The Pitch: Economic Update for January 16th, 2025
Friends,
You have no doubt noticed that the experience of shopping in brick-and-mortar stores has grown increasingly awful over the past decade-and-a-half. Most pharmacy chains now greet shoppers with aisle after aisle of empty shelves, and many Targets have hidden a huge portion of their stock behind locked shelves that require you to find an employee to open them.
Maybe you’ve assumed that the retail shopping experience has been on the decline because of the rise of online shopping, or to stop people from shoplifting. But in a very interesting piece for Bloomberg, Amanda Mull instead points to a different reason for the degradation of the retail shopping experience: “This transformation is a symptom of what Bloomberg Opinion columnist Beth Kowitt describes as ‘the revenge of the bean counters,’” Mull writes. “Across industries, career bankers and financiers have taken control of a growing number of companies, appointed by boards searching for a steady hand in turbulent times or installed by private equity owners to wring more profit from businesses.”
“When the Great Recession kicked the legs out from under retail, management consultants, tech experts and corporate financiers without much or any industry experience flooded in, sometimes ascending to the top post, as they did at Gap, Barnes & Noble and, more recently, Nike,” Mull continues. “These executives were billed as clear-eyed outsiders — people who could transform a dusty industry, unencumbered by the baggage of its traditions.”
But without any retail experience to speak of, these data-driven financial executives immediately began to degrade the shopping experience, adding self-checkout machines and slashing the number of employees on the sales floor, taking away the pleasures, surprises and delights of shopping trips, and transforming shopping into an unpleasant, arduous, even hostile experience. They used data to make their cases, and they failed to recognize that the most essential aspect of the retail experience — customer service — can’t be accounted for in their spreadsheet.
As a result, every once-beloved firm that put financial whiz kids in charge lost their luster. “Nike Inc. spammed the market with so many retro sneaker reissues that people lost interest. Barnes & Noble Booksellers Inc. went all in on the Nook, its Amazon Kindle competitor, and lost more than $1 billion. Gap Inc. fell behind the trends it used to set,” Mull writes.
Just yesterday, Hallie Steiner at Fortune reports that Walgreens CEO Tim Wentworth admitted that his company’s declining sales are in large part an end result of the pharmacy chain’s decision to lock up large swaths of its inventory in cases that can only be opened by summoning an employee.
“When you lock things up,” Wentworth said on the Walgreens quarterly investor call, “you don’t sell as many of them. We’ve kind of proven that pretty conclusively.”
Of course, any Walgreens customer who’s walked into a store once in the past three years could have told Wentworth this.
The good news is that some of the chains that flipped away from the so-called bean counters in order to return to a customer-centric, enjoyable retail experience are already seeing renewed customer interest. Mull cites Abercrombie & Fitch as one such success story, bouncing back from death’s door to growing sales. Barnes & Noble, too, is set to open five dozen new stores around the country now that they’ve moved away from trying to copy Amazon and focused on making their shops into local hubs.
Mull explains that these retail chains have realized that…
…even in the age of e-commerce, many companies have been undervaluing their own stores. Finding customers online through ad targeting used to be cheap and preferable, but the calculus of Meta Platforms Inc.’s and Google’s ad networks has changed. “Now that we have a real sense of how much it costs to acquire customers online versus in store, it’s much cheaper to do it in-store,” Retail Strategy’s Amlani says. Shoppers who buy in person also return things at a far lower rate, don’t commit as much fraud and don’t need retailers to subsidize their last-mile shipping costs, which are all existential problems plaguing the same companies online. Suddenly, brick-and-mortar retail — when it’s run by people who actually understand shopping — looks pretty efficient after all.
What do trends in chain retail stores have to do with economics? The financialization of the retail industry is a small-scale metaphor of what happens when trickle-downers take charge of government institutions and begin hacking away at investments in working Americans. In the immediate term they can make the case that cutting funding for benefits and adding complicated means-tested qualifications for people trying to access those benefits result in savings for everyone else. But in the medium-to-long term, those lost investments result in less money circulating through the local economy and, ultimately, fewer jobs created.
