With the recent decisions of the US Supreme Court destroying federal enforcement of civil rights and business regulation, and the public hearings of the House select committee investigating the attack on Capitol Hill, economic news has been displaced from the center of the public conversation. That’s a shame for two reasons.
First, Joe Biden appears to be centering his presidency around the idea of rebuilding the middle class through government investment in ordinary Americans. This is a major change, a sea change, from the last 40 years of Republican policy that says the economy would prosper if only the government reduced taxes and regulations, leaving more money and power in the hands of business leaders, those “creators” who would invest in new industries and provide more jobs. Observing the effect of his policies is a window into what works and what doesn’t.
Second, Republicans are counting on anger over inflation, shortages and gasoline prices to win control of the House and Senate in the fall elections. It’s worth paying attention to what’s really going on with those issues, as well as the policies that Democrats and Republicans are putting on the table to address them.
On the first point: Biden has focused on rebuilding the American middle class that has been so terribly hollowed out over the last 40 years. While he appears to be motivated by his belief in the dignity of all Americans and their right to be able to make ends meet with a decent job, historians will tell you that in the US, racial and gender tensions are significantly lower when income and wealth are distributed more equitably than when a few people at the top of the economic ladder control most of the nation’s capital. The rise of lynching in the US in the late 1880s, just as trusts came to monopolize the economy, was no coincidence.
The Republican economic promise since Reagan has been that cutting regulations and taxes would create a healthy economy in which everyone who is willing to work can prosper. But the political commentator thom hartman put together the stats in a crystal clear Twitter thread a week ago, revealing just how badly that argument has failed.
Hartmann noted that after World War II, “the nation had hummed for 40 years with a top income tax of 91% and a corporate income tax that exceeded 50%.” Businesses were growing faster than at any time before, and entrepreneurs stayed out of politics. The country had excellent public schools, research laboratories, trade schools, airports, interstate highways, and small businesses, as well as unions that protected American workers.
The election of Ronald Reagan meant sweeping tax cuts (from a top marginal rate of 74% in 1980 to 27% today), corporate deregulation, and the dismantling of social safety nets. Forty-two years later, Hartmann notes, more than $50 trillion has been transferred from the bottom 90% to the top 1%. In 1980, 60% of us were middle class; now less than half of us are. The Republicans promised that allowing business concentration would generate innovation and opportunity; instead, we have seen the end of competition, along with price gouging and speculation by giant companies stifling small businesses. Share buybacks were supposed to mean that top executives would care more about the future of their companies, but instead they have become a means for them to pocket cash.
Since the beginning of his term, Biden has tried to come to terms with the concentration of wealth and power among a few elites. Biden’s investment in the American economy through the American Rescue Plan and the bipartisan infrastructure bill has produced significant results. On Friday, the Bureau of Labor Statistics released nonfarm employment figures for June, showing employment continuing to rise. The economy added 372,000 jobs in June, mainly in “professional and business services, leisure and hospitality, and health care.” We are still 524,000 jobs short of February 2020, before the pandemic. Unemployment remains at 3.6%, with around 5.9 million people unemployed.
There were some interesting trends in the data. There are 880,000 more jobs in business, computer design, management, and research than there were in February 2020. There are 260,000 more jobs in ambulatory health care now than there were in February 2020, but hospitals have lost 57,000 workers, and nursing and residential care have lost 379,000. Leisure and hospitality – restaurants, for example – have lost 1.3 million jobs, or 7.8% of their workers, since February 2020 (although the sector is growing again).
But check this out: Transportation and warehousing have grown rapidly, with 759,000 more jobs than in February 2020. Manufacturing is back to where it was in February 2020, suggesting that Biden’s emphasis on repairing supply chains is paying off.
And in the last year, wages have risen 5.1%. That, along with increased pressure to unionize, suggests that workers have more power than before the pandemic.
This data suggests that people are moving away from restaurant, leisure, and nursing work (all professions hit terribly during the pandemic) and toward transportation and office work. The increase in wages reflects greater bargaining power on the part of employees. This isn’t all rocket science, I know, but it does suggest that the economy is reorganizing itself, at least temporarily, in new ways since the pandemic began.
This is of interest as we try to figure out what is going on with inflation, which is currently affecting not only the US but also the rest of the world. That story tells us something about the success of the Republican program identified by Hartmann.
One reason for inflation has been the concentration of business power since the 1980s. A June report by three economists at the Federal Reserve Bank of Boston noted that “the American economy is at least 50% more concentrated today than in 2005” and that such concentration amplifies the degree to which companies pass on price increases to consumers as companies overcompensate for rising costs of production. In the oil industry, the report notes, as prices rose, companies posted staggering profits.
The price of gasoline has been falling from its highest level during the last 25 days. Over the past two weeks, the average price of gasoline has dropped 19 cents a gallon, and as the price of crude oil continues to decline, consumers can expect prices to continue to decline as well, albeit falling more slowly than they rise in the past two weeks. a phenomenon researchers call “rocket and feathers.” That term refers to the fact that gasoline prices skyrocket along with the cost of crude oil, but fall more slowly as the cost of crude oil falls, in part because consumers are so glad to see some relief at the pump don’t shop around to lower prices.
One of the reasons for the crazy highs is speculation by largely unregulated energy traders creating massive price volatility. The lack of regulation is also making headlines Monday in another industry, as journalists from media organizations including The Guardian, the International Consortium of Investigative Journalists, and the Washington Post revealed how Uber evaded regulators by using a “knock switch.” shutdown” that shut down regulators’ access to the files they needed to monitor the company.
A showdown looms between the Democrats’ approach to the economy and the old Republican approach. Biden and the Democrats are trying to pass a $52 billion US Competition and Innovation Act (USICA) that would invest in US science and technology to boost US industry, support research and fund the manufacturing semiconductor chips to free the US from reliance on China for products But Republican Senate Minority Leader Mitch McConnell has vowed to kill the measure unless Democrats back down on a budget package that would fund Medicare by imposing of a 3.8% tax on income “passthroughs” taken by people earning more than $400,000 a year. year and would allow Medicare to negotiate drug prices, significantly lowering costs for consumers. It’s a matchup worth paying attention to.
Heather Cox Richardson is an American historian and professor of history at Boston College. She is the author of Letters from an American, a daily newsletter on American politics and history. This article originally appeared in their newsletter