The Pitch: Economic Update for January 23rd, 2025
Friends,
Over at the Big Picture blog, the anonymous blogger who goes by the name Invictus has delivered yet another strong data point in favor of raising the minimum wage.
Invictus, who you may recall spent most of last December forcing the trickle-down Hoover institution to withdraw a half-dozen reports that incorrectly claimed California’s $20 fast-food minimum wage killed jobs, has now cleanly compared California’s high-wage employment model against a similarly large economy’s low-wage model.
Specifically, Invictus compared limited-service restaurant employment — meaning fast-food restaurants, Starbucks, and other restaurants with counter and/or drive-in service — in California against the same numbers in Texas, where the minimum wage still languishes at the incredibly low federal minimum of $7.25 per hour.
“What we see is that [limited-service restaurant] employment growth between the two states moved in lock step for seven years, from Jan 2013 right up to the beginning of Covid,” Invictus writes. You can see in the below graph that California, which locked down for much longer than Texas and had a slower recovery due to strict safety restrictions, has taken longer to rebuild its employment numbers than Texas.
Invictus also notes that Covid death rates were almost a third higher in Texas over the first two years of the pandemic than the death rates in California.
“Here’s the rub, though,” Invictus adds. “While the two states’ [limited-service restaurant] employment has moved in virtual lock step, California has been raising its minimum wage throughout, for over a decade, while Texas has remained at the non-living wage of $7.25/hour.”
If you were given a choice between two places to live and you were presented with only Invictus’s two graphs to make your decision, it’s hard to imagine any worker choosing to live in a jurisdiction that only guarantees a $7.25 wage for an hour’s work. Comparing these two economies, Invictus concludes, “would appear to add support to the premise that minimum wage can be increased without catastrophic effects.”
This is yet another datapoint proving that economics is a choice. The states with the second-highest GDP in the union has chosen a trickle-down, low-wage route that prioritizes the wealthy and powerful above workers, while the state with the biggest GDP in the union has chosen to ensure that workers at the bottom of the wage scale are able to participate in the economy. Wealthy people and corporations in California continue to do very well, and the job losses for minimum-wage workers that trickle-downers always threaten never materialize.
And in fact, as time passes and more and more studies come in that expand the body of evidence, researchers are starting to find that raising the minimum wage creates jobs. This makes sense to working Americans — when you have more money, you spend more money, and when you spend more money, you create jobs — but it flies in the face of everything that economists have been taught in universities that have been wholly captured by trickle-down economics over the past four decades.
While the economists take time to catch up to the real world, and while trickle-downers try to figure out how to win back some of the territory that they’ve lost in their fight against the minimum wage, it’s important for all of us to get the good word out about what middle-out economics does for working Americans.
The Latest Economic News and Updates
The Inauguration Revealed the Trump Administration’s Priorities
It’s easy to dismiss presidential inaugurations as empty pageantry. But you can learn a lot when you pay attention to the details of inaugurations — at the very least, they suggest an incoming president’s priorities, and they often reveal which interests that president is interested in focusing on when they’re in office.
So it’s telling that Donald Trump requested the presence of many of the most prominent billionaires in America at his inauguration. Forbes estimated that the total net worth of billionaires in attendance equaled roughly $1.3 trillion. And it’s also telling that the billionaires were given a position of pride, seated right up front with the president’s family — in fact, they were given more prominent seating than members of Trump’s cabinet. (And it shouldn’t be forgotten that Trump’s cabinet is already breaking records as the wealthiest White House team ever assembled.)
Despite all of Trump’s campaign claims about fighting for working Americans, the inauguration clarified who he’s really seeking to center in all his policy positions — a government for, of, and by the billionaire class. And if you needed any more proof of where his priorities lie, one of the very first executive orders that Trump signed once the swearing-in was complete was an order rescinding President Biden’s Executive Order 14087, which was titled “Lowering Prescription Drug Costs for Americans.”
The order, which Biden signed in October of 2022, called on the Department of Health and Human Services to investigate “new health care payment and delivery models that would lower drug costs and promote access to innovative drug therapies for beneficiaries enrolled in the Medicare and Medicaid programs, including models that may lead to lower cost-sharing for commonly used drugs and support value-based payment that promotes high-quality care.”
Alexandra Gerlach at the Pharmacy Times reports that Trump’s rescinding of Order 14087 “has created significant uncertainty around federal efforts to reduce prescription drug costs. Although the reversal does not immediately impact established law such as the IRA, which caps insulin costs at $35 per month and limits annual out-of-pocket expenses to $2000 for Medicare beneficiaries, it does halt 2 key initiatives aimed at improving drug affordability.”
