Everything you know about the economy is wrong | Will Bunch Newsletter

Remember last week’s rant against March as the cruelest month? I forgot something: This gosh-darned (note: my editor really hates profanity) time change! I don’t know about you, but I cannot wait six months to get that one hour of sleep back. My fantasy is a clock that “falls back” in the autumn but then “springs back” in March. Sure, the days and nights would soon be off kilter, but I’m ready to mix things up.

Did someone forward you this email? Sign up to receive this newsletter weekly at inquirer.com/bunch, where it’s Leftist Standard Time every Tuesday, 12 months a year.

It’s rare to find a moment of clarity about the U.S. economy, when the average citizen is bombarded with confusing and contradictory information. Are we enjoying a “Biden boom” — with joblessness at its lowest point since Jimi Hendrix woke up Woodstock — or have soaring prices brought us to the brink of a recession, with shoppers unable to buy a dozen eggs, let alone find an affordable apartment?

But the jobs vs. inflation debate was pretty well summarized exactly one week ago in a tense exchange on Capitol Hill between America’s reigning economic guru, Federal Reserve Bank chairman Jerome Powell, and Massachusetts Sen. Elizabeth Warren, a leading voice for progressive and pro-worker policies. Warren wanted to know if the Fed’s policy of sustained interest rate hikes aimed at cooling inflation — an approach also expected to significantly raise unemployment — makes sense, especially for those who’ll lose their jobs.

“Chair Powell, if you could speak directly to the 2 million hardworking people who have decent jobs today who you’re planning to get fired over the next year, what would you say to them?” Warren asked at a Senate Banking Committee hearing. “How would you explain your view that they need to lose their jobs?”

“I would explain to people more broadly that inflation is extremely high, and it’s hurting the working people of this country badly — all of them,” Powell responded. “Not just 2 million, but all of them are suffering under high inflation, and we are taking the only measures we have to bring inflation down.” Pressed further by Warren, he added: “Will working people be better off, if we just walk away from our jobs and inflation remains 5, 6%?”

A lot has happened in just seven days since then. Wall Street took a sharp dive immediately after Powell’s testimony about his plans to keep raising interest, and thus the cost of buying a new home, or for businesses further expanded. And yet the new jobs report Friday suggests that the pace of hiring has barely budged. Instead, the Fed rate hikes played a key role in a different economic calamity that few saw coming: The sudden collapse of three banks, including Silicon Valley Bank, the second-largest bank failure in U.S. history.

A week later, the questions asked by Warren — always a Cassandra crying out from the bank-lobbyist-dominated D.C. swamp — seem even more prescient. The 2021-22 inflation surge — always more the fault of the transitory effects of the pandemic, such as supply-chain issues — has cooled off considerably and the employment picture still looks good. Yet now it looks like Powell’s Fed won’t stop until there is real job pain, but to what end? It’s starting to feel that the side effects of Powell’s medicine — punctuated by these bank failures — are worse than the disease he thinks he is curing.

You probably know the cliché about “generals fighting the last war.” The reason that the cliché exists is because those generals are usually losing the current war. Powell’s winter offensive is modeled after the early 1980s, when high interest rates — although spiking unemployment to over 10% — finally conquered the high inflation that dogged Americans in the 1970s. But what if that math isn’t holding up in 2023? What if everything we know about the economy is wrong?

I think there are two basic questions here. The first one is purely economic. No American can be happy about rising prices at the supermarket or the gas station, and when inflation hit its peak of a 9% annual rate last June, that was its highest level in 40 years. Yet Paul Krugman, who won a Nobel Prize in economics when he’s not columnizing for the New York Times, noted recently that today’s inflation looks more like the shortages America faced during the Korean War than the bad old days of the 1970s. Krugman warned “that the policy response to imaginary stagflation may yet produce an unnecessary recession.”

Insanity, of course, is doing the same thing repeatedly and expecting different results. The Fed has seen its rate hikes fail to “cool the economy,” which was always a hackneyed euphemism for the harsh pain of human beings losing their jobs. But if consumer price hikes have already eased considerably (confirmed by the newest inflation report this week), along with gas prices, why are we determined to keep doing this? The challenges now facing medium-large banks like SVB are all the more reason for a policy reboot.

