear that paying workers to stay home and get better is the best way to stop the spread of Covid in the workplace:

Once our health care providers manage to catch a breath and the pandemic finally dissolves into the background, it’s hard to believe that Americans will be willing to go back to the status quo as far as health care is concerned. That’s why I’m watching the strong push toward adopting single-payer health care in California with such interest right now—it’s clear that the current link between employment and health insurance in America hasn’t withstood the test of a global pandemic, and it’s time to assess other options.

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 discuss the uncertainty the Omicron wave has injected into the economy, why the Fed should think twice before raising interest rates too high, and how the pandemic has proven that paid sick leave and paid family medical leave are essential economic policies. Join us at 10:30 am on Friday.

• On the Pitchfork Economics podcast, Nick and Goldy talk with Donald Cohen about his new book, The Privatization of Everything. Cohen is an expert who has tracked the wholesale exploitation and auctioning off of public goods over the last four decades, and he has a lot of smart theories about how to take public goods like clean air and water away from shareholder-driven corporations and back into the hands of, well, the public.

• In his Insider column, Paul explains how the real federal minimum wage in the United States isn’t $7.25 per hour—it’s actually $2.13, which is the federal tipped minimum wage. He digs deep into the racist roots of tipped wages and explains why it’s time to do away with the tipped minimum wage once and for all.

Closing Thoughts

Many progressives were disheartened by the Senate’s failure to address voting rights and the Build Back Better legislation, but there are still plenty of opportunities for the Biden Administration to make a huge difference in the lives of everyday Americans. Capital and Main just highlighted one of the biggest economic impacts President Biden could make in the lives of everyday Americans—he could direct his Department of Labor to substantially raise the overtime threshold.

“Many young workers can be forgiven for not knowing, but a workload of more than 40 hours in a week has long been considered ‘overtime,’ worth 150% of the normal wage starting at hour 41,” writes Marcus Baram. The Trump Administration set the current overtime threshold at $35,568, meaning anyone who earns below that yearly salary earns time-and-a-half for every hour worked over 40 hours per week. Baram notes that this threshold is so low that “just 15% — or three out of every 20 workers — qualify for overtime pay.”

Civic Ventures founder Nick Hanauer once famously referred to strong overtime protections as the minimum wage for the middle class, meaning it’s the standard that would elevate both paychecks and working conditions for office-workers and salaried employees everywhere. When strong overtime protections are in place, employers have three choices: Either they could raise your pay above the threshold and work you as long as they like, or they could pay you time and a half for every hour worked over 40 hours per week, or they could hire more workers to reduce the workload and keep everyone at the 40-hour mark. 

Under a strong threshold, you would either make more money or you would have more time to spend with your family. It’s a win-win for the American worker, and the best part is that President Biden doesn’t need the Senate to do it. He could achieve real results for the vast majority of the American workforce with the stroke of a pen. Raising the overtime threshold is a no-brainer for anyone who believes the American middle class is the true heart of the economy.

Be kind. Be brave. Mask up. Get vaccinated—and don’t forget your booster.

Zach