Gerlach explains that Trump killed “a flat $2 copay for generic medications under Medicare, a program intended to improve medication adherence among seniors,” and wiped out an initiative to reduce “Medicare’s payments for drugs approved under the FDA’s accelerated approval pathway, which allows medications to enter the market based on surrogate end points rather than full clinical efficacy.”
In other words, Trump simultaneously made generic medications more expensive for Medicare patients while also reopening loopholes that Big Pharma exploited to get drugs on the market without full FDA approval.
“For now, the repeal has introduced ambiguity about the federal government’s role in addressing rising prescription drug costs, leaving patients, health care providers, and policymakers awaiting further clarity on the administration’s long-term plans,” Gerlach concludes.
So in addition to coddling the elite billionaire class in his inauguration, Trump also prioritized Big Pharma and raised costs on medications for working Americans on day one — to say nothing of all the unconstitutional orders attacking the legal pathway to immigration. If you or anyone in your friend group had any doubts about where Trump’s priorities would be in his second term, he answered that question decisively on his first day back in power.
Federal Workers Are Workers
For the New York Times, Lydia DiPillis writes about the state of the federal workforce. “In the four years separating President Trump’s two terms, the federal civilian head count rose by about 4.4 percent, according to the Labor Department, to just over three million, including the Postal Service.” That is the biggest growth in government workers since the 1980s, she notes.
“But that’s a much slower pace than private payrolls have grown over the past four years,” DiPillis writes. “And it leaves the federal government at 1.9 percent of total employment, down from more than 3 percent in the 1980s.” As you can see here, the federal workforce is near an all-time low when compared with total employment:
But on his first day back in office, Trump signed an executive order establishing a hiring freeze on all federal employees, with a particular focus on halting hiring at the Internal Revenue Service. “No positions that were empty as of noon on Jan. 20 can be filled, and no new positions can be created,” Axios reports. And members of Trump’s so-called “Department of Government Efficiency” have claimed that they want to eliminate as many as 75 percent of the existing federal jobs.
Of course this hiring freeze will hurt the effectiveness of federal offices — that’s part of the point of trickle-down austerity measures, to make government work less efficiently in order to sour the American peoples’ relationship with the government. We’ve already seen how funding federal employees, at the IRS in particular, pays off for everyone in the economy, when the recent spate of new hires at the IRS brought in an additional $1.1 billion in revenue from just 1600 wealthy Americans in a single year, which puts the lie to the trickle-down claim that government employees are takers, and not makers.
But here’s a simple economic fact that trickle-downers never acknowledge: When you’re cutting government positions, you’re killing jobs. And when you’re killing jobs, you’re hurting the entire economy. Those federal employees who lose jobs will no longer have paychecks to spend in their communities, and the dip in consumer spending will start to chill job creation throughout the economy. When one of the largest employers in the U.S. initiates a program of hiring freezes and layoffs, you can expect the rest of the labor market to follow suit.
Our friends at the Economic Policy Institute also issued a new report on another widespread practice that’s hurting the labor market: Workers who are misclassified as independent contractors. Studies show that as many as 30% of employers misclassify their workers as contractors, even though they meet all the legal requirements to be considered employees.
By misclassifying their workers, these employers are stealing thousands of dollars from individual workers every year. Independent contractors generally aren’t protected by minimum wage, discrimination, and paid sick or family leave, and they’re not compensated in health insurance and other benefits that employees receive. Additionally, employers who are misclassifying workers aren’t paying into the social safety net on their behalf, which harms all workers benefiting from unemployment, worker’s compensation, and Social Security.
EPI has an interactive map which shows how much money independent contractors in every state across a variety of professions from truck driving to janitors and security guards are losing every year. For instance, in my home state of Washington, landscapers who are misclassified as independent contractors earn an annual average of $13,609 less than they should, and pedicurists and manicurists who are misclassified are shorted $14,219 per year. And Washington is losing $3248 paid into the social safety net for every independent contractor who has been misclassified, per year.
Over the last 40 years, we’ve allowed trickle-downers to divide and conquer the labor force in America. They’ve established that a whole class of workers — people who work for the government — somehow don’t deserve their paychecks, and they’ve radically expanded a whole classification for workers that isn’t usually subject to the same protections and benefits that every other worker receives.
A priority of the middle-out economics project over the next four years should be to argue loudly and repeatedly that in America, work is work, and every worker is entitled to certain inalienable rights. When trickle-downers argue that “burger-flippers” shouldn’t be entitled to a living wage, they’re seeking to create a division that they can then exploit with extractionary policies.
