Friends,
For years, we at Civic Ventures have read about and discussed the pros and cons of Guaranteed Basic Income—a policy in which people receive regular fixed checks to supplement their income. (Its sister policy, Universal Basic Income, would ensure that every citizen receives checks of equal amounts.) I love policy innovation so I have always been basic-income-curious, but I also love impact so I have been a bit skeptical. My honest worry was that you could accidentally end up subsidizing rapacious employers who would rather pay their employees poverty wages while taxpayers make up the difference.
The best thing you could do is run some real-world tests and see what happens. And finally we are starting to see results of test cases in Rochester, Stockton, Denver, and around the world. And I have to say I am impressed.
While the results of those studies vary, all of them show that giving people money to spend in their communities is a net positive. And now we have another study, in Austin, showing similarly positive results. Maxwell Strachan writes for Vice: “Austin gave 135 low-income households $1,000 each month for a year, and tracked how they used the money and affected their lives. The result, one year later, was that they mostly used the money to pay their rent and other housing costs, according to a new report.”
One of the most common trickle-down complaints against UBI and GBI programs is that if you give people money, they’ll stop working. The reality doesn’t reflect that claim. “Most people’s employment remained stable, and the 9 percent who did work less used the extra time to learn new skills to get better jobs in the future or take on more caretaking duties at home,” Strachan writes. “Another 7 percent said they worked more as a result of the extra money, using the cash to ‘break down barriers to better jobs,’ including by covering commuting costs.”
The report didn’t examine the impact of the recipients’ consumer spending, but that additional spending on groceries, food, and transportation also likely inspired an economic bump in their local communities. In other words, that money didn’t just stay in recipients’ pockets—it cascaded down through the community.
Strachan reports that one of the biggest negative effects of the program is that recipients of the GBI checks experienced a great deal of “uncertainty surrounding what will happen when the experiment ends.”
At this point, these results shouldn’t be too surprising. After all, the United States recently ran a much larger and even more meaningful GBI experiment of its own when the Biden Administration expanded the Child Tax Credit, ensuring that American families with children received extra checks to help them through the worst of the pandemic. Doing so led to the greatest poverty reduction in the history of America—especially among children. And it also coincided with the strongest job market in living memory, with wages rising at near-unprecedented rates. (And based on the results of this survey, it’s quite probable that taking away the CTC caused a great deal of uncertainty in Americans, too.)
Given this growing body of evidence, it seems clear that rather than forcing the working poor to leap through flaming hoops in order to meet invasive means-testing guidelines—not to mention the outsized administrative costs of reinforcing those guidelines—the best way to combat poverty and grow the economy for everyone is to just issue benefits in the form of cash. People know what they need and can use the cash more effectively than any trickle-down bureaucracy ever could.
The Latest Economic News and Updates
Worker Gains Still Far Above the Pre-Pandemic Norm
“Employers were still looking to hire as 2023 came to a close,” writes Neil Irwin at Axios. “The number of job openings rose to 9.03 million in December, the Labor Department said, up from 8.93 million in November. That's a small move, but it contrasts with a decline that forecasters had expected,” he concludes. When you look at the last decade you’ll see that job openings aren’t anywhere near as high as they were during the post-pandemic heights, but they’re soaring above pre-pandemic openings, and they also seem to be staying aloft:
This is great news. As we saw when wages skyrocketed during the pandemic, those job openings serve as insurance for the American workforce. If workers don’t like their jobs, they know they can find employment elsewhere.
Perhaps unsurprisingly, the paychecks of American workers seem to be following roughly the same trajectory as job openings: They’re not growing as high as they were during the so-called Great Resignation of 2021, but they’re still well above pre-pandemic levels.
“Wages and salaries grew 0.9% in the three months ending in December for all workers, compared to 1.2% in the previous three months,” Courtenay Brown writes at Axios. But because inflation has dipped over the last few months, workers might actually be feeling their paychecks grow a little more than they were over the last six months. Brown explains, “inflation-adjusted wages and salaries among private sector workers rose 0.9% in the 12 months ending in December, up from 0.8% through September.”
Workers are spending those paychecks in their local economies, which is creating job growth. And one of the warning signs that started blinking when inflation started climbing back in 2021 seems to have stopped blaring: Chase reports that the bank accounts of Americans, which swelled during the early months of the pandemic and which started draining when pandemic relief programs expired just as prices started increasing, have finally stabilized. “On the whole, U.S. bank accounts had between 5 and 15 percent more cash in the bank than they did in 2019, after accounting for inflation,” writes Abha Bhattarai at the Washington Post.
