National elections are won and lost on the economy. Of course they are: the state of the economy affects individuals’ job security, income levels, access to healthcare, education, and overall quality of life, so it’s not surprising that voters evaluate candidates based on their proposed economic policies and their ability to address pressing economic challenges. As we kick off a big year for elections and the economy, we take time in this episode to discuss the three most important economic issues that could shape the 2024 elections, especially at the presidential level. These are big challenges our country currently faces, and big challenges ought to be met with big transformative ideas that will improve people’s lives and grow the economy from the middle out.
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Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
President Biden:
It’s time to build our economy from the bottom-up and from the middle-out, not the top-down.
Nick Hanauer:
Middle-out economics is the answer.
President Biden:
Because Wall Street didn’t build this country, great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Announcement:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle-out. Welcome to the show.
Nick Hanauer:
Happy New Year, Paul, and welcome to 2024, the scariest year since 2020.
Paul:
Happy New Year to you, Goldy. Is there anything you’re looking forward to this year?
Nick Hanauer:
Yes, getting it over with.
Paul:
I can only assume that you are talking about the Presidential elections in November.
Nick Hanauer:
That’s right. As we refer to in my house, the end times.
Paul:
Well, that’s certainly going to dominate the year, and I certainly do miss the golden days of Presidential elections, like back when I was covering the 2012 Presidential election between Mitt Romney and Barack Obama, which seems so delightfully low stakes now.
Nick Hanauer:
That’s right. Remember when you and I were both Santorum delegates?
Paul:
That’s right. That’s right, we were trying to keep Santorum in the race a little longer, so we caucused for him. We did not succeed.
Nick Hanauer:
Unfortunately, no.
Paul:
Yeah. The good old days when Rick Santorum was on the ticket.
Nick Hanauer:
That’s right. This may explain why I still get Nikki Haley fundraising texts.
Paul:
So yeah, we are entering an election year, a Presidential election year, and it’s going to be quite the show, I believe. I don’t know about you, Goldy, but I believe that some of the fundamentals of election politics still holds true. I still think that the American people vote around their wallets, around the economy. If they’re doing well, they will vote for an incumbent, if they’re not doing so well, they will try something new. I think that despite all the efforts to push things to identity politics or whether insurrections are good or bad things, I think that when you get right down to it, I think that the economy is still going to be a huge defining issue of the election, if not the huge defining issue of the 2024 elections.
Nick Hanauer:
That’s right. As one of the great American statesmen once said, “It’s the economy, stupid.” And for that, I have a 2024 corollary because of how weird things have been over the past couple of years and that is, “It’s the stupid economy.”
Paul:
Well, why don’t you explain what you mean by that because while I appreciate the word play, I think that maybe it’s not as clear as you might think it is.
Nick Hanauer:
Yeah. So, a lot of people are afraid to say this because of course there are still people who are suffering. It’s not great for everybody, but my God, is this economy strong? I know we had this bout of high inflation, but we’ve also had high wage growth, and over the past couple of years, wages have actually grown faster than inflation. Not for everybody, but for most people, and particularly at the lower end of the income scale. So inflation has come down. We’ve had dramatically, and very quickly, much faster than was expected and without the two years of 7.5 Unemployment that people like Larry Summers austerely warned us, we have now 22 months in a row of below 4% unemployment. That is a 50-plus year record. We have higher than expected GDP growth.
We had a new Jobs Report come out today, which beat expectations. We have no sign of recession, despite all of the doomsaying. So, if you think about it, if elections are won or lost on the economy, then Biden should be doing pretty well and you should see it in the polls, but you’re not because people are still feeling pretty sour about the economy. It’s explainable, in that it takes a while for price expectations to be reset. And we had a spurt of inflation that many adults had never experienced in their lifetime. It’s been a long time since we’ve had that, decades. And so people are still feeling that things look like they’re expensive, even though in real dollars, they’re not really, other than a few important categories like Housing-
Paul:
And food, yeah.