I think elected leaders can learn some very important lessons from the decline of brick-and-mortar retailers. First, before making any policy choice, it’s important to keep an eye on the holistic impacts of potential changes. A bean counter who is only focused on quarterly profits might see locking up a store’s inventory as an obvious solution to shoplifting. But a human being with an understanding of human behavior could immediately pinpoint the problem in that plan.
And that leads into the second, and probably most important, lesson to take from this story: You can’t see the whole landscape from the executive office. Wentworth and other Walgreens CEOs clearly didn’t pay attention to any of the thousands of store employees who could see the immediate failures of their plan to lock up their stock, and they appear to not have stepped foot into a single store as an anonymous customer to experience the real-world results of their decisions.
The populist pushback against CEOs and politicians we’ve seen over the past few years has come as a shock to most of the wealthiest and most powerful Americans, and that’s in large part because they have no idea what it’s like to be a working American. Back when CEOs earned 20 times the pay of their typical workers in the 1960s, they still experienced the world in much the same way that their employees did — they didn’t fly exclusively on private airplanes or live in an all-encompassing bubble of wealth. But now that CEOs earn 399 times the pay of their average workers, they’re living on a completely different planet.
Or, to extend a central metaphor of middle out economics: When restaurant workers make enough money to eat in restaurants, that’s good for everyone. And when the Walgreens’ CEO makes enough money that he never has to set foot in a Walgreens store, that’s bad for everyone.
The Latest Economic News and Updates
High Food and Energy Costs Keep Inflation at Top of Mind
“The Consumer Price Index rose 0.4 percent from November, and was up 2.9 percent from a year earlier,” Ben Casselman reported in the New York Times yesterday. “It was the fastest one-month increase in overall prices since February, driven in part by another sharp rise in the price of eggs and other groceries.”
Courtenay Brown at Axios reports on a silver lining that many economists have been touting in the latest inflation report: “Core CPI, a closely watched underlying measure of inflation that strips out food and energy costs, rose 0.2% in December. That breaks the four-month-long streak of 0.3% increases.”
The problem with heralding a metric that strips food and energy costs from inflation data, of course, is that every single American consumes food and energy on a daily basis. Taking out those costs might remove volatility from the inflation data, but it hardly reflects the daily experiences of Americans.
“Grocery prices, which were relatively flat in late 2023 and early 2024, are rising again, led by the price of eggs, which is up by more than a third over the past year,” Casselman writes. “Gas prices jumped 4.4 percent in December, although they were lower than a year ago.” (Egg prices have climbed with a rising number of bird flu cases, although we should also note that the bird flu was blamed the last time egg prices skyrocketed, but those price increases were largely the result of greedflation and market concentration.)
It seems as though the Federal Reserve is likely to respond to this news by keeping interest rates flat for a while longer. Remember, the Fed inaccurately believes that inflation is caused by a strong labor market, so their goal is to raise the interest rate in order to “cool demand” — effectively, shrink paychecks and make it harder for people to find work. Economists including Obama adviser Larry Summers have previously called for 10 million Americans to lose their jobs in order to bring inflation down.
In reality, keeping interest rates high will only keep the cost of mortgages near 20-year highs, and make credit card bills more expensive for ordinary Americans. We continue to be caught in a negative feedback loop of high prices, high housing costs, and frustrated economic leadership in the Federal Reserve.
Mixed Signals in the Labor Market
“Employee engagement — the involvement and enthusiasm employees feel toward their work and workplace — is at a 10-year low, per a Gallup survey out Tuesday,” Emily Peck writes at Axios. As you can see on the chart below, satisfaction is nowhere near the lows of the Great Recession or the post-9/11 depths of the job market, but it has fallen considerably from the highs of the pandemic-era period where worker paychecks were growing at a remarkable clip. (You may remember that was the point when low-wage employers were whining that “nobody wants to work anymore.”)
Here’s what that dissatisfaction with the job market looks like for individuals: “Fewer employees said they clearly know what is expected of them at work, down 10 points from a high of 56%,” Peck reports. “Only 39% of workers feel strongly that someone cares about them as a person at work, down from 47%,” and “Only 30% said that someone encourages their development, down from 36%.”
