The Pitch: Economic Update for January 2nd, 2025
Friends,
This week, we’re continuing our annual tradition of marking the end of 2024 and the beginning of 2025 with a review of the most overrated and underrated economics stories of the last year.
The first Pitch of 2024 opened with a link to a discussion between Peter Coy and Paul Krugman about their predictions for the year. Krugman argued that inflation would decline and economic optimism would spread among the American people. Coy argued that inflation might not be beaten and that the economy was on much weaker footing than the experts believed.
It turns out, both of them were half-correct. Inflation did continue to decline for most of 2024, as Krugman predicted, and average wages rose higher than prices in 2023 and 2024. But Americans focused on the weakness in the economy that Coy perceived — inflation floated around 3%, adding too much of a pressure to the grocery bills of Americans. People felt like the economy was in bad shape, to the point that in August, 60% of Americans incorrectly believed that the economy was in a recession.
Those unhappy Americans were likely responding to the incredible amounts of economic inequality they saw in the world around them and the unaffordability of basic necessities. Because in America, misery is not distributed evenly and the gap between the haves and the have nots has become a chasm. Everyone can see this inequality, and everyone can feel it in their day-to-day lives. Americans — and in fact voters around the world — are desperate for a change, and so they voted for a change this year.
We’ll, of course, have much more to say about the reality of that change as it unfolds next year. But I suspect that the American people are not going to be thrilled with the trickle-down policies of the Trump Administration, and they’ll be hungry for change again — this time, the kind of change that actually benefits them.
With that end goal of building a more equal society that grows from the middle out in mind, I’ve identified two topics that I think will be important to reflect on and to carry into the new year.
Underrated Story of the Year: Housing Inequality Is Breaking the Economy
What would you say is the single biggest economic problem facing America today? Some might say inflation is doing the most harm to the economy. Others might say that the racial wealth gap is growing inequality to the point that our society is suffering. Others argue that the accrual and transfer of generational wealth is benefiting a few at the expense of many. Maybe the growing spread of poverty and homelessness across the country is the issue that you think is causing the most damage.
I’d argue that all of those problems are actually outgrowths of the single biggest problem facing Americans today: The housing price crisis. The single biggest price pain that most Americans are feeling is in housing. Studies have shown that the sky-high cost of housing is almost single-handedly holding up the inflation rate. Housing prices contribute to intergenerational poverty in Black families and add to the racial wealth gap. The wealth gap between renters and homeowners reached an all-time high this year. Owning a home is the single biggest indicator of an American’s financial status.
And Civic Ventures Founder Nick Hanauer argued that housing prices were the cause of the homelessness crisis that’s unfolding in cities and towns around the country in a piece for the Nation back in February of 2020.
“Despite all the fearful rhetoric about addiction, mental illness, and crime, our homelessness crisis is largely driven by a shortage of affordable housing — and affordability is simply the quotient of income divided by cost,” Nick wrote. “The math is simple: Across America, housing costs have been rising faster than incomes for decades, with every $100 increase in median rent entailing a 15 percent increase in homelessness. And trickle-down economics is largely to blame.”
Then you have an economic system that encourages people to treat housing like an investment. Our tax system privileges homeownership and most cities have systems in place that give homeowners outsized power to decide what gets built in their neighborhoods. This creates a scarcity mindset that keeps driving up the price of single-family homes and closes off large swaths of our urban areas to meaningful new construction, simultaneously increasing wealth for homeowners and decreasing wealth for renters.
All of these problems have existed in the American economy for a long time, of course. But now the situation is starting to bubble over. Both home prices and rents have grown much faster than wages, and Americans are losing their grip on economic security as they struggle to afford to keep a roof over their heads.The Center for American Progress reports that “Almost 41 million households — or just less than one-third of those nationwide — are cost burdened [meaning that they spend more than 30% of their income on housing,] including more than half of renters and 19 million homeowners.”
This is already an untenable situation. But imagine what would happen if, say, the deregulation of the banking industry kicked off another housing bubble and subsequent economic downturn? We barely got through the Great Recession without tanking the global economy. I’d hate to think what mass foreclosures and a collapse in home construction would do to Americans in the current affordability crisis.