Nick Hanauer:
Yeah. Yeah, well some food and also look, Americans have grown accustomed to cheap food. Food is, in many ways, a lot cheaper now than it was 40, 50 years ago, in terms of percent of your paycheck. The fact that it’s not as cheap as it was a few years ago, a couple of years ago before the pandemic, okay. I understand that and it feels expensive. But all in all, this is not just a strong economy, not just an economy that’s stronger than was projected, but an economy that is stronger than almost anywhere else in the world. The United States has done so much better coming out of the COVID pandemic than Europe, than China, than much of the rest of the world. And so, you would expect that to be reflected in consumer sentiment, and you would expect that to be reflected in Biden’s polling numbers and of course they’re not. So that’s what I mean by, “The stupid economy.”
Paul:
Yeah. And there are quite a few factors there. The beginning of last year, at least one survey of economists found that 85% of them predicted a recession to happen in 2023, and that set the tone for the year. And so, this year I’ve noticed economists are much more optimistic about how the economy will go. We’ll see if that’s bad news or not since they were so wrong last year.
Nick Hanauer:
That in itself is scary. I’ve said it before, that I now belong to the, nobody knows nothing about nothing school of economics. It’s literally impossible to predict such a chaotic system, so who knows what things will look like in November.
Paul:
Exactly. So there are things that we can’t control about the current situation. I think that it’s quite possible that if unemployment stays low and if prices continue to decline, or if prices stay even and even decline in the coming months, that Americans will feel better about the economy.
Nick Hanauer:
Well, to be clear, Paul, let’s use the right language. It’s disinflation not deflation. Prices are not coming down. They’re just not increasing at the rate they were increasing.
Paul:
Well, in some sectors, prices are decreasing.
Nick Hanauer:
Yes. Obviously, there’s volatile sectors, like food and fuel and housing.
Paul:
But, I think there are three primary economic areas that are really going to have an outsize influence on how people are feeling about the economy, and therefore, how they’re going to vote in November in the Presidential election. I wanted to talk about these three major economic areas, just to set the table so that we know what to be looking out for over the course of the year. There’s going to be a lot of nonsense. You can’t have a Presidential election without nonsense, but-
Nick Hanauer:
In a Presidential election? But Trump will add a certain amount of gravitas to the debate.
Paul:
And dignity, yes. But I think that these three economic issues could wind up shaping the 2024 elections, and ultimately, influencing the results one way or the other. So do you want me to walk you through the first one here, Goldy?
Nick Hanauer:
Yeah. You’ve got your three outlined, Paul, you have at it. Tell me what are we looking at for the coming year?
Paul:
All right. I think one of the biggest conversations we’re going to have in the economy, or especially one that the Biden team would want us to have over the coming year, is taxes, a conversation around taxes. And there’s a few issues at play here. One is, at the end of 2025, almost all of the major tax provisions of the tax cuts and jobs act that Donald Trump helped pass in 2017 will expire. And, that’s important for a lot of reasons. It means that this election is basically going to determine whether those cuts simply disappear, or whether they are renewed for another however long, five, ten years. And that act was in many ways the last gasp of Reaganomics. Do you want to talk about that a little bit, Goldy?
Nick Hanauer:
Yeah. Of course, it predominantly cut taxes on the wealthy and on corporations. And it’s important to remember that we have deficit hawks talking about the budget deficit and the National Debt, but if you eliminated the Trump tax cuts and the Bush tax cuts, again, mostly on the wealthy and on corporations, outside of extraordinary expenditures during the COVID pandemic and the Great Recession, that counts for 90% of our deficit over the past 20 years. So, it’s an incredibly irresponsible thing to do, to cut those taxes at the top. And in return, all the studies showed that we really got nothing out of it. We got lower tax revenues, we did not get a bump in business investment as promised. There’s no indication that we got a bump in job creation or wages, let alone the $4,000-a-year bump in income that Trump promised to the typical American household. So there’s very little to show for these cuts, other than increased profits for corporations, after tax profits, for corporations and hoarding among the super rich.
