Friends,
Three years after pandemic-era supply chain disruptions raised prices for American consumers, the high price of food is still polling as a top issue for American consumers. This chart from a news report by Emily Peck at Axios helps demonstrate why prices are still at the top of mind:
“The inflation rate for ‘food at home,’ basically the stuff you buy at the supermarket, is really low these days, with prices rising just 1.1% over the last year,” Peck writes. But the problem is that while price increases are leveling out to almost nothing, all the past price increases are cumulative, which means that for American consumers, prices are now up by 20.8% over their grocery trips in the first few months of 2021. Cumulative restaurant prices are even higher, just shy of 22% in the same time frame.
If you’re looking for good news in the above chart, it’s that the cumulative number hasn’t changed much at all since the beginning of 2023, which indicates that the price increases are largely under control. But the hard reality is that grocery bills climbing by more than 1/5th in the span of three years has created sticker shock for American consumers.
Any economist will tell you that inflation doesn’t ordinarily recede—meaning that once prices climb, consumers are stuck with them. But (as Pitch reader Kurt wrote in as a response to last week’s issue) most of the price increases we’ve paid since the early days of 2021 and 2022 are actually a result of greedflation, in which food manufacturers took advantage of inflationary price increases by jacking up prices in order to pad their profits. And now that Americans are spending less in response to this wave of price-gouging, some retailers are starting to lower their prices.
“Grocery retailers would like to make an announcement: They’re listening to customers and lowering their prices. The news that Target plans to cut prices on about 5,000 everyday items — things like bread, milk, and diapers — made an especially big splash last week,” Vox’s Whizy Kim writes. “But the big-box retailer wasn’t alone. In early May, grocery chain Aldi said it would cut prices on over 250 items. Walmart has noted in recent earnings calls that it’s offering more discounts as well as lower prices in general on certain grocery items.”
Rather than maximizing profits by gouging a diminishing pool of wealthy customers, it seems that some of the biggest corporations have realized that it’s far more sustainable in the long term to sell a higher volume of products to a wider pool of customers. And it’s not just groceries: In the restaurant space, McDonald’s and Burger King are creating new value menus offering a burger, fries, chicken nuggets, and drink for $5, and other restaurants like Wendy’s and Chilis are promoting their own special bargain offerings.
While a few of the largest competitors in groceries and restaurants are voluntarily bringing down prices, one of the best ways for lawmakers to stop the continuing price-gouging pressures at grocery stores is to reintroduce competition into the marketplace. By challenging the big Kroger-Albertsons merger that would bring two giant national grocery chains together, the Biden Administration took a big step toward lowering future costs for American shoppers and raising wages for grocery workers.
But H. Claire Brown at the American Prospect writes about a new book by a former Treasury Department official which reveals seven of the biggest monopolies that dominate modern grocery stores. Austin Frerick’s new book Barons: Money, Power, and the Corruption of America’s Food Industry tells the stories of businesses that have come to dominate the global milk, strawberry, swine, and grain industries, and explains how this massive corporate concentration has wiped out competition and driven up prices while still offering the illusion of abundant choices in your local grocery store.
Frerick applauds the Biden Administration’s moves to fight monopolies and mergers, which he cites as a central way to increase competition and drive down prices. But he also calls for a complete overhaul of the Department of Agriculture, which he says needs more regulatory teeth and a major policy update in order to fight on behalf of the small working farmers of America and against the giant corporate monopolies that dominate grocery shelves.
Like every other economic story, this is ultimately about power. Before the trickle-down era began, American consumers had the power to choose winners and losers with their spending. But as regulations and taxes were slashed for corporations and consolidations and mergers became the order of the day, consumers lost their power to choose. The Biden Administration’s push toward breaking up monopolies and denying large corporate mergers has caused some businesses to think twice before swallowing up their competitors, but the temptation to grow is too big for some executives to resist. This week we’ve seen the announcement of two large mergers—T-Mobile announced a $4.4 billion acquisition of most of US Cellular’s assets, and oil giant ConocoPhillips announced its intent to buy Standard Oil for more than $22 billion.
Hopefully, the Biden Administration will respond quickly and forcefully to both of these mergers as an example for other potential monopolies. Doing so isn’t anti-business; it’s pro-competition. When competition is reintroduced into the market, prices will go down, and this outrageous wave of price-gouging will become a thing of the past.
The Latest Economic News and Updates
This Week’s Required Reading
In the Democracy Journal this week, Felicia Wong and Matt Hughes published a piece offering lessons from the pandemic and guideposts for policymakers who seek to build a middle-out American economy that’s strong enough to weather any emergency that may come in the years ahead. Wong and Hughes explain that the pandemic exploded several of the biggest myths of the trickle-down era, including the argument that government is inefficient and unreliable. And then they explain how to take advantage of the moment to rebuild a new relationship between government and American workers—one which understands that government is at its best when it tackles what private businesses cannot. It’s an insightful piece that correctly captures the current moment and extrapolates how to build a better future.
