Americans Are Suffering Cognitive Dissonance On The Economy

Is this 2022, or 1859? (when Charles Dickens wrote A Tale of Two Cities):

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way–in short, the period was so far like the present period that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

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A recent AP-NORC poll gave Low marks for Biden on economy as prices rise:

About 7 in 10 Americans say the nation’s economy is in bad shape, and close to two-thirds disapprove of Biden’s handling of the economy, according to a new poll from The Associated Press-NORC Center for Public Affairs Research. In addition, Americans are more likely to say his policies have hurt the economy than helped it.

Overall, 65% of Americans disapprove of Biden’s handling of the nation’s economy, including 96% of Republicans and 36% of Democrats. The overall share saying they disapprove is up from 57% in December of 2021 and from 47% last July.

This is quite literally insane, and defies any logical explanation. Americans are suffering from cognitive dissonace, or collective insanity.

Just last week the AP also reported, American weekly jobless claims at lowest level since 1969:

The number of Americans applying for unemployment benefits last week fell to its lowest level in 52 years as the U.S. job market continues to show strength in the midst of rising costs and an ongoing virus pandemic.

Jobless claims fell by 28,000 to 187,000 for the week ending March 19, the lowest since September of 1969, the Labor Department reported Thursday. First-time applications for jobless aid generally track the pace of layoffs.

The four-week average for claims, which compensates for weekly volatility, also fell to levels not seen in five decades. The Labor Department reported that the four week moving average tumbled to 211,750 from the previous week’s 223,250.

In total, 1,350,000 Americans were collecting jobless aid the week that ended March 12, another five-decade low.

Earlier this month, the government reported that employers added a robust 678,000 jobs in February, the largest monthly total since July. The unemployment rate dropped to 3.8%, from 4% in January, extending a sharp decline in joblessness to its lowest level since before the pandemic erupted two years ago.

The March jobs report is out today, and the good times continue. Again, the AP reports, US added 431,000 jobs in March in sign of economic health:

America’s employers extended a streak of robust hiring in March, adding 431,000 jobs in a sign of the economy’s resilience in the face of a still-destructive pandemic and the highest inflation in 40 years.

There’s the lamestream corporate media feeding inflation psychology again. Knock it the hell off!

The Labor Department’s report Friday showed that last month’s job growth helped shrink the unemployment rate to 3.6%, the lowest level since the pandemic erupted two years ago.

Despite the inflation surge, persistent supply bottlenecks, the damaging effects of COVID-19 and now a war in Europe, employers have added at least 400,000 jobs for 11 straight months. In its report Friday, the government also revised sharply up its estimate of hiring in January and February by a combined 95,000 jobs.

In an encouraging sign for the economy, 418,000 people began looking for a job in March, and many found one. Since the pandemic struck in 2020, many people have remained on the sidelines of the job market, a trend that has contributed to a chronic worker shortage in many industries.

Across the economy in March, hiring gains were widespread. Restaurants and bars added 61,000 jobs, retailers 49,000, manufacturers 38,000 and hotels 25,000.

Average hourly pay is up a strong 5.6% over the past 12 months. Though that is welcome news for employees, it is contributing to surging inflation pressures that have put the Federal Reserve on track to raise rates multiple times, perhaps aggressively, in the coming months.

WRONG! There is no evidence that inflation is a 1970’s-style “wage-price spiral.” Wages are not driving inflation. It is continuing Covid-19 supply-chain disruptions in the global economy exacerbated by the Russo-Ukraine war and sanctions, and largely companies price gouging and profiteering off of the disruptions.

Timothy Noah explains, A Wage-Price Spiral? Unfortunately, the “Wage” Part of That Equation Isn’t Cooperating:

Economists like to criticize irrational fears in others, but state out loud the phrase “wage-price spiral,” and they’ll act as though you just drew a cartoon blaspheming the Prophet Muhammed or shouted “Fire!” in a crowded theater.

But if you happen to be an economist, here’s your trigger warning: I’m going to repeat throughout this article the phrase “wage-price spiral.” A wage-price spiral is an upward corkscrew in which higher wages push up prices, prompting workers to demand even higher wages, and so on.