Paul:
Yeah, that’s billions of dollars that were taken basically out of paychecks, and out of the economy, and just moved over into the corporate profits, which have skyrocketed since the tax cuts were passed.
Nick Hanauer:
Right. And it’s important to understand that there’s a middle-out explanation for why this is true. Trickle down economics tells you that if you cut taxes on the wealthy and corporations, they’re going to invest all that money in creating new jobs, and everybody will benefit. But in fact, when you cut taxes on corporations, what you do is you dis-incentivize reinvesting in creating jobs and expanding manufacturing. Because, in fact, that was one way that companies used to use to avoid paying taxes. Because if you reinvested, it didn’t go straight to profit and get taxed. You cut that tax rate and now there’s less incentive to avoid taxes by investing in your own company, so of course you just do stock buybacks and dividends.
Paul:
And some of Trump’s campaign have already proposed even expanding the tax cuts this time around. So, this is clearly a conversation we’re going to be having over the next year. So, President Biden has proposed a more middle-out idea of what a tax code should be. He’s proposed restoring the Child Tax Credit, expanding the credit from $2,000 per child to $3,000 per child every year for children ages six and older, and $3,600 per child for children younger than six years old. And, he’s also proposed raising taxes for married couples with more than $450,000 taxable income every year, which is a very small portion of the population. Is it the top 1% Goldy, or is it the-
Nick Hanauer:
It’s the top 1.5%, probably.
Paul:
Top 1.5%. So, right up there.
Nick Hanauer:
Probably it falls… Yeah. Somewhere in that, close to the top 1%.
Paul:
Yeah. And, there are also proposals to raise corporate taxes, there are proposals to raise taxes on stock buybacks again. President Biden has already passed the first ever tax on stock buybacks. It was just a 1% tax, he’s talked about raising it to 4%. So there’s a real conversation here about why we tax, who we tax, and what taxes can do that I think should be a pretty important conversation over the course of the year. Because what Biden is proposing is taxing wealthy people at the share that ordinary Americans are paying, that the working Americans are paying, and then investing that in the economy to improve outcomes for the middle class. And it’s a great fight to pick because Americans, Republicans, Democrats, and Independents, love the idea of taxing the rich more because they’ve seen for the last 40 years what happens when you continually cut taxes on the rich. It doesn’t trickle down to anybody else, it just winds up floating up at the top of the income scale where they hoard it.
Nick Hanauer:
Right. And it drives inequality. One of the interesting things from our history is that the top marginal tax rate was never higher than in the 1950s during the Eisenhower Administration, when it was over 90%. That doesn’t mean 90% on everything you earn, just 90% above a certain rate. And, one of the things that was characteristic of that error was there wasn’t this huge disparity between CEO pay and the rest of the workers in the company because why bother? Because once you get above a million dollars, you’re being taxed at 90% back then. Today, tens of millions, $10 million, you’re going to be taxed at over 90%, it’s not worth making that money because you’re not getting most of it.
So, there was no incentive to have $100-million dollar payouts to CEOs. And so, it’s important to remember that taxes are about much more than just paying for stuff, or investing in things. Taxes are also a way in a market economy to maintain a certain amount of equity, both in wealth, and income, and in power. It’s a way of preventing extreme concentrations of wealth and power at the top, which ultimately undermine both the economy and our democracy.
Paul:
So the second issue that I want to talk about, bouncing off what you just said, is I think probably the most important metric for middle-out economics in general is, growing the paychecks of American workers. And I think that there are a whole bunch of different fronts in this. The hot labor summer that we saw last year with President Biden joining striking auto workers, for the first time in modern history, a President putting his finger on the scale of workers, was a huge thing. Hopefully-
Nick Hanauer:
What a scandal, siding with working people.
Paul:
Well, if you pay attention to op-ed pages, it was a huge controversy. It was the worst thing a President has done in the last 10 years. But yeah, I think most Americans appreciated that. So, we’re undoubtedly going to see more labor actions this year, and I think that conversation is going to keep going. I think there are things that Congress and the President can do to make it easier to unionize, to protect workers who want to unionize. And I think that should be a part of the conversation this coming year. I think one layup that I’m surprised has not happened already is a push to raise the Federal minimum wage, which let me remind you, is still $7.25 an hour for un-tipped workers, which should be a huge scandal. I think is one of the most shameful developments in American labor history is that it’s been at $7.25 since the beginning of the Obama Administration.