If our leaders argue that all work is important and worthy of protection, good compensation, and respect, that defuses one of the most important weapons in the trickle-down arsenal.
Credit Card Debt and Home Prices Continue to Plague Americans
“Americans have been digging themselves deeper into a hole of credit card debt over the last several years, and some financial experts think debt pain will peak this year,” writes Jennifer Sor at Business Insider, “with more banks writing off loans and consumers making even deeper sacrifices to pay their credit card bills.”
“Measures of debt distress are already on the rise. More credit card balances are shifting into late payment status, with the delinquency rate on credit card loans climbing 3.23% in the third quarter, the highest level since 2011,” Sor warns. “Meanwhile, the charge-off rate on credit card loans — another measure of debt distress that refers to the percentage of card balances banks have written off their balance sheet — rose to 4.69% in the third quarter, the highest level in 13 years.”
Trickle-downers might want to blame this on wanton overspending by the American people, but these high numbers are caused by high credit card interest rates, not unnecessary purchases. Worst of all, these high credit card rates are not included in the monthly calculations of inflation, meaning that this is a burdensome expense for working Americans that the government simply isn’t recognizing.
While those numbers have been steadily increasing since the pandemic, it’s still important to note that credit card debt delinquency is still much lower than it has been since the Great Recession. In the 20 years before the Great Recession, delinquencies typically hovered somewhere in the 4 percent range:
While it doesn’t seem like we’re in the panic zone yet, the numbers are certainly trending in the wrong direction. “Americans are leaning on credit cards to get by more than ever,” Sor continues. “Household credit card balances surged to a record $1.17 trillion as of the third quarter of 2024, up $360 billion from the third quarter of 2020.”
And that bad news comes at the same time as another report signals a growing price pressure for ordinary Americans. Hyunsoo Rim at Sherwood.news shares a new Redfin report that finds the “median US home price jumped 6.3% year over year in December, with prices rising in all 50 of the most populous metros, the first time that’s happened since May 2022’s pandemic home-buying boom.”
Rim points out that in 2022 mortgage rates were at rock-bottom levels, and it’s shocking that home prices continue to spike even though the mortgage rate topped 7% this month.
“Meanwhile, inventories simply can’t keep up with demand, new housing construction continues to fall, and many home sellers are willing to hold out for the price they want, having seen their neighbors sell for thousands over the asking price during the pandemic,” Rim reports.
Rim also digs into the data and hints at a potential solution to the housing price problem: “Metros with the smallest price jumps were in Florida and Texas — states that also happened to build the most new homes in the country in 2023.”
These twin crises, of high credit card debt and skyrocketing housing prices, are both caused in part by high interest rates, which is a lever that is controlled by the Federal Reserve. It seems unlikely that the Fed will significantly lower rates anytime soon, however, because inflation remains stubbornly higher than the Fed’s goal of 2%.
And it must be said that of all the executive orders that Trump signed on his first day in power, exactly zero of them were aimed at helping Americans with either of these problems. It appears that it’s up to state and local leaders to help people with debt and high housing costs.
This Week in Trickle-Down
- “President Trump’s Inauguration Day executive order undoing Joe Biden’s multibillion-dollar effort to usher in a transition to electric vehicles, has rocked the auto industry, environmental groups and other stakeholders as they grapple to understand the likely impact,” reports Lauren Kaori Gurley at the Washington Post.
- The Center on Budget & Policy Priorities reports that “A new House Republican budget and tax options list, reported in Politico, confirms their agenda: massive cuts that take away or cut health coverage, food assistance, income assistance, and the Earned Income Tax Credit (EITC) for millions of people in service to their profligate tax cuts for the wealthy and corporations.”
- Donald Trump’s Office of Management & Budget chair nominee, Russell Vought, told the Senate nominating committee yesterday that tax cuts “dynamically” increase revenues. Just for the record, this is a classic trickle-down claim and it is absolutely, one-hundred-percent false. In fact, Trump’s last round of tax cuts brought in record-low revenue levels.
- “Recent proposals from Republican congressional leaders and conservative think tanks would cut Medicaid by taking coverage away from people who don’t meet unnecessary and burdensome work requirements,” write Gideon Lukens and Elizabeth Zhang at the Center on Budget and Policy Priorities. “We estimate that 36 million Medicaid enrollees — including people in every state — could be at risk of losing their coverage under various proposals.”
This Week in Middle-Out
- In a big win for the United Auto Workers union, “Stellantis, the company that owns Chrysler and Jeep, said on Wednesday it planned to reopen a factory in Illinois and increase production elsewhere in the United States,” reports the New York Times.