A Note on the Partisan Lean of Consumer Confidence
Last week, we talked at length about consumer confidence numbers, which have been coming in low for the past few months. Nate Geraci shared a graph that immediately struck me as an important reminder for talking about consumer confidence. It breaks out consumer confidence levels by political affiliation and then widens the timeline all the way back to the year 2000:
As you can see, Republicans are likely to report incredibly high levels of confidence when a Republican is president, and incredibly low levels of confidence when Democrats have the White House. Democrats tend to be more level-headed than their Republican peers, but you can see a clear partisan lean in their results depending on the party of the president, too. And interestingly, Democrats report levels of consumer confidence right now that rival their highest levels of the last 20 years.
While this graph is way too complex to draw any simple conclusions, it does at least underline my argument that self-reported economic measures are very noisy, and not nearly as reliable as information that reports on actual economic behavior.
The High Cost of Housing
“Home sales fell in April for the second straight month, as high mortgage rates and near-record home prices continue to stall the market during the prime selling season,” reports Nicole Friedman at the Wall Street Journal. ‘
The free-market crowd would tell you that because home sales are declining, the price of homes must be dropping in response to decreased consumer demand, right? Not so, according to Jeff Ostrowski at Bankrate: “The nationwide median sale price for existing homes in April clocked in at $407,600, up 5.7 percent from last year and the 10th month in a row to record year-over-year increases. This was the highest-priced April on record.”
So why aren’t the laws of supply and demand following the old Econ 101 playbook? Americans aren’t buying houses right now because the Fed is keeping interest rates at historic highs, which makes mortgages too expensive for most people. At the same time, people who had already locked in low interest rates before the Fed started cranking up the numbers are waiting for interest rates to go down before they pick up another mortgage. So because the system is rigged in favor of existing homeowners, the haves are benefitting from their low rates, and the have-nots are paying inflated rents as they hope for things to cool down a little.
Many people who are buying houses right now are doing so with the help of generational wealth. “Home buyers are increasingly turning to family members, most often parents, for help buying a house in overpriced and undersupplied markets, reflecting a shift in the way many families finance homeownership,” reports the Washington Post. “The share of young home buyers relying on older mortgage co-signers is as high as it has been in at least 30 years, according to a Freddie Mac analysis of its home loans.”
It’s no surprise that in conditions like this, the numbers of unhoused Americans are soaring. But it’s not all bad news: Rachel M. Cohen at Vox spotlights a Houston program that is showing great signs of success at getting unhoused people into homes. The plan, devised by Mandy Chapman Semple, uses a mix of public and private funds to rent apartments for every resident in a given tent encampment.
“Once people have moved into housing from a tent encampment, Semple ensures that landlords have a team they can call to help with any problems that may arise. The formerly homeless individuals have case managers to help them access social services, and the landlords, too, have their own liaisons they can call,” Cohen explains. This method decreased homelessness in Houston by 60 percent, though critics argue that its benefits are unevenly distributed and that the program will prove unsustainable if rents continue to spike.
For the Prospect, Maureen Tkacik explains that Houston rents have been driven up by groups of investors scooping up apartment complexes, jacking up the rents, and leaving renters high and dry as the quality of life in the buildings drops off a cliff. One such syndicator “raised $111 billion for real estate investments during the pandemic, and generally collected commissions of between 2 and 5 percent of each deal.” Those huge purchases drove up valuations of apartments from $90,000 per unit before the pandemic to more than $150,000 per unit today, and rents (and evictions) are rising quickly. In the fourth quarter of 2021, these large investment groups drove nearly $10 billion in real estate sales in Houston alone.
While housing is a leading pressure on the inflation rate right now, David Dayen reminds us that car insurance prices are actually rising highest and fastest: “There’s been a 22.6 percent increase in car insurance costs over the past year, the fastest increase in half a century,” he writes. Part of those expenses can be blamed on the fact that it’s more expensive to repair cars right now. But Dayen adds, “ there are a host of factors, including potentially the insurance companies’ price coordination and an attempt to make up lower earnings from the pandemic. Without federal legislation to remedy this, the patchy regulation of auto insurers will likely make this a continuing trend.”
More Teens Are Working for Higher Wages
Erica Pandey at Axios reports that the number of 16-to-19-year-olds in the workforce just hit a 14-year high. Some 38% of older American teens are now workers. The number of teens in the workforce started dropping at the turn of the century and then bottomed out during the Great Recession. Though older Americans think of after-school jobs and summer employment as low-paying, demeaning work, part of the reason teens are rejoining the workforce is that the quality of the jobs has improved: “Younger workers’ wages have been rising faster than those of other age groups,” Pandey writes.