Nick Hanauer:
Since 2009.
Paul:
Yeah, 2009. So it was passed by the Bush Administration. And, you can say that, “Well, most places are paying much more than $7.25 for starting wages. But, the Federal minimum wage is important, along the lines of what you were saying about taxes, Goldy, in that it raises the bar for everyone. When you raise the minimum wage, it puts pressure on employers to raise their wages higher than the minimum wage. So I think we should be talking about at least $15 an hour now at this point for a Federal minimum wage, because there are millions of workers who are left behind in parts of the country that haven’t raised the minimum wage, including, perhaps most shamefully of all, your home state of Pennsylvania.
Nick Hanauer:
One of a number of states where the State minimum wage is the Federal minimum wage, and it has all types of effects up and down the wage scale. In most places, of course, what that means is we don’t actually have a minimum wage anymore because $7.25 is so far below the market rate. But remember, that’s not true for everybody. The people who really suffer the most from this are the least empowered workers, are the ones who have little ability to compete, either due to geography, or circumstance, or lack of documentation. These are the people who are being exploited the most, largely immigrants documented or not, working in small businesses where they don’t know what their rights are, either because of language barriers or whatever, do not have the ability to move to higher paying jobs, or don’t know that they have that ability.
So, it’s interesting, Paul, you said there are things that Congress and the White House can do. It’s important to separate these things out because there are some things that only Congress can do, and there are some things that the White House can do without Congress. Obviously, the minimum wage is something that, at the Federal level, Congress controls. And so, the President can provide leadership. I think it’s a great issue to run on, because the minimum wage is very popular. When you put minimum wage measures on the ballot in Red states, they overwhelmingly pass, and by large majorities. But obviously, the President can’t do this on his own.
That said, they do have, the White House does have rulemaking authority over things like the overtime threshold. The Biden Administration has proposed raising it to, what is it, $60,000-some a year, right? It’s in the 60s, I don’t remember the exact number. That would mean that anybody earning below that rate would automatically qualify for time-and-a-half overtime for every hour worked over 40 hours a week. We like to call overtime as the minimum wage for the middle class. We would like to see that go far higher. It should be closer to 85, 95, $100,000 a year. Hell, everybody should qualify for overtime, as far as I’m concerned.
But there’s also some things which the President has been doing very effectively, and that’s on issues of competition. For the first time in a long time, we have an Administration that is actually taking antitrust enforcement seriously.
Paul:
Yeah, and those things are important because they put competition back into the labor market. And as we saw in 2021 and 2022 when pandemic restrictions ended, and workers were rushing back into the labor market, that’s great for workers when there’s more competition, when employers have to compete to higher workers because it raises wages, remarkably quickly, and historically high.
So, the Biden Administration overtime threshold proposed is $55,000 annually. I was mistaking it with the New York State proposal, which raised it to $64,000 this year. So yeah, there’s a lot of room to go up in there, it’s a great start. But overtime is one of the most, I think, underappreciated labor standards, and we could use some more energy there.
Nick Hanauer:
And I also don’t want to underestimate the role of the bully pulpit on these issues, particularly we saw that with the UAW strike. The fact that the President did go to the picket lines and stand with workers, it was historic, and it was historically important because it was only a couple weeks later that you had Ford settle that strike after the President took sides with workers. And once Ford settled, GM settled, and Stellantis, I can’t get used to that. I’ll just say Chrysler settled. And then, after the big three settled, you had a bunch of the non-unionized automakers, largely in Southern states, announced that they were matching the UAW wage increases. Obviously, to try to head off attempts to unionize their plants, but it shows you that it’s not just union workers that win, it’s non-unionized workers in that same industry won from the strike, too.