But when we talk about jobs, you might be wondering about some headlines that have overtaken the news of late. Haven’t tech companies been laying off workers by the tens of thousands this month? It’s true, reports Bobby Allyn at NPR: “in the first four weeks of this year, nearly 100 tech companies, including Meta, Amazon, Microsoft, Google, TikTok and Salesforce have collectively let go of about 25,000 employees,” he writes.
It’s important to look at the profits of the companies that have laid workers off: Ebay, for instance, recently laid off a thousand workers at nearly the exact same time that executives announced the company’s profit margin hit $1.3 billion in the last quarter of 2023. Just yesterday, Microsoft announced a 33% increase in quarterly profits and a 16% jump in revenue, while just two days ago the company laid off 1900 workers. These layoffs aren’t a sign of financial weakness, or a response to a weak economy.
So what’s happening? Allyn writes that many of these companies had swollen their ranks during the time that the Fed kept interest rates hovering near zero percent, making money ridiculously cheap for companies to borrow. “Interest rates, sitting around 5.5%, have risen substantially from the near-zero rates of the pandemic,” Allyn writes, and so companies are cutting costs to reflect the fact that they can’t borrow for free anymore. Additionally, he writes, “some tech companies are reshuffling staff to prioritize new investments in generative AI.”
But we also need to remember that economics isn’t powered by some rational invisible hand that always ensures the exact perfect number of people are working for the company at all times. In fact, many of these layoffs aren’t driven by rational thought at all: “Stanford business professor Jeffrey Pfeffer has called the phenomenon of companies in one industry mimicking each others' employee terminations ‘copycat layoffs,’” Allyn writes. “As he explained it: ‘Tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing.’ Layoffs, in other words, are contagious.”
That explanation makes sense, but it offers no consolation to the tens of thousands of workers who have lost their jobs due to “contagion.” And this irrational trend-following can have detrimental effects for everyone if it spreads too far. If the atmosphere of impending layoffs begins to dig into consumer confidence, the whole economy could suffer. We can’t talk about these business decisions like they’re totally rational, as Econ 101 has always claimed, but we also can’t talk about them like they don’t matter.
The Changing Face of Worker Protections
I wrote above about the gains that workers have made during the pandemic. But workers aren’t passively waiting for wage gains to flow into their bank accounts. Luis Feliz Leon writes at the American Prospect that workers at a Virginia Costco—a company widely known for its strong wages and benefit packages—voted to join the Teamsters late last year.
Part of this is because the corporate culture seems to be changing: “Workers at the Norfolk store and elsewhere told me that since the pandemic, Costco had become less of a symbol of a good-paying retail job with benefits, and more an emblem of punishing corporate metrics and indifference to workers,” Leon writes. And part of it is because workers were happy with the agreement they’d reached with Costco—good pay for hard work—and want to ensure that they are empowered to protect that agreement with the help of a union.
What do union protections look like? As a response to a lackluster year, UPS executives recently announced that they would lay off some 12,000 of their 500,000-person workforce this year. But as J. Edward Moreno writes at the New York Times, “The positions that would be eliminated this year are not union jobs, according to the Teamsters. The layoffs will instead affect managerial staff, ‘throughout the world and in all functions,’ a statement by UPS said.”
For decades, layoffs have traditionally always affected the frontline workers, and management would follow up by demanding that remaining staff work twice as hard to make up the slack. But in this case, union workers fought and won a 12% raise, while non-union management are hit with layoffs. It’s a pretty stark contrast. You have to credit the Teamsters for building on their big wins at UPS last year by influencing this new kind of layoff decision.
Meanwhile, other traditionally low-wage employers are trying to find new ways to pay employees. “Walmart said on Monday that managers of its U.S. stores would be eligible for grants of up to $20,000 in company stock every year,” Jordyn Holman writes at the New York Times. “The stock will vest over a three-year period, with a percentage vested each quarter.”
And Lydia DiPillis writes that private equity firms, which are infamous for buying, looting, and scrapping companies and leaving workers on the unemployment line, are considering a similar method. The plan, pioneered by industry giant KKR, is for private equity firms “to provide employees with an equity stake in companies it purchased, so the workers would reap some benefits if it was flipped for a profit,” she writes. “When all goes according to plan, KKR doesn’t give up a penny of profit, since newly motivated workers benefit the company’s bottom line, elevating the eventual sale price by more than what KKR gives up.”