We can’t stake our entire understanding of the economy on a self-reporting economic survey. But a Business Insider report by Aki Ito explains that the labor market is currently in a strange situation in which whole swaths of workers are experiencing a job market that feels recessionary.
“Unemployment is near a five-decade low. The economy is adding hundreds of thousands of jobs each month. Wages are growing faster than inflation,” Ito writes. “By all the standard measures, the job market is doing just fine.”
Ito says that a recent report from Vanguard finds that the labor market is behaving very differently for high-wage workers than it is for low-wage workers. And for once, when you look at the hiring rate — the number of hires as a percentage of all employed Americans in a given month — low-wage workers are getting the better end of the deal:
“Among Vanguard’s lowest earners — those who make less than $55,000 — the hiring rate has held up well. At 1.5%, it’s still above pre-pandemic levels,” she reports.
“But among those who make more than $96,000? It’s pretty depressing. Hiring has slowed to a dismal 0.5%, less than half the peak it reached in mid-2022,” Ito explains. “Excluding the dip in the early months of the pandemic, that’s the worst it’s been since 2014. If you make a six-figure salary, it really is a bad time to be looking for a job.”
Ito offers three potential suggestions for why hiring has slowed for higher-wage workers. Perhaps fewer white-collar workers are quitting, she speculates, or maybe the industries that are performing the slowest are also the highest-paying. Maybe the layoffs in Silicon Valley have caused serious damage for the middle-manager class. Or possibly “companies are anticipating tough times ahead and trimming their budgets accordingly” by trimming the highest-paying jobs first and continuing hiring for the essential workers at the bottom end of the wage scale.
If there is a kind of quiet recession happening in the white-collar labor market, that would explain the dissatisfaction and confusion that Gallup is seeing in their workplace satisfaction polling. (And it might also explain why CEO optimism is currently running high, with corporate executives feeling positively giddy about factors including the job market. If white-collar workers are feeling desperate, that’s great news for the corner office.)
This situation has been reversed for so long, with low-wage workers suffering through poor hiring and retention conditions for most of the last 40 years of trickle-down economic dominance, that it’s hard to predict exactly what this uneven distribution of hiring and growing work dissatisfaction might mean for the whole economy. A good rule of thumb for middle-out economics is that we all do better when we all do better. Anything that makes it harder for workers to get paychecks is bad for everyone, because it means those workers no longer will have money to spend in their local economies.
This Week in Trickle-Down
- Even though California has price-gouging bans in effect that should stop LA landlords from raising rents more than 10% to exploit people seeking shelter from the wildfires that have devastated the city, the New York Times reports that “of more than 400 listings in the Central Los Angeles and San Fernando Valley areas, about 100 had raised rent more than 10 percent since Tuesday.” Some of those rents have been jacked up by as much as 124%. Worst of all, “it falls on tenants to report the rent increases and fight them,” the Times reports. California lawmakers need to update this price-gouging law in the weeks and months ahead; a law with no enforcement is basically no law at all.
- Goldman Sachs believes that the first year of the Trump Administration will be a banner year for mergers and acquisitions, and they’ve put together a portfolio of the 60 companies that they believe will be the most likely to be acquired by larger companies, reports Sherwood. That’s bad news for the American people: Mergers and acquisitions reduce competition both for workers and consumers, driving wages down and prices up.
- Republican leadership might try some tricky budget math to hide the detrimental effects of the proposed Trump tax plan extensions, which many experts predict will add $4.6 trillion to the national debt.
- “UnitedHealth Group is charging patients a markup for key life-saving drugs that could easily exceed their cost by a factor of ten or more, according to findings from the Federal Trade Commission.” As the headline of this Fortune piece puts it, that means UnitedHealth “overcharged some cancer patients for drugs by over 1,000%.”
This Week in Middle-Out
- “In the last week of Federal Trade Commission chair Lina Khan’s tenure, the agency sued John Deere for ‘unfair corporate tactics’ that have made repairs to the company’s farm equipment difficult and expensive,” reports new financial news site Sherwood.
