“Build the economy from the bottom up and the middle out, not from the top down.”
The Pitch: Economic Update for March 3rd, 2022
Friends,
“For the past 40 years, we were told that tax breaks for those at the top would trickle down, and everyone would benefit,” President Biden said in his State of the Union speech on Tuesday, “but that trickle-down theory led to weaker economic growth, lower wages, bigger deficits and a widening gap between those at the top and everyone else in nearly a century.” Instead, Biden explained how the economy really works: “Invest in America. Educate Americans. Grow the workforce. Build the economy from the bottom up and the middle out, not from the top down. Because we know that when the middle class grows, the poor have a ladder up, and the wealthy do very well.”
It’s about time that a president made such a clear and straightforward refutation of trickle-down economics and embrace of middle-out economics in a State of the Union address. We here at Civic Ventures have been talking about this a long time.
Politics is a great big argument about who gets what and why. And for the better part of 40 years the consensus has been that the rich should get a lot because that will (through trickle-down magic) make us all better off. But that theory is both wrong and backwards. A thriving middle class is the source of prosperity in a market economy, and the more money people have the better off we all are. And we finally have a president willing to say it and pursue policies that do it.
I also appreciated that Biden took a moment to explain that the way to combat inflation is by investing in manufacturing, strengthening the supply chain, and making it easier for Americans to get to work with affordable childcare. “One way to fight inflation is to drive down wages and make Americans poorer,” Biden said. “I think I have a better idea to fight inflation. Lower your costs, not your wages.”
In the past, presidents of both parties have been too quick to give up on American workers during times of economic hardship, throwing them overboard in favor of emergency measures that benefited big corporations and the wealthiest Americans. Biden’s State of the Union address was an affirmation that he was going to double down on American workers, focusing on growing their paychecks and keeping them centered as the nation continues to recover from the pandemic. These are not easy days for the American people, and there are no simple solutions to the problems we face. But Biden used a big part of his most significant speech of the year to signal that working families will continue to be his economic north star in the days, weeks, and months ahead.
The Latest Economic News and Updates
Economic Ripples Spread Around the World as Ukraine Combats the Russian Invasion
The eyes of the world are on Ukraine, as Russia’s invasion continues. Speaking both as someone with close family ties to Ukraine and as someone who is fully committed to democracy, I’ve been heartened by the leadership and resolve we’ve seen from Ukrainians in the past week, and the incredible global outpouring of support for Ukraine has been beyond anything I could have predicted.
Patricia Cohen at the New York Times writes about how the international sanctions on Russia are affecting the global economy: “The price of oil, natural gas and other staples spiked on Monday. At the same time, the groaning weight on supply chains, still laboring from the pandemic, rose as the United States, Europe and their allies tightened the screws on Russia’s financial transactions and froze hundreds of billions of dollars of the central bank’s assets that are held abroad.”
We will undoubtedly see prices increase—particularly on already-spiking energy costs—due to these sanctions in the days and weeks to come. President Biden alluded to these inevitable price hikes in his State of the Union address, and signaled that his administration would do what it could to soften the impact.
But as hard as those sanctions are on the global community, Derek Thompson explains in The Atlantic that the impact on Russia will be much worse. But when—not if, Thompson argues—Russia’s economy collapses, that will in turn have a greater effect on the global economy. Russia represents a tiny share of the world’s economy, but economies are delicate ecosystems and any change like sanctions—no matter how righteous that change may be—is going to create ripple effects around the world and for a long time to come.
Americans Are Getting Sick of Corporate Price-Gouging
David Dayen’s editorial for the New York Times, “Larry Summers Shares the Blame for Inflation,” is a must-read. In it, Dayen explains that the skyrocketing price increases we’re seeing aren’t due to the “overheating” economy that we’ve seen in past inflation hikes. Instead, he argues that pandemic-era inflation is the result of four decades of economic policy that prioritized exorbitant corporate profits above all else, weakening the supply chain with globalization-minded efficiencies that eventually resulted in a total collapse of the system.
Combine that weakened supply chain with corporate greed, and you’ve got an inflationary crisis. “Companies are taking advantage of a moment of hot and seemingly unshakable demand,” Jeanna Smialek writes in the New York Times, “to cover rising costs and to expand their profit margins to prepandemic or even record levels. Corporate executives have spent recent earnings calls bragging about their newfound power to raise prices, often predicting that it will last.”