How has the plan worked so far? DiPillis writes, “In one particularly successful and well-publicized example, the Illinois-based manufacturer CHI Overhead Doors delivered an average payout of $175,000 to 800 employees when KKR sold it for $3 billion in 2022. KKR and its investors made 10 times their initial investment on the deal, which was its best return since the 1980s.”
I have to say here that stocks are no replacement for good old higher wages. If workers are largely compensated in stocks, they could lose everything in a market crash—and even if the stocks do go up, workers only have access to them on their employers’ terms. But it’s still interesting to see how some traditionally pernicious employers are responding to the increase in worker power that we’ve seen over the last four years.
The High(er) Cost of Housing
Despite the increases in wages and the leveling out of price increases, ordinary Americans are still hurting from high housing prices. “Rent has never been less affordable — for tenants with high and low incomes alike — even while costs for new leases are finally cooling off,” writes Rachel Siegel at the Washington Post. “Half of American renters spend more than 30 percent of their income on housing costs — a key benchmark for affordability — with the financial strain rising the fastest for middle-class tenants.”
And this is an economic pressure that lands squarely on the poorest Americans. The less you make, the more likely you are to spend more than half of your income on rent, with every quartile of income distribution spending more since the start of the pandemic:
Because the Fed is keeping interest rates high, which means mortgage rates are much higher now than they were in 2019, Americans aren’t leaving their homes. “Existing homes typically account for about 90 percent of sales, but homeowners who have locked in low-rate mortgages have been reluctant to sell, resulting in limited choices and sky-high prices for prospective buyers,” writes Gregory Schmidt at the New York Times. As a result, last year “existing-home sales fell to the lowest level in nearly 30 years, while the median price hit a record high.”
The one glimmer of hope in the housing market is that we’re building more homes: “residential investment, which includes the construction and purchase of new homes, jumped in the second half of last year, rising at a 6.7 percent annual pace in the third quarter and 1.1 percent in the fourth,” Schmidt writes. As a result, “Sales of new homes jumped 4.2 percent last year from 2022, the Census Bureau reported on Thursday.”
Meanwhile, Americans looking forward to lower mortgage rates will have to wait at least a little bit longer: In their meeting this week, the Federal Reserve announced that they were leaving interest rates unchanged for now. Fed Chair Jerome Powell talked at length about the strength of the American economy but ultimately he “said that he did not think March was a likely candidate for a rate decline,” either, meaning those looking for relief from high interest rates will be waiting until spring or summer at the earliest.
Middle Out at Work
“The Biden administration just announced that 21 million people have enrolled for coverage through the A.C.A.’s health insurance marketplaces, up from around 12 million on the eve of the pandemic. America still doesn’t have the universal coverage that is standard in other wealthy nations, but some states, including Massachusetts and New York, have gotten close,” writes Paul Krugman at the New York Times. “And this gain, unlike some of the other good things happening, is all on Biden, who both restored aid to people seeking health coverage and enhanced a key aspect of the system,” he continues. The Biden Administration made two major changes to Obamacare that made all the difference: They raised the subsidies that kept people at the very bottom of the income scale from buying health insurance, and they raised the caps that held out middle-class people who were doing just well enough to not qualify for health insurance on the marketplaces.
President Biden’s Trade Representative Katherine Tai has been under attack recently, most notably as the subject of a hit piece from Politico that Mike Lux explains “shows just how much corporate hacks dislike [Tai] because of her effective advocacy for American workers, consumers, and small businesses trying to compete with global corporate behemoths.”
Robert Kuttner explains at the Prospect why so many corporations and trickle-downers are so desperate to undo President Biden’s trade policy: “President Biden has broken with several decades of orthodox trade policy. He has been willing to subordinate the traditional corporate brand of trade deals to a ‘worker-centered’ industrial and trade policy. He has partly sacrificed the sacred cow of past trade deals, the World Trade Organization, in favor of the national economic interest. And as bargaining levers against China, he has retained some of the tariffs imposed by President Trump.”
American and European regulators successfully fought off Amazon’s acquisition of iRobot, the makers of Roomba robot vacuum cleaner devices, largely out of fears that Amazon would use its own algorithms to promote Roomba devices at the expense of the rest of the market.
