The Pitch: Economic Update for July 15, 2021
Inflationary fears are out, the Child Tax Credit is in.
Friends,
The word of the week in economics circles is “inflation.” When the Labor Department reported on July 13th that the Consumer Price Index had climbed by 5.4 percent—the biggest rise since 2008—many analysts and pundits responded with waves of sheer panic.
Of course, the numbers are far more nuanced than many would have you believe. Josh Bivens from the Economic Policy Institute published a long tweet thread explaining what’s really happening to punch up the numbers: Increased demand in leisure and hospitality fields that basically were dormant over the past year, including hotels, rental cars, and restaurants. (Washington Post economics journalist Heather Long listed the specific items that are currently driving up inflation numbers, including an 8.4 percent increase in the price of bacon, a 17.3 percent increase in the cost of moving, and much more.) “Take out used cars and pandemic-specific bounceback and you get inflation of around 0.22% in June,” Bivens says.
Economist Aaron Sojourner also points out that a significant portion of the price increases look bigger than they actually are because there basically were no price increases last year, in the depth of the pandemic. And Zachary Carter published an excellent post on Substack titled “Don't Let Inflation Break Your Brain” which puts all the numbers into perspective, concluding that “lower-income people are getting paid more, hard-hit sectors are recovering, and expenses for the vast majority of households look pretty tame. Working people are getting much more out of this recovery than they did from the last one. This is all good news.”
It’s entirely understandable to freak out for a moment when monthly indicator numbers seem to go haywire, but the responsible next step should always be to examine the underlying numbers and check for worrying trends. These inflationary indicators do not seem to be especially troubling at this phase in our recovery. As to the media storm over these numbers, I’d like to remind you of a little rule of thumb: Always take into account the motivations of the speaker.
If the economists, politicians, and pundits telling you to panic over inflation now are the same people who fret about the growing deficit, or warn that taxing wealthy people and corporations will have a negative impact on the economy, they’re just using these numbers to promote a trickle-down agenda. They want to force the government to cool down the economy and slow the recovery, thereby pumping the brakes on American wage increases and decreasing the portion of economic growth that’s going to the lower two-thirds of all earners.
Economic recoveries—particularly those that have taken place since the 1980s—tend to benefit the wealthy and corporations over ordinary Americans. This recovery, with its increasing wages and competitive market for workers, has the potential to be different, and we have to expect the status quo to do their best to turn the tide back in favor of the one percent. Times like these are when the trickle-down crowd does their best work by provoking economic fears in ordinary Americans. We can’t let them get away with it this time.
The Latest Economic News and Updates
Heather Haddon, Te-Ping Chen and Lauren Weber at the Wall Street Journal explain that “Customers Are Back at Restaurants and Bars, but Workers Have Moved On.” Like the supply-chain inflation I wrote about in the opening, this represents another economic disruption caused by the pandemic and its attendant lockdowns: Americans are ready to get back to restaurants and pretend that things are normal again, but workers have experienced a lot of hardship and aren’t ready to return to the same bargain that they had made before.
The simple solution for employers is to raise wages to account for the increased stresses of post-pandemic customer service and the historically low wages that the restaurant industry has encouraged. And that’s finally starting to happen: Heather Long at the Washington Post says that “Average pay in the restaurant industry is now above $15 an hour for the first time.” At a time when fewer than 2 million workers say they’re afraid to re-enter the workforce over pandemic health concerns, employers are having to entice workers for the first time in years. Nearly a million workers quit their jobs last month—the most “in years,” according to Long, and a good sign of confidence that people believe they’ll be able to land in a better employment situation.
In fact, the American people are fairly confident that better times are ahead: almost 6 out of every 10 Americans say they are “thriving” as the country begins to lurch out of the pandemic—the highest recorded number in the history of a life-evaluation Gallup poll, which launched just before the Great Recession of 2008.
“ We’re now 40 years into the experiment of letting giant corporations accumulate more and more power,” President Biden announced in a speech on July 9th. “And what have we gotten from it? Less growth, weakened investment, fewer small businesses. Too many Americans who feel left behind. Too many people who are poorer than their parents. I believe the experiment failed. We have to get back to an economy that grows from the bottom up and the middle out.”
Biden’s refutation of trickle down economics came as he signed an executive order promoting capitalistic competition through a number of avenues: By banning noncompete agreements for low-wage employees; by eliminating onerous fees that have been levied by giant pharmaceutical companies, banks, and internet providers; and by encouraging small businesses and family farms to compete with larger firms. This executive order passed without a whole lot of fanfare, but it will likely make a tremendous difference in the daily lives of Americans.