Speaking of young workers, college athletes have made tremendous progress over the past few years as court decisions have allowed them to sign lucrative marketing deals, and colleges finally agreed to pay them for their labor. But there’s a catch, reports Santul Nerkar at the New York Times: The National Collegiate Athletic Association now argues that “players who are paid by the universities are not employed by them, and therefore do not have the right to collectively bargain.”
We’ve heard that song before. From rideshare apps to warehouse stockers, we’ve seen again and again that employers are terrified of unionization efforts. That’s because union workers earn more and have more regulations in place to protect their health, their wages, and their employment. The question is, why is the share of unionized American workers at an all-time low?
Peter Eavis’s piece for the New York Times explains the challenges that unions face right now, as he details how the Teamsters have failed to transform a record victory for UPS workers into gains at FedEx and other delivery companies.
“Many of the workers doing deliveries for Amazon and FedEx work for contractors, typically small and medium-size businesses that can be hard to organize,” Eavis writes. “And delivery workers employed directly by FedEx in its Express business are governed by a labor law that requires unions to organize all similar workers at the company nationally at once — a tougher standard than the one that applies to organizing employees at automakers, UPS and other employers.”
Meanwhile, the United Auto Workers are challenging the results of a Mercedes-Benz factory vote in Alabama that rejected the union, claiming that the employer “engaged in a relentless anti-union campaign marked with unlawful discipline, unlawful captive audience meetings, and a general goal of coercing and intimidating employees.” The UAW is still building on their historic Tennessee Volkswagen factory win from last month, and Axios today published a report showing how the Biden Administration’s acting Labor Secretary, Julie Su, helped to secure a contract for the newly unionized members of the Blue Bird bus factory in Georgia.
I’ll just repeat what I said near the beginning: If your employer is terrified of you joining a union, that’s probably a sign that you should consider joining a union. And if you have any question about what there is to gain, one worker’s Facebook post sharing images of his paystub before and after joining a union is going viral on multiple social media networks today because the difference is so striking:
Sticking It to Ticketmaster
“The Justice Department filed a lawsuit Thursday seeking to break up Live Nation, the parent company of Ticketmaster, alleging it has hurt consumers and violated antitrust laws by exercising outsize control over the live events industry,” writes Daysia Tolentino and Rob Wile of NBC News. “The suit, filed in the Southern District of New York and backed by attorneys general for 29 states plus Washington, D.C., alleges that Live Nation has engaged in practices that harm the entire live entertainment industry — from artists and fans to venues and startups seeking to break into the business.”
The lawsuit explains in vivid detail how much control Live Nation has over the events and performance space. The corporation manages “more than 400 musical artists, controls 60% of concert promotions at major venues and, through Ticketmaster, controls roughly 80% or more of major concert venues’ ticketing.”
At its heart, the case charges that Live Nation has worked to eliminate competition at nearly every level of the live performance industry, driving up prices for consumers and making it harder for unknown artists to access audiences. This is a smart move for the federal government, taking on a hugely unpopular corporation that tens of millions of Americans have interacted with. Chances are very good that you know more than one person who has a Ticketmaster horror story, and that means this case provides a great opportunity for lawmakers to explain why monopolies are terrible in every industry, not just live performance.
This Week in Middle Out
The central tenet of middle-out economics is that we all do better when we all do better—in other words, shared prosperity helps the whole economy grow. A new report from the Black Economic Alliance Foundation is another data point in middle-out’s favor: “Addressing the roots of Black economic inequality has the potential to unlock as much as $1 trillion per year in domestic U.S. economic growth,” reports Axios. That’s growth for everyone in the economy—not just Black families.
The Roosevelt Institute published a compelling new paper arguing that America’s care industry needs deep investments along the lines of the Biden Administration’s strategic investments in the semiconductor manufacturing industry.
As climate change continues to raise temperatures and more and more workers suffer from heat-related injuries, the Biden Administration is preparing to upgrade national standards for extreme heat in the workplace, reports the New York Times: “In the coming months, this team of roughly 30 people at the Occupational Safety and Health Administration is expected to propose a new rule that would require employers to protect an estimated 50 million people exposed to high temperatures while they work. They include farm laborers and construction workers, but also people who sort packages in warehouses, clean airplane cabins and cook in commercial kitchens.”