There’s also a heavy political component to the inflation versus jobs debate. Inflation affects everyone, of course, which is one reason why politicians fear it more than a spike in unemployment, which affects only a sliver of voters, albeit catastrophically. I’ve noted here previously that inflation is worst for people with fairly stable incomes, who often tend to be older folks who vote more frequently — and often vote Republican. The people who are getting those millions of new jobs in the not-cooling-off Biden economy, or getting better jobs, tend to be younger and closer to the bottom of the economic pyramid, and we don’t hear their voices as loudly.

One of the best things about Joe Biden’s presidency so far is that his economic policies have brought the most benefit to Americans on the bottom — a sharp reversal from the previous 40 years. In the first year of his administration, the wealth of households in the lowest income quintile — even when adjusted for inflation — jumped 15.2%, while it rose just 0.8% in the top quintile. No one enjoys paying $6.99 for a dozen eggs, but you can’t buy much of any groceries without a paycheck. And the price of eggs is coming back down.

Now, the death of Silicon Valley Bank may force Powell and the Fed to finally rethink their strategy. That’s good, but I’d argue — much as Sen. Warren did up on Capitol Hill — that economists and policy makers should have rethought the paradigm around jobs and inflation much sooner. The nearly full employment that we’ve achieved under Biden’s leadership, the dignity that comes with having a job, and working-class wage gains should not just be hailed as a great victory. Washington should be doing everything it can to keep it going.

Question: What’s the difference between a white nationalist and a white supremacist? Is it kind of a Nazi “superior race” thing? — Via Twitter DM from a verified user who wishes to remain anonymous

Answer: Well, Anonymous, you are far from the first person to ask this question (and what a world where we have to think about the distinction, huh?). In fact, shortly after the notorious and deadly 2017 Unite the Right weekend in Charlottesville, Va., Columbia Journalism Review tackled this exact topic, and said that the two terms are essentially cousins. “While many ‘white nationalists” are also ‘white supremacists’ because they believe white people are inherently superior to other races, the terms are really not interchangeable,” Merrill Perlman wrote in CJR. It seems that both factions believe that white folks are better than everyone else, but “white nationalists” in this country are specifically obsessed with the political task of making (or preserving) America as a white-dominated nation. What’s changed in 2023 is that now the leading figures in the Republican Party stand at a podium and exhort them onward.

Some of this presidential candidate’s supporters wore campaign buttons that simply read, “Prisoner 9653.” Indeed, this figure who had been in the national spotlight for decades could only boost his unorthodox White House bid by issuing statements from his prison cell in Atlanta, even as Hollywood stars wrote letters begging for his release. On Election Night, on paper, he railed against the injustice of it all. “They know where I belong under their criminal and corrupting system,” the presidential hopeful wrote of his jailers. “It is the only compliment they could pay me.” In spite of these immense hurdles, the candidate received some 3.4% of the national vote — his best showing among the five times he sought America’s highest office.

Today, many people are asking how Donald Trump — still the GOP frontrunner for the 2024 presidential nomination, and by a large margin — could possibly keep running if one or more of the four criminal investigations underway in Atlanta, Manhattan, or two federal probes result in an indictment. But back in 1920, labor leader Eugene V. Debs, the longtime head of the Socialist Party in America, produced a surprisingly positive outcome while running after he’d already been convicted of one of the most serious crimes on the books, violation of the World War I-era Espionage Act. It’s important to note that both the law and Debs’ 1918 conviction — for merely speaking out against U.S. involvement in the Great War — made a mockery of the First Amendment.

But the point here is a logistical one: Debs proved that entanglement with the law is not necessarily an impediment to either running for president or retaining one’s most enthusiastic political supporters. Of course, Debs and Trump could not be more different, and not just in ideology. Debs’ courage in speaking out has inspired current leaders like Vermont Sen. Bernie Sanders, while Trump’s cowardly Jan. 6, 2021 coup inspired Proud Boys and Oath Keepers. But Trump thrives on persecution, so is there any reason to think that prosecution, or even prison, would slow him down much? Never forget that Senate Republicans who secretly loathe Trump, like Minority Leader Mitch McConnell, could have stopped all this with a 2021 impeachment conviction, but chickened out.