And of course, one of the things that our plutocratic overlord, Nick Hanauer loves to say is that when workers have more money, businesses have more customers and hire more workers. So these historic wage increases in the auto industry are going to have a huge spillover effect on local businesses wherever these plants are located.
Paul:
Exactly, and that’s why wages matter all across the board. That’s why Biden and Democrats running for Congress should really not run away from raising the minimum wage, but call on raising it even higher than the past, because this is a very popular issue. I think six out of ten Americans approve of raising the minimum wage. One poll from Data for Progress showed that 74% of voters supported raising the minimum wage to $20 an hour. So there’s will there.
Nick Hanauer:
Yeah. Good politics, Paul, and good policy, because the results are in, there’s been a number of studies published over the last couple of years that shows that surprise, raising the minimum wage is not a job killer. In fact, the state and local jurisdictions that raise the minimum wage saw faster wage and job growth than those that did not. And in fact, the larger the minimum wage increase, the larger the difference.
Paul:
So I think that putting paychecks first is a really popular issue. It’s one that Biden has a record on doing, and that it’s something that is popular with virtually all voters, or at least a vast majority: Democrats, Republicans, and Independents. So, I think that’s going to be a big issue moving forward. The third economic factor that I think is going to be a huge deal in this election, and that I don’t think has gotten nearly enough attention, is housing affordability. Housing costs are a huge reason why people are frustrated with the economy. I think a lot of economists have misinterpreted the angst over prices. I think that a lot of it is coming directly from housing, because it’s getting impossible to afford housing in large parts of the United States.
Nick Hanauer:
Right. Welcome to Seattle, America.
Paul:
Yeah. Rent prices have gone very high throughout the pandemic, and now of course, because the Federal Reserve has raised interest rates so high to, in their mind, combating inflation, mortgages are out of control for most Americans. So, it’s very hard to buy a house, it also means that more Americans are sitting in their houses. If housing prices were lower, they would’ve moved by now. But the market, so there’s actually less available housing stock for people who are looking for homes. So it’s just generally a mess for everyone.
Nick Hanauer:
In economic terms, Paul, we say that these high mortgage rates have created more friction in the housing market, so it’s harder for people to move because when you have a 2% mortgage, a 2% rate on the mortgage rate on the house you’re currently living in, and the house you want to live in, you’d have to pay 8%. It’s hard to trade that 2% for 8%.
Paul:
Exactly. Yeah, yeah. So, it’s dis-incentivizing people from moving, which is creating a super tight market and keeping prices high. When pretty much every other inflationary factor has eased off, housing remains very, very high. So what can we do about this? Obviously, the Federal Reserve is going to be lowering interest rates this year they’ve said, two or maybe three times. That’s going to improve mortgages, so homeowners might see some relief in the coming year. But I think this is also, to go back to our first point, a tax issue, too. I think that the tax code favors owning real estate over obtaining housing, which is a fine distinction, but I think that it makes housing a commodity. It makes housing into an investment like stocks or something like that, whereas it should prioritize owning and keeping an improving your home.
So, I think that we should talk about making changes to the Tax Code to favor housing, over simply accruing as much high-value property as possible. I also think that we could offer tax credits to renters that would close racial housing gaps and offer families more options for stable secure housing than the current financial-ized housing market. I think that the way that the Tax Code is set up right now, renting is basically a loss. You can’t take your rent, you can’t put rent towards your taxes.
Nick Hanauer:
Yeah, a tax credit for renters, Paul, why do you hate the American dream?
Paul:
Well, look. I think that home ownership is great for a lot of people, but I also think that-
Nick Hanauer:
Full disclosure, you and I are both homeowners.
Paul:
We are. We are both homeowners. I also rented for the majority of my adult life, and I would’ve liked some tax credits for that. I would’ve liked to have been able to buy a house even sooner. And I think that a tax system that prioritizes home ownership over renting is okay, but I think the renters should be getting something out of this too. Because I think that not everybody wants to own a home, I think that some people like renting, and I think that the Tax Code is increasingly out of touch with the way the people actually live their lives. And, I think that renting is okay. The most important thing is, everybody’s got to have housing. And I think the tax code right now is still based in a rural and suburban model, where owning a home is the end all be all, and I don’t think that’s what we should be doing, that’s what we should be prioritizing anymore. I think it’s more important that people have housing.