This Week on the Pitchfork Economics Podcast
This week, Nick and Goldy talk with President Obama’s chief economist, Jason Furman, about his thoughts on President Biden’s economic agenda. This is a wide-ranging discussion about everything from industrial policy to inflation to how best to promote a green agenda through economic policy. The differences of opinion in this discussion really help illustrate the contrast between the Obama Administration’s economic framework and the middle-out Biden economic agenda.
Closing Thoughts
In this week’s episode of Pitchfork Economics, Nick and Goldy chat with President Obama’s chief economist, Jason Furman, about his thoughts on President Biden’s economic agenda. Unsurprisingly, they find a lot of common ground in this conversation, along with plenty of nuanced differences. But one of Furman’s statements highlights one of the biggest breaks between middle-out economics and the economic policies of the last few Democratic presidents.
Nick asks Furman, “what do you think our trade policies should be?”
Furman replies, “Broadly, I’m a card-carrying free trader.” Later on, Furman says that while he understands the positive security implications of President Biden’s charge to bring semiconductor manufacturing back to the United States, on other products like solar panels, “I just don’t care a whole lot whether they’re made in the United States or made somewhere else. I want them to be as cheap as possible. I want them to be as widely deployed in the United States as possible. I’d say the same thing about washing machines or television sets. We don’t make televisions in the United States anymore. That doesn’t really bother me a lot.”
Let’s be clear here that Furman’s statement is by no means an outlier: American international trade policy on both sides of the aisle for the last 40 years has been driven by the goal of getting the cheapest possible products to consumers, no matter where they’re manufactured. As Robert Kuttner notes in the American Prospect, many supposedly progressive free-trade advocates have come out against President Biden’s announcement of tariffs on cheap Chinese green-energy products.
But that kind of absolutist free trade thinking, in which the cheapest product always wins in global markets, is finally being revealed as a race to the bottom. This report from the New York Times explains how China is able to pull all its levers in order to deliver products at rock-bottom prices: “From 2017 to 2019, [China] spent an extraordinary 1.7 percent of its gross domestic product on industrial support, more than twice the percentage of any other country, [thanks to] low-cost loans from state-controlled banks and cheap land from provincial governments, with little expectation that the companies they were aiding would turn immediate profits,” the Times notes, and those low prices were also supplemented “by what the United States and other countries have charged was China’s willingness to skirt international trade agreements, engage in intellectual property theft and use forced labor.”
Competing against nations that allow workers to be paid pennies a day in unsafe, environmentally damaging working conditions only leads to a race to the bottom. This unfair competition explains why American workers in what we now call the Rust Belt had been in steady decline until the CHIPS Act was announced a couple of years ago. In this trickle-down era of free trade, a wealthy few individuals and corporations became super-rich while hundreds of millions of workers around the world lost ground.
This is why, as I mentioned a few weeks ago, a truly middle-out understanding of international trade is finally starting to take shape. It’s a global vision that empowers workers, not wealthy corporations, through fair competition.
I wanted to call your attention to what could be a founding document of this new middle-out trade era. “The Berlin Summit Declaration” was written and signed by 50 academics from around the world this week as a warning that in the face of rising far-right populism around the world, “Governments should counter the loss of confidence in liberal democracies with an active industrial policy, a reduction in inequality and better-managed globalization.”
The declaration reimagines the idea of globalization as a source of growth for workers. Some of the prescriptions include calling on leaders to “reorient our policies and institutions from targeting economic efficiency above all to focusing on the creation of shared prosperity and secure quality jobs” and to “develop industrial policies to proactively address imminent regional disruptions by supporting new industries and direct innovation toward wealth-creation for the many.”
Some of these prescriptions are basically rock-solid middle-out economic tenets for the global stage, including a call to “generally establish a new balance between markets and collective action, avoiding self-defeating austerity while investing in an effective innovative state” and, especially, to “reduce market power in highly concentrated markets.”
It’s especially important that the document acknowledges that not every country is starting from the same economic standing, which is why it prioritizes “ensur[ing that] developing nations have the financial and technological resources they need to embark on the climate transition and the mitigation and adaptation measures without compromising their prospects.”
The declaration is not a comprehensive solution to all the problems of global trade. But it does offer a launching pad for a broad conversation that allows us to look realistically at the failures of the last forty years of free trade and reimagine a future that allows every nation to participate in free trade. Rather than a trickle-down race to the bottom with a glut of dirt-cheap goods and a small handful of winners, we can imagine a world where everyone benefits from a robust global economy.
Just as trickle-down economics had no opposition in the United States for nearly four decades, the lowest-common-denominator free trade approach has largely gone uncontested as it dominated economic thinking since the early 1990s. There’s a long way to go yet, but an alternative is quickly coming to life. It’s so exciting to see this new, optimistic middle-out understanding of global trade take shape in real-time.
Be kind. Be brave. Take good care of yourself and your loved ones.
Zach