On February 10, the Bureau of Labor Statistics reported that inflation in January rose 7.5 percent over the previous 12 months. Is the economy entering a wage-price spiral? I think not, mainly because the wage half won’t likely cooperate. More on that in a moment. But I dispute the notion that saying “wage-price spiral” out loud risks conjuring one into existence, any more than saying “Lord Voldemort” will summon the Dark Lord of the Harry Potter books and movies to my home office.

Robert Shiller, a Nobel laureate in economics who teaches at Yale, wrote last week in The New York Times that wage-price spirals are a sort of Bigfoot, a mythical beast that the public, unaccountably, claims to have glimpsed at periodic intervals in history.

[To] Shiller, this constituted inappropriate moralizing. “The public tends to think of inflation as an indicator of a cycle of greed and inhumanity,” Shiller wrote, when in fact inflation “is more technical, like an increase in the money supply or disruptions in the supply chain.” Talk of wage-price spirals, he suggested, is so much dangerous nonsense.

But even granting that the current inflation spike was created by disruptions in the supply chain combined perhaps with low interest rates and generous Covid-related aid—even granting all that, it ought not be considered ridiculous to ask whether we will experience a wage and price spiral. Yet one is not permitted to ask. It isn’t just Shiller. In The Wall Street Journal, Judge Glock, director of policy and research at the “market-driven” Cicero Institute, wrote on January 31 that “the wage-price spiral is a false and antiquated economic idea that refuses to die.”

I’m sorry, but this is insane. If wage-price spirals don’t exist, what exactly did we experience during the Great Inflation of the 1970s? The standard answer, even among most economists, is that after an initial burst of oil shocks we experienced a wage-price spiral. But acknowledge today that they do exist, and terrible things will happen.

[Of] course wage-price spirals exist. The appropriate question is whether we’re likely to experience one now. The most plausible answer is that we won’t.

For a wage-price spiral to occur, price increases have to alternate with wage increases, each side trying its best to keep ahead of the other. For that to happen, corporations must have sufficient market power to raise prices. Rising economic concentration since the 1970s makes that part more than possible. But labor must also have sufficient market power to raise wages. And anyone who’s been paying attention for the past four decades knows that the decline of labor unions and the enthronement of share prices as the be-all and end-all of capitalism makes any sustained effort by workers to boost their wages pretty unlikely. Even during the Great Inflation, the wage half of the wage-price spiral couldn’t and didn’t quite keep up, because the collective strength of organized labor was already on the wane. Workers have much less leverage today. Union membership within the private sector was 24.2 percent in 1973, when the Arab oil embargo triggered the Great Inflation. Today it’s 6.1 percent.

Yes, wages have been rising during Covid-19, and the 2.9 percent “quits” rate is described as a Great Resignation. But much of that Great Resignation is really just the Great Early Retirement, brought on by workers in their fifties seeing their retirement accounts fatten and deciding to call it a day. And the quits are concentrated heavily in retail and food services—which is to say among mostly nonunion, lower-wage workers, many of whom are relatively easy to replace with automation. Raise your hand if you’ve checked yourself out recently at the local supermarket.

According to the Atlanta Fed Wage Tracker, the biggest wage gains over the past few months have occurred among lower-skilled workers. On Twitter, Harvard economist Jason Furman posted the following chart showing wage growth, corrected for inflation, since 2019, broken down by occupation:

This, too, shows gains during the Covid pandemic in low-wage sectors like leisure and hospitality and retail—and losses just about everywhere else. “No question one would like to see real wages rising across the board,” tweeted Chuck Marr, director of federal tax policy at the nonprofit Center for Budget and Policy Priorities, in reply, “but if one had to choose just two sectors, these are good ones. Strongest real wage growth for what I think is a combined group of about 25 million people who work for relatively low pay.” (A caveat that Georgetown economist Harry Holzer pointed out to me is that nominal wage increases for other workers are a not-unhealthy 4 to 5 percent.)

Will the lowest-paid Americans drive a wage-price spiral? We should be so lucky. But no, that doesn’t look likely. As Josh Bivens of the Economic Policy Institute observed last week, “Relative to the situation in the 1970s, the 2021 inflationary shock is playing out in a context of highly unbalanced bargaining power between labor and capital.” Bivens noted that Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell both said recently that they saw no evidence of a wage-price spiral emerging. That sounded dangerously as though they believe wage-price spirals do exist. And indeed, the Fed will be raising interest rates over the next year. There’s some danger it will do so more than necessary to keep inflation in check. But if that happens, it won’t be because they spoke the forbidden words.