Conventional economic wisdom has it that inflation is too complicated for the American people to understand, but recent polling from Data for Progress indicates that a majority of the American people (including 51 percent of Republicans) know that corporate greed is playing an outsized role in the higher prices that they’re paying. Price gouging doesn’t account for all the extra money we’re spending in grocery stores, but it does represent a significant portion of our bills—and people are taking notice:
Along those lines, the Federal Deposit Insurance Commission (FDIC) pointed out that bank profits rose nearly 90 percent last year, indicating that American banks are following corporate America’s lead by turning the pandemic’s crisis into an opportunity to make some extra cash. It seems obvious to me that political candidates who speak out about these outrageous price-gouging and profiteering maneuvers from America’s biggest companies will likely find an approving (and bipartisan) audience of potential voters in the midterm elections.
New Report Flips the Script on Government Support Spending
The Center on Budget and Policy Priorities has crunched the numbers and released a report proving that America’s robust pandemic support programs helped save the economy and spur America’s best-in-the-world economic recovery. Thanks to government investment in communities during the pandemic, child poverty decreased by almost a third, an additional 12 million uninsured Americans received medical coverage, millions of Americans were able to stay housed, and hunger in poor households decreased by almost a third.
This report proves two important middle-out economic theories that have been circulating for a half-century. First: Investment in ordinary Americans—not big banks and corporations—is the best way to recover from economic downturns. And second: The idea that robust government support somehow makes people lazy or puts a damper on the economy is flat-out wrong. When we invested in Americans, they spent that money and supported their local communities, and they went back to work as soon as they were able.
Look at this stunning chart, which shows exactly how those huge investments in the American people held our economy aloft and primed us for a strong economic recovery:
Poverty Is Not Destiny—It’s Policy
The Rev. Dr. Liz Theoharis writes in The Nation about the unwelcome return to the “Culture of Poverty” concept—the wrong-headed idea that poverty is not “a problem of society at large, but of the poor themselves.” This was the reigning theory during the Reagan ‘80s and Clinton ‘90s—the concept that poor people are predestined to be poor and would squander whatever benefits the government sent their way. It’s a frightening callback to long-since-discredited racist theories claiming that biology is destiny and that some people are just predetermined to live in poverty.
Instead, we should be looking at policies which address systemic biases and improve outcomes for people who have traditionally been left behind. This NELP report which explores the idea of repairing our broken unemployment system as a racial justice imperative gives a clear idea of what our policies should be doing. Increased unemployment rates for Black and Latino workers are not a new development—they’re the direct result of racist policies that were established even before America’s founding, and thoughtful policy action is required to undo those generations of damage.
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 the Pitchfork Economics podcast last week, Caitlin Myers talked about the economics of abortion. As Paul explained in Business Insider, “Abortion bans remove autonomy and options from women, rolling back hard-fought freedoms and reestablishing a controlling power structure that conservatives have longed to restore since the gender equality movement of the 1960s and '70s.”
And this week’s Pitchfork Economics podcast is all about Davos Man. Peter Goodman joins the show to talk about his new book explaining the annual get-together in which wealthy people talk about the world’s problems, explain how they can solve them with their philanthropic giving, and completely ignore the idea of paying more taxes.
Closing Thoughts
Though it’s rarely mentioned in the news lately, we should take a moment to note that the job market is still growing—and it’s still paying out in favor of workers. The ADP National Employment Report for February found that employers added nearly 500,000 jobs last month, and ADP revised their January jobs numbers from a loss of 300,000 jobs to an addition of 509,000 jobs. Employers just can’t hire quickly enough to meet their demand, which means workers have more wiggle room to demand higher wages.
Case in point: Much has been made of Target’s announcement that the retailer is raising its minimum wage to “as much as” $24 per hour—a figure that would have looked like a typo to the average American just over a decade ago. But because we live in infinitely complicated times, I can’t discuss higher wages without noting that wages still aren’t rising higher than inflation, so workers are still falling behind. And Molly Kinder wrote a fantastic thread digging into Target’s announcement and proving how much money the company isn’t devoting to wages. “Target plans to spend $300 million on 2022 pay raises,” Kinder notes, but the company also “spent $7.4 billion on stock buybacks” last year—more than 25 times what the company is planning to spend on its higher wages.
The priority is still to hand the real money off to a small group of shareholders and executives, with workers getting the crumbs. There’s still a lot of room for those paychecks to grow—and as long as hiring stays high and unemployment stays low, workers should continue to push for higher wages.
Be kind. Be brave. Get vaccinated—and don’t forget your booster.
Zach