Nick Hanauer:
Yeah. You know me, Paul, I have opinions on this.
Paul:
You do.
Nick Hanauer:
I have-
Paul:
What about you-
Nick Hanauer:
Yeah, I have a lot of opinion. Look, look. I’ve said this before. If I was a benevolent dictator, I would simplify the Tax Code, Paul. I would get rid of all deductions and exemptions but the standard deduction, and that means no home mortgage interest deduction. That means no charitable deduction. That means no deductions, whatsoever. And while that may sound extreme, remember that over 80% of Americans don’t itemize their taxes, which means all they get is that standard deduction anyway. So, the way we’ve set up, as you said, this Tax Code that heavily favors home ownership over renting, that heavily subsidizes ownership, that is something I know, I know the vast majority of our listeners probably benefit from. But it is inefficient, it incentivizes the wrong things, and it is incredibly unfair. So that wouldn’t fix our housing crisis on its own, but it would take away some of the bad incentives that have helped create it.
Personally, what I think we need is a massive investment in publicly-owned housing, not just for poor people, but for the middle class. Because the only way to provide renters the same kind of stability that homeowners enjoy. And by the way, that is the main benefit of home ownership. If you look at it over most periods of time, in most parts of the country, home ownership, which is billed as a great investment, is not really that great an investment. It’s really expensive, and housing does not appreciate faster, than say, the S&P 500 Index Funds.
But, the real benefit of home ownership is housing stability because it offers a 30-year fixed rate mortgage, offers a kind of rent control. And that once you have that mortgage, you know what your monthly payments are month after month for 30 years, and they never go up. That is the bulk of your housing costs. Other things, maintenance, taxes, whatever, that goes up over time, but that monthly mortgage payment does not. That’s like your rent payment being guaranteed for 30 years. Imagine that, if you were a renter, if you could get that. That’s what we should be looking for in housing, is how to give renters that same stability, where they know that they can lay down roots in a neighborhood, in a community, and raise their children there without having to buy a house and without having the fear that suddenly that neighborhood becomes really hot and they’re forced out into the exsurbs and a long commute, just to be able to afford their rent.
There are ways to do this. We don’t have time on this podcast for me to explain the idea in full, but it’s doable. And a lot of things, and we talked about this earlier, it requires leadership. The Presidential bully pulpit can go a long way towards moving us in this direction. Personally, I feel a little more confident that we might get that out of middle-out Biden than from Donald Trump who comes from a family of exploitive slumlords.
Paul:
Yeah. So, well, I’m excited for your 2028 run for the Presidency, Goldy, but I think there is a lot that Biden can do to talk about improving housing. And, I think that he can start by having a bigger conversation about what the purpose of housing in America is. And I think that’s a conversation that’s long past due. I think it’s certainly caused housing speculation, caused the Great Recession of 2008, 2009, and I don’t think we’ve really dealt with the root causes of that. I don’t think we’ve really had a Come to Jesus moment when it comes to housing in America, and I think that a Presidential election is a great way to do that.
Nick Hanauer:
There you go, trying to bring religion into it again. So Paul, a lot of ideas here, a lot of facts, a lot of predictions for the coming year. Where one might read more about this stuff?
Paul:
So a lot of these ideas come from the pitch, which is Civic Ventures President Zach Silk’s Substack. Especially as we head into this election year, I really suggest that our listeners sign up for that. We’ll have a link to it in the show notes. It’s civicventures.substack.com. And yeah, so I think that that newsletter has become a great resource of how to keep track of all of the economic news happening every week. And I think that as we head into a Presidential election year when this stuff is going to be on the front pages almost all the time, I think that it’s really important to get that middle-out understanding of the topics that everyone’s talking about.
Announcement:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunkworks, and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures, thanks for listening. See you next week.