The pandemic caused so much immediate misery in people’s lives that conversations around long-term policies largely fell by the wayside. But now that we’re regrouping after millions of people lost their jobs in an economy that ties health insurance to employment status, it seems like a good time to reinvestigate American health care. Mark Kreidler at Capital and Main looks into the polling behind health care and finds that universal health care is very popular among Americans, Medicare is very popular among people who are on Medicare, and people with private health care plans were more likely to be unhappy with their quality of care. Expect this conversation to heat up into the fall and winter.
The Center on Budget and Policy Priorities examines “Taxes, the Wealthy, and Creating a Fairer Tax System” in a recent post. They find that as wealth continues to be concentrated at the top, audits of the wealthiest Americans have fallen by more than 70 percent, and the untaxed appreciation of assets of the super-rich passed $6 trillion in the year 2019.
The fact is, wealthy people legally don’t have to pay taxes because our tax system doesn’t acknowledge how wealthy people gain and grow their wealth. When everyone is taxed as though they’re a middle-class married professional couple, that creates a tremendous amount of dissonance at both the top and bottom of the wealth scales. While “tax the rich” is arguably a better battle cry for progressives, the truth is that “reform the tax code” might be a more fruitful argument in the long term.
A new report tracks the impact of COVID relief programs on small businesses and employment, ultimately finding that the additional federal unemployment payments approved by Congress in the beginning of 2020 did not disincentivize people from going back to work. The report also finds that small businesses suffered a bigger economic impact at the beginning of the pandemic, “but small businesses also rebounded more strongly and have on average recovered a higher share of job losses than larger businesses.”
“Our results dispel the popular notion that small businesses have on average been hurt harder by the pandemic than larger businesses,” the authors write, and they also find that federal business support programs like PPP and FPUC both helped “significantly mitigate” the worst effects of the pandemic by containing the economic damage and by encouraging consumer spending at a time when businesses desperately needed customers.
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 Skunkworks; and follow us on Twitter and Facebook.
In his Business Insider column this week, Paul makes the case for inclusion as an economic strength. A new paper from the management consulting firm McKinsey argues that more fully including women and people of color into the economy will create some $5 trillion in economic growth, with $3 trillion recurring every year afterward. And it’s important to note that that $5 trillion in growth doesn’t detract from current economic numbers—it’s entirely additive.
Friday morning on Facebook Live, a special guest will join me to discuss why inflationary fears are overrated and why the Biden administration’s Child Tax Credit is so underrated as a political and economic action.
In this week’s episode of Pitchfork Economics, you’ll find a special treat: a juicy conversation with Senator Sherrod Brown at the Center for American Progress, touching on all the ways in which the tax code favors the ultra-rich, and explaining how Brown believes that Congress can and should rebalance the tax system to address those inequities. Those who have been following Brown’s career know that he’s a stellar communicator about wealth inequality—he explains problems and solutions in plain English, and he directs his arguments squarely at the American working class.
Closing Thoughts
This week marks one of the most important developments in the still-young Biden Administration: The Treasury Department will begin sending monthly Child Tax Credit checks to almost every American family with children. Axios reports that these payments will go out to nearly 40 million American households, and about 88 percent of American children will be covered by the plan. These $250-to-300-per-child monthly payments are expected to cut childhood poverty in half. If the reality approaches those projections, this will be an accomplishment unlike any other in American history.
This program is more transformative than anything Democrats have done in decades—unlike Obamacare, there’s no bureaucracy to navigate or bills to pay. The money will simply arrive in the form of a check or a direct deposit, with no strings attached. Biden has been arguing for a year now that the best way to promote growth on Main Street is to make sure typical Americans have money in their pockets, and that they’re spending that money. These payments will put that economic idea to the test.
However, the future of this program is still very much in doubt. The payments are set to expire in a year, and so the clock is ticking for the Biden Administration to own this accomplishment in a very public way, to explain it to people and to make the case for its permanence. It feels somewhat dramatic to say this, but I believe the economic future of the United States is riding on this program: Will Americans choose an economy that grows from the middle out, or one which continues to funnel wealth to the top? This week, the conversation about those choices could change for good.
That’s what I’m thinking about this week. Am I missing anything? Reply to this email and let me know what you’re seeing out there.
Be kind. Be brave. Be bold,
Zach