Friends,
For most of the past century, both parties in Congress routinely came together to raise the debt ceiling, thereby allowing for continued government spending and commerce. But during the last two Democratic presidential administrations, a new drama has played out: Republicans have threatened to force the federal government to default on its loans, shutting down government operations and damaging America’s economic standing in the international community. The Republican argument is typically that they’re outraged by the size of the national debt, and so they’re using the debt ceiling fight to call attention to their cause. (Republican lawmakers somehow always conveniently “forget” that Republican presidents traditionally have increased the debt more than Democratic presidents.)
And now, for the third straight Democratic administration, Congressional Republicans are refusing to raise the debt ceiling before the October deadline. While this standoff has happened before, these are not normal times; the pandemic has left our economy fragile, our uneven recovery is precarious, and defaulting this time could tip us over into a new recession. As Jeff Stein reports, “Mark Zandi, chief economist at Moody’s Analytics, found that a prolonged impasse over the debt ceiling would cost the U.S. economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth, and send the unemployment rate surging to roughly 9% from around 5%.”
If those numbers don’t scare you, consider their real human cost: Paul Van de Water explains in a post at the Center on Budget and Policy Priorities what a debt-ceiling fight would mean for everyday Americans: government contractors and military personnel wouldn’t receive paychecks, veterans and Medicare recipients wouldn’t receive necessary benefits and payments, and local economies would lose another important source of job-creating consumer spending, right at the moment when they need it most.
I say this not to promote partisan rancor, but because it is true: Congressional Republicans are playing chicken with the economy. And if Republicans are unwilling to accept the truth that the national debt, as Van de Water puts it, “is neither unaffordable nor a substantial drag on the economy,” then they should at least be passionate in their quest to find new sources of revenue to pay for government spending—particularly through immensely popular proposals to tax the wealthy and corporations.
Every day that Congressional Republicans refuse to budge on the debt ceiling is another day that brings us closer to calamity. So much of this pandemic has been outside of humanity’s control; it’s beyond frustrating to now have to face a potential economic crisis that is entirely avoidable on top of all the suffering that we’ve had to endure over the past two years.
The Latest Economic News and Updates
Will the Fed pull back too soon?
The debt ceiling fight I wrote about above is far and away the most important economic factor that will dictate where our nation is headed this fall, but I’m also keeping my eye on how the Federal Reserve will handle the economic recovery. Just yesterday, the Fed announced that they were keeping interest rates low for the time being, but they warned that “so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate.”
In other words, the Fed is preparing to pull back on the stimulus support that has held the pillars of the economy upright during the worst of the pandemic. Considering that last fall and winter delivered spikes in coronavirus infections around the country, this announcement feels a bit premature. But I’m heartened by the fact that the Fed is at least keeping its options open—the economy has a lot of moving parts, and at least some of the indicators aren’t pointing to a smooth economic recovery through the winter and spring.
Will consumer demand deflate as unemployment benefits expire?
We’ve already seen a number of studies proving that people weren’t in a rush to get back to work in states that ended the $300 weekly pandemic unemployment payments early. This week, the Bureau of Labor Statistics added to those findings: “States that ended federal unemployment benefits earlier this summer saw August job growth at less than half the rate of states that retained the benefits,” the BLS reported.
But if ending the federal pandemic unemployment payments early in 26 states was a bad idea that didn’t increase employment rates, why did Congress and the Biden Administration allow the $300 payments to expire nationally on September 6th? Asha Banerjee and Ben Zipperer at the Economic Policy Institute issued a new report showing that “ incomes of those previously receiving pandemic UI benefits will fall by $144.3 billion as a result of these cuts. And, as a result of falling incomes, annualized consumer spending will fall by $79.2 billion.”
That sudden decline in consumer spending is likely to lead to more job losses as demand for goods and services falls. The report features an interactive map that allows you to see exactly how much income and spending your state will lose from the expiration of these benefits. In my own state of Washington, for example, EPI estimates that over a half-billion dollars in spending has evaporated into thin air. “Congress should immediately restore the pandemic unemployment benefits and begin work on long-run reform of the UI system,” Banerjee and Zipperer conclude.
American workers demand a new bargain
Meanwhile, Bloomberg reports employers are “baffled” that workers aren’t begging for jobs now that the additional benefits have expired nationally.
The numbers show that plenty of jobs are available, but workers simply aren’t taking them: “In the restaurant industry, job applications have declined about 3% to 4% each week for the past nine weeks, including the period following the expiry of boosted benefits, according to Restaurant365, a restaurant-management software company.”