Americans told pollsters that they voted for Donald Trump to bring down prices. But it doesn’t seem as though prices will go down anytime soon without serious policy solutions — and the Trump campaign has no real solutions for America’s housing crisis.
The good news is that we know how to solve America’s housing crisis. The Pitchfork Economics podcast devoted three recent episodes to different aspects of housing. First, Vox reporter Rachel Cohen joined to talk about a social housing experiment in Maryland that successfully lifted the stigma from the idea of public housing by making affordable, pleasant housing that middle-class Americans are happy to live in — and that housing can also make money for local governments.
“I think something that has been really appealing to housing officials in cities about this model is they actually see this as something that they can do on top of the affordable housing strategies they were already doing and it can actually be sort of a smart financial move for the city,” Cohen explained, “because they’re increasing their assets, they can collect rents, and they’re not going to be just spending at a loss over decades.”
Then Nick and Goldy talked with University of Washington Associate Professor Gregg Colburn about addressing homelessness. Colburn recommends making it easier to build housing everywhere in cities in order to make cities much denser. “We can be good stewards, we can be good citizens while also getting housing built much more quickly and cheaply. And so hopefully we could activate the private market to build a lot more housing,” Colburn says. But even with more housing, he says, “there are going to be some folks who can’t afford that market-rate housing and there’s a role for subsidies in society.”
“I’m a big believer that if we had more housing that was outside of the private market, it would help a lot,” Colburn says. “As a scholar, I’m somewhat agnostic about what entities own and operate that housing. But I do think having more housing outside the market would be helpful — in Northern Europe, that number is between 15 and 30%. In the United States right now, it’s less than 1%.”
The guests in the following episode of Pitchfork Economics, Sandeep Vaheesan, and Brian Callaci from the Open Markets Institute, had more to say about subsidized housing. Vaheesan called for “a vigorous public option that serves the low-end and middle segment of the market. We’re seeing a little bit of that in Montgomery County, Maryland, outside of Washington, D.C., where the county’s building apartments catering to middle-income households, taking advantage of lower interest rates and their nonprofit status.”
Callaci added, “I would say we need rent controls — second-generation rent controls that are not rigid, but that are flexible enough to adapt to increased costs and maintenance and things of that nature. We also need tenant protections.”
“I think it’s a lot like the labor market where there’s a lot more power on one side,” Callaci explains. “So you need to rebalance that by giving tenants, for example, good cause eviction. You can’t be evicted unless the landlord is forced to show some kind of cause, not just because they don’t like you anymore.”
There are a lot more details that make those podcast episodes worth listening to in full, but the gist is that we need lots of housing construction, regulations to protect renters, and non-market-based organizations to provide good, affordable middle-class housing. The bad news is that even with leadership that is wholly dedicated to these pursuits, many of these solutions will take time. It’s going to require action at the national, state, and local levels, so there’s a lot of work that can be done in parts of the country right now, while we wait for more favorable conditions on the national level.
For example, in King County, which encompasses my home of Seattle, a County Councilmember named Girmay Zahilay proposed a Regional Workforce Housing Initiative,” which aims to direct “at least $1 billion in excess debt capacity to build and maintain rent-restricted housing units, with rents set to reflect the true cost of development and operation.” And next year, Seattle voters will have their say on an initiative that would fund the city’s newly formed social housing developer program. Statewide, Washington state leaders have made good progress toward tenant protections including good cause eviction, and they’re making an effort toward rent stabilization along the lines of what Callaci discussed in his Pitchfork Economics episode.
The most important thing that progressives should be doing right now is getting the word out about solutions to our housing crisis — we have to turn conversations about inflation, homelessness, and inequality back to housing whenever possible, and be evangelical about making sure people understand that housing is the weakest link in our current economy. Once we get a critical mass of people to recognize the problem, the solutions are out there and ready to be written into law.
Overrated Story of the Year: The American people are hungry for centrism
The wide world of punditry seems to have coalesced on a plan for Democrats to win back the White House and control of Congress in the next few elections: Run to the center and embrace commonsense, fiscally responsible policies beloved by moderates of both parties. Respectfully, those pundits are exactly wrong. Voters did send a clear message on Election Day: They wanted change. And they were eager to vote for middle-out policies.