Speaking of market concentration and mergers, you should read this Washington Center on Equitable Growth report showing that increasing hospital concentration and reducing competition among local hospitals drives rates up and drives quality down. For further proof, Maureen Tkacik writes about how one huge Massachusetts firm has been “strip-mining” hospitals in the state for years.
After Tesla shareholders sued, a Delaware judge has ruled that Elon Musk’s $56 billion pay package from Tesla was too high and canceled the payout. This is one huge pay cut I’m happy to celebrate.
This Week on the Pitchfork Economics Podcast
Suzanne Kahn, the Vice President of the Think Tank at the Roosevelt Institute, joins Goldy and Nick to discuss a recent report from Roosevelt. Titled “Sea Change: How a New Economics Went Mainstream,” the report charts the growing body of evidence that proves the economy doesn’t trickle down from the top but rather grows from the middle out and the bottom up. Their conversation turns to the Biden Administration’s policies and how middle-out economics has gone mainstream faster than just about anyone could have imagined.
Closing Thoughts
For the Washington Post, David J. Lynch writes about how the American economy is outpacing the rest of the world in the economic recovery from the pandemic. “The $28 trillion U.S. economy weathered multiple shocks over the past year and returned to the growth path it was on before the pandemic. The size of the economy, adjusted for inflation, regained its pre-pandemic peak in early 2021,” Lynch writes. “Through the end of September, it was more than 7 percent larger than before the pandemic. That was more than twice Japan’s gain and far better than Germany’s anemic 0.3 percent increase, according to British Parliament data.”
The wages of American workers are outpacing the paychecks of their peers around the world. While over the last four years, “U.S. wages — after inflation — grew 2.8 percent,” Lynch writes, “other countries in the Group of Seven industrial democracies saw a decline, according to Treasury Department data. Italian wages sank by more than 9 percent over that period, while German workers earned 7.2 percent less than they had before the pandemic.”
Before the pandemic, remember, Germany was the economic powerhouse of Europe. How can this difference be so dramatic? Lynch explains that President Biden (and before him, to a lesser extent, President Trump) invested hundreds of billions of dollars in the American people to ensure that they could make it through the pandemic with remarkably little financial disruption. When the economy reopened, they roared back to work and jump-started the economy.
That was part one of the story of America’s astonishing economic recovery. In part two, Americans rebuilt the economy at a speed that we’ve never seen before. “Consumer spending is driving the economy: Real consumption rose by 0.5 percent in December, its fastest pace since last January. Pending home sales jumped, too. Following the flurry of good news, JPMorgan Chase economists said they raised their first-quarter growth forecast,” Lynch writes.
Let’s be clear that this is the exact opposite of the government response that we saw from the Great Recession, when big banks failed and all of America’s major financial institutions trembled. Federal and state governments responded to the economic collapse of 2009 with huge budget cuts and chilled their support programs, instead choosing the austerity path. And as a result, we saw the slowest economic recovery on record, with many Americans failing to make up their lost wages from the Great Recession by the time the pandemic began. In fact, this economic recovery looks especially astonishing when it’s compared against the last two economic recoveries:
Because this economic recovery has completely upturned the conventional wisdom, Lynch feels free to investigate several other mainstream economic assumptions that pundits and economists take for granted. Specifically, he attacks the commonly held understanding that the Federal Reserve fought off increases in inflation by raising interest rates: “The recovery from the pandemic challenged long-standing economic beliefs, such as the idea of an inverse relationship between unemployment and inflation. (As one rose, the other was expected to fall.) Expressed in what economists call the Phillips curve, this nostrum proved nearly useless in explaining the economy’s recent behavior,” Lynch writes. Workers stayed employed thanks to unflagging consumer demand, and inflationary price increases have started to dissipate.
None of this will come as a surprise to regular readers of the Pitch, but it’s still a huge deal that the Washington Post’s financial writer has acknowledged this in one of the biggest newspapers in the nation. Financial and economic commentators are reaching the point where they cannot ignore the evidence anymore: America is outpacing other nations in its recovery from the pandemic because it embraced middle-out economics, and middle-class Americans powered that recovery with their mighty consumer demand.
Anyone who has worked on a come-from-behind political campaign can tell you that this is how widespread assumptions are changed: One person at a time. Our conventional wisdom feels as unchangeable as stone, but then, one person at a time, a new understanding takes hold. You can’t beg, bully, or buy others into changing their perspective. You just have to share your experience, and then graciously welcome others when they come around to your way of thinking.
Be kind. Be brave. Take good care of yourself and your loved ones.
Zach