It’s a pretty simple equation: Nobody wants to work in a job with low pay in dangerous conditions. That’s especially true in fields that have long taken workers for granted, like the restaurant industry. The New York Times focuses on a few restaurateurs who aren’t just raising hourly wages to entice workers back to the job—they’re trying to rewrite the whole contract of what it means to be employed in a restaurant:
...a growing number of restaurants are trying to get at the root causes of inequitable pay by moving away from the tipped minimum wage. That wage allows servers the chance to earn more than cooks, but also puts them at the mercy of customers, who in the wake of the pandemic have become less generous tippers and more unruly diners. Some owners are also trying to instigate some measure of work-life balance in an industry where late-night hours and 80-hour workweeks were once a badge of honor.
The coming child care crisis?
While the restaurant industry struggles to reinvent itself as a more appealing workplace, another low-wage industry is going through a crisis of its own: At the Washington Post, Heather Long reports that child care workers are quitting in record numbers.
Specifically, as one former day care employee argues in the headline of the piece, the problem is that “the pay is absolute crap,” which means “I can’t afford to live on my own and work the child care jobs that I am qualified for.” After all, why would she want to put in long hours working with unvaccinated children during a pandemic for an embarrassing $12 an hour, which is, Long notes, $2 less per hour than a Dunkin Donuts down the street?
The child care industry still has 10 percent fewer workers than it did before the pandemic—more than 125,000 unfilled jobs, and those jobs are staying open longer than even the restaurant industry.
The child care industry, though, is arguably more important to America’s immediate economic recovery than restaurants because American workers, particularly women, need reliable, affordable child care if they’re going to get back to the office in pre-pandemic numbers. It’s a conundrum: Child care workers won’t go back on the job unless their salaries rise far above the current annual median of $25,460, but workers won’t be able to put their kids in daycare if prices climb too high.
Clearly, the free market on its own won’t be able to resolve this problem—government intervention seems necessary to get America safely and happily back to work.
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.
Join us on Civic Action Live tomorrow morning, where we’ll be discussing the debt ceiling, the complicated nature of employment in America right now, and what we must do to reform child care.
On our Pitchfork Economics podcast this week, we’re replaying an interview with Professor James Kwak from early last year about how neoliberals managed to hijack the Democratic Party, which used to be known as the working peoples’ party. It’s fascinating to go back and reinvestigate this interview, because the Biden Administration has effectively stripped the neoliberal wing of the Democratic Party of most of its power—what a difference two years makes!
Make sure to also listen to our bonus Pitchfork Economics interview with Washington DC restaurateur Mark Bucher about the role that restaurant owners need to play in stopping the “churn and burn” model of employment, and what the restaurant industry might look like after the pandemic.
In his Business Insider column, Paul explores how the federal government can regain the public’s trust and help reestablish a social order that isn’t fraught with threats of violence and dissolution.
Closing Thoughts
Emily Stewart at Vox wrote a must-read explainer on why America’s economic recovery from the pandemic has been so jagged and uneven, with low-income Americans reporting consistent misery and wealthy Americans experiencing, at most, a temporary bump at the very beginning of the lockdowns before quickly returning to business as usual.
Stewart’s piece provides an overview of many of the topics we regularly discuss in this newsletter—the fact that the “K-shaped recovery” hasn’t provided any relief for Black Americans, and the fact that women have taken the brunt of employment losses—but even if you closely follow the economic news, Stewart’s view from 10,000 feet is valuable.
She also provides a bracing reminder of why economics matters in this paragraph:
I’ve talked to a lot of economists, but I’ve also talked to a lot of regular people, and what they say and experience are often things that would never show up in the data. A Dollar Tree worker who was using a Kindle for a phone. An unemployed massage therapist who was showering less to save money. A Target associate who was dumbfounded that shoppers were suddenly desperate for yeast. Walgreens workers who laughed at the company’s mid-pandemic move to change the dress code, “Cuz who wants extra money over jeans days, right?” one joked on Reddit.
It’s easy to get caught up in complicated conversations about debt ceilings and interest rates, to obsess over partisan hypocrisy and political gamesmanship. But economics is about people, not numbers, and our economy has a long way to go before it meets the needs of the people Stewart writes about in that paragraph. Our goal should not be a higher debt ceiling or higher interest rates; our goal should be building an economy that works for everyone. Everything else is just noise.
Be kind. Be brave. Mask up. Get vaccinated.
Zach