As I wrote in the post-election Pitch: Consider the fact that voters in three states that went firmly for Trump — Alaska, Missouri, and Nebraska — all passed initiatives establishing paid sick leave on the ballots this year. Alaska, Missouri, and Arizona all passed measures to raise the minimum wage, and Arizonans also rejected an initiative that would have decreased the tipped minimum wage. Five of seven Trump-voting states also passed right-to-abortion laws that enshrine women’s autonomy into state law, and Florida’s right to abortion initiative garnered a clear majority but fell just short of the 60% approval rating required to pass.
These are popular, populist policies that broadly benefit the majority of Americans, and they do not resemble the Trump Administration’s trickle-down policy agenda at all.
And if you needed any more evidence that the American people are looking for real change that refocuses the economy on workers, look no further than the populist outcry against greedy for-profit health insurance companies last month. These are angry people on both sides of the aisle who want a healthcare system more like that of other wealthy nations, providing affordable care to everyone, not just the few who can afford it.
Socialized medicine may not sound like a centrist idea, but that’s because we’ve been defining centrism incorrectly for a long time. For the New Republic, Nick Hanauer explained that “there is no inherently centrist ideology. According to an analysis by 538, the large plurality of voters who self-identify as moderate are in fact “all over the ideological map.” That’s why if you ask the average person to describe an ideologically centrist policy position, they usually default to the position they already hold.”
This foolish idea that the ideal policy that everyone wants is somewhere in the perfect center of left and right is one of the most damaging, longest-held beliefs of pundits and consultants. What people want, Nick explained, is a suite of policy solutions that focus on the true center of the American economy: Working Americans.
…it’s important to understand exactly what the center is measuring. Imagine lining up every person in America on a yardstick, with the poorest person standing to the far-left edge of the stick (zero inches) and the wealthiest person standing to the far right (36 inches). Assuming that people are equally spaced, and that there is no correlation between wealth and weight — if you could balance that yardstick on the tip of your finger — the fulcrum would fall on the 18-inch mark, the exact center of the yardstick, with exactly half of all Americans standing to the left, and the other half standing to the right. Clustered on and near that 18-inch mark are the median American families — the middle-middle class: the majoritarian center of the American electorate, at least from an economic perspective.
Now imagine that very same yardstick with every American standing in their very same spots — only this time, rather than balancing people, we are balancing their personal wealth, stacked up in $100 bills. But because 2 percent of Americans (of which I am one) own 50 percent of the nation’s wealth, to balance this yardstick you’d now have to slide your finger nearly all the way over, beyond the 35-inch mark, just inside the far-right edge. This fulcrum balances the interests of capital versus the interests of working people. And unfortunately, this is the yardstick that represents the reality of political and economic power distribution in the United States. It’s the yardstick of the neoliberal center — a centrism informed by the bad economic theories that guided the policies of both parties for more than 40 years.
In other words, supposedly centrist, politically moderate policies tend to focus on preserving the status quo by centering their policies on the wealth of the richest few Americans: Tax cuts and deregulation, usually accompanied with programs that punish impoverished Americans with means-testing and complicated voucher requirements even as they hand out goodies to the wealthy few.
But to grow the economy and improve outcomes for everyone, we need policies that focus on the great American working class by growing paychecks, reducing costs, and investing deeply in improving the economy for everyone.
Policies like affordable childcare, affordable healthcare, and worker protections aren’t just broadly popular and hugely beneficial — they’re great for the economy because they get more people working and they increase consumer spending. It’s only by focusing relentlessly on improving the lives of working Americans that Democrats can win elections.
That’s the message we have to bring to new candidates and policymakers as we enter 2025. We face a lot of challenges in the year ahead, but we will also undoubtedly see some exciting opportunities, too. It’s incumbent on us to stay positive and stay alert for those opportunities so we can continue to fight for the great American working class. I’m excited to fight alongside you.
Onward and upward,
Zach
2024: The Year in Economics was originally published in Civic Skunk Works on Medium, where people are continuing the conversation by highlighting and responding to this story.