- Elsewhere, Teamsters members who work at Costco overwhelmingly voted to approve a strike if management refuses to negotiate with the union. Barron’s reports that the union is “asking the company to increase wages and to improve benefits such as pensions and job security.”
- Some 12,000 government contractors at call centers for 1–800-Medicare and healthcare.gov are still fighting to form a union, reports Capital & Main. They’re calling for “A starting wage of $25/hour, better health insurance, and breaks between calls.”
- “Without Social Security, 22.0 million more adults and children would be below the poverty line,” writes Katherine Romig at the Center on Budget & Policy Priorities. ”Although most of those whom Social Security keeps out of poverty are aged 65 or older, 5.7 million are under age 65, including 959,000 children.”
This Week on the Pitchfork Economics Podcast
Almost every nation that held an election last year saw the incumbent party thrown out of power by a restless electorate. In this week’s podcast, Paul and Goldy take a look at the one nation that bucked the international trend: Mexico. Journalist Kurt Hackbarth joins the podcast to explain how the leader of Mexico’s incumbent progressive party, Claudia Sheinbaum, managed to win an election despite those strong headwinds. If you’re looking for a roadmap forward for middle-out economics, you will likely find some inspiration in this conversation.
Closing Thoughts
Last week, I wrote about why wealthy CEOs from the financial sector have ruined the experience of shopping in retail stores for customers. This week, The Nation’s Ann Larson adds a more sinister angle to that story with her deep dive into how big grocery chains are using surveillance technology to jack up prices on customers.
“Representative Rashida Tlaib of Michigan and 13 colleagues wrote to the CEO of the supermarket behemoth Kroger in November about electronic price tags (often called electronic shelf labels or ESLs),” Larson writes.
“These digital displays allow companies to change prices automatically from a mobile app. Tlaib warned that this so-called ‘dynamic pricing’ permits retailers to adjust prices based on their whims,” she continues.” Just as Uber raises prices during storms or rush hour, retailers like Kroger use ESLs to adjust prices based on factors like time of day or the weather. Supermarkets could conceivably mine a shopper’s personal data to set prices as high as possible.”
Larson notes that Senators Elizabeth Warren and Bob Casey have “also voiced concern about Kroger’s partnership with Microsoft to install facial-recognition technology in stores, which could be used to identify individual customers.” If Kroger has access to the income levels of individual shoppers, it could raise the costs of items for each customer, wringing exactly as much money as possible out of everyone who walks into the store.
Grocery analyst Phil Lempert gushed to NPR last summer about the dynamic pricing technology: “If it’s hot outside, we can raise the price of water and ice cream,” Lempert announced, seemingly unaware of the fact that the vast majority of Americans would find his proposed use-case to be absolutely horrifying.
“Meanwhile, other chains are moving swiftly to install dynamic pricing technology. Walmart plans to install the tags in 2,300 stores by 2026,” Larson writes.
Walmart and Kroger have tried to present the electronic signage as positive developments that save workers time and eliminate the waste of printing and distributing new signs on a weekly basis.
But Larson reports that the signage, when put in practice, actually created more work and made grocery stores more physically unpleasant. Joe Mizrahi, the secretary treasurer of Washington state’s UFCW Local 3000, explained the problem with electronic signs in a local Kroger store: “ESLs were constantly breaking so you would walk down the aisle and there would be duct tape with the price written on it because the digital pricing wasn’t working, and you couldn’t use it on shelves over a certain weight.” Another union representative at a Fred Meyer told Larson that “These digital strips that relay this information, they literally emit heat that makes the stores warmer than it would be otherwise.”
Even if the electronic price tags work exactly as intended, experts warn that the price-fixing they could enable would make the greedflation we saw during the pandemic feel like a stroll in the park.
To be clear, this is not about being a Luddite. None of us should be constitutionally opposed to the emergence of new technology. Technological advancements have saved countless lives and improved the quality of life for virtually everyone on the planet.
But part of the reason we have governments is to protect us from the downside of technological advancements. Regulations and smart policies can protect consumers from the high-tech price-gouging that electronic signage and face-recognition devices could facilitate. From speed limits to removing lead from paint to online banking regulations, the government has for more than a century stepped in to protect Americans from the downsides of technological progress. Ending the practice of electronic sign price-gouging before it begins should be an easy win for lawmakers looking to show progress in the fight against corporate profiteering and rampant price increases.
Onward and upward,
Zach
A Tale of Two Economies was originally published in Civic Skunk Works on Medium, where people are continuing the conversation by highlighting and responding to this story.