- Even though the federal government will be under Republican control, that doesn’t mean that middle-out economics has been halted. States and cities around the country can continue to find new ways to improve the economy for working Americans. The Center for American Progress published a list of eight ways that state leaders can build worker power without any help from the federal government.
- EPI published a report showing how poverty disproportionately impacts children of color. Note in the graph below that the 2021 poverty rates for all races was significantly lower than the next two years. That’s the positive impact of the expanded Child Tax Credit, which sent checks directly to families with children, and which Congress allowed to expire in 2022. We could largely solve the problem of child poverty in America by renewing the expanded CTC.
This Week on the Pitchfork Economics Podcast
Gary Gerstle joins NIck and Goldy this week to discuss his latest book, The Rise and Fall of the Neoliberal Order. They have a long and smart conversation about the history of how trickle-down neoliberalism came to dominate both political parties in Washington DC for multiple decades, and why neoliberalism’s hold over politicians is finally loosening.
Closing Thoughts
Soon after the inauguration on Monday, the first big trickle-down push of the Trump Administration will begin.
“Beginning as soon as this month, Congress may start to debate whether and how to extend the expiring provisions of the 2017 Tax Cuts and Jobs Act,” reports Shayna Strom at the Washington Center for Equitable Growth. “This law delivered large benefits to wealthier people and to corporations under the old (and oft disproven) theory that tax cuts for those at the top of the income distribution would ‘trickle down’ and spur stronger economic growth.”
“Instead,” Strom continues, “by most accounts, those tax cuts were a disaster for the economy: They added $2 trillion to the national debt and did not benefit the vast majority of Americans.” Who did benefit? “The research shows that nearly all of the $1.3 trillion in C-corporation tax cuts benefited high-income executives and shareholders, not working families.”
Because we’ve lived under the shadow of trickle-down economics for four decades, it’s quite possible that the majority of Americans have no understanding of what a truly progressive federal tax code even looks like. Even Democratic leadership for most of the last 40 years has only quibbled around the margins of the trickle-down tax code that Reagan and Republicans put into place in the 1980s. As a result, for the majority of Americans, it’s normal that workers pay more in federal taxes than their CEOs.
Strom helpfully lays out three reasons why progressive taxation is better for everyone in the economy.
First, progressive taxation helps to reduce inequality by circulating money through the economy, rather than keeping it hoarded in the coffers of the ultra-rich. Strom notes that “economist Alan Krueger estimated that because of increasing inequality between 1979 and 2007, aggregate consumption was about $440 billion lower every year than it would have been if lower-income consumers had grown more prosperous.”
“Second, taxes generate revenue that can be used to fund growth-enhancing public investments, such as universal child care and climate change mitigation, and to reduce long-term fiscal risks,” Strom writes. “Indeed, returns to the greater economy from public investment in children alone are significant, with some programs returning $10 for every $1 invested in children back to society.”
And lastly, taxes can be used to incentivize behavior that benefits all of society, not just the wealthy few. Providing tax breaks to companies that raise prices in order to plump up their bottom line through greedflation only encourages that kind of behavior, for example. Instead, the government could provide tax breaks for companies that rage employee wages, invest in training for workers, or reinvest a certain amount of profits back into programs that ensure the long-term viability of a company. It’s easy to imagine, say, large tax breaks for oil companies that are seeking to pivot into green energy instead.
Strom does an excellent job of clearly laying out an alternative path forward for progressive taxation. When you’ve been living a certain way for decades, it becomes challenging to envision living any other way. As trickle-downers prepare to rig the tax code even further in favor of the super-rich and powerful, they’ll be eager to present those tax cuts as an inevitable, normal continuation of the natural order of things. It’s up to all of us to dream bigger, and to explore ways we can make the economy work for everyone — not just the few at the top.
Onward and upward,
Zach
Short-Term Solutions to Long-Term Problems was originally published in Civic Skunk Works on Medium, where people are continuing the conversation by highlighting and responding to this story.