The real driver of inflation is corporate greed and the investor class (Wall Street) demanding higher returns. John Nichols explains, The Dirty Secret of Inflation: Corporations Are Jacking Up Prices and Profits:

President Biden and his fellow Democrats need to learn to talk about inflation if they hope to maintain congressional majorities in this year’s midterm elections. They can’t deny that costs for consumers are rising at a jarring rate—up 7.5 percent compared to a year ago, according to the latest figures. But they can, and must, make the connection between surging prices and surging corporate profits.

The US Department of Commerce reported at the end of December that corporate profit margins had hit the highest level in 70 years. You’ll hear a lot of complex, and often conflicting, explanations for why this is happening now.

But recent news stories speak for themselves.

From CNBC:

Oil giant BP reports highest profit in 8 years on soaring commodity prices

From Reuters:

Cereal maker Kellogg Co. forecast full-year profit growth above market expectations on Thursday, riding on higher product prices that helped overcome labor strike disruptions and soaring input costs in the fourth quarter.

From The New York Times:

Procter & Gamble’s sales jump as consumers brush off rising prices.

From The Ticker:

McDonald’s to raise prices despite record revenue

From Yahoo Finance:

Amazon stock soars 15% after earnings, will hike Prime membership fee

US Senator Elizabeth Warren put the pieces together when Fed chair Jerome Powell appeared last month before the Senate Banking, Housing, and Urban Affairs Committee. Offering a lesson in what she referred to as “Econ 101,” the senator from Massachusetts led Powell through a series of questions related to inflation.

“If you’re a corporation that has eaten up most of the competition and cornered the market, is it easier for you to raise prices on your customers and maximize your profits because you don’t have to worry about losing your business?” asked Warren.

Powell replied, “In principle, if you don’t have competition and you’re a monopolist, yes, you can raise your prices.”

“Okay,” Warren continued. “Over the past year, we know that prices have risen because of supply chain problems, unexpected shifts in the demand for goods, and even higher labor costs. But if corporations were simply passing along these costs in highly competitive markets, would the companies’ profits margins have changed much?”

After mumbling something about varying factors that impact such calculations, Powell concluded, “But, in principle, you could be right.”

With that answer in hand, the point was made:

Senator Warren: Well, it’s very much not what we’re seeing right now. Today, nearly two out of three of the biggest publicly traded corporations in the country are reporting fatter profit margins than they reported before the pandemic which doesn’t sound like they’re just passing along costs. So let me ask you: Does that increase in profit margins, combined with greater market concentration in industry after industry, suggest to you that some corporations may be passing along increased costs and, at the same time, charging more on top of that to fatten their profit margins?

Chair Powell: That, that could be right. It could also just be, though, that demand is incredibly strong and that, you know, they’re, they’re raising prices because they can.

Senator Warren: Well, that’s the point. They’re raising prices because they can, and they’re not being competed down. You know, market concentration has allowed giant corporations to hide behind claims of increased costs to fatten their profit margins. So the consumer pays more both because the corporation faces higher costs and because, as you put it, because the corporation can increase prices. The reason I raise this is that higher prices have many causes, and we can’t overlook the role that concentrated corporate power has played in creating the conditions for price gouging.

Warren made the vital connection that all Democrats should be making as debates about the causes of inflation heat up. Instead of letting Wall Street apologists create the impression that inflation is simply the result of supply chain disruptions and pent-up consumer demand after two years of pandemic lockdowns, and instead of letting Republicans suggest that federal and state investments in health care and housing are the problem, Democrats should be speaking like Warren.

[P]rogressive leaders … understand that “explanations” of inflation that don’t address monopoly abuses and corporate greed fail to speak to the economic and political realities of the moment.

[T]here are still plenty of Democrats who are cautious about calling out corporate greed. A failure to be blunt about profiteering leaves a void that will ill serve their party in 2022.

History makes it clear that midterm elections are tough for the party that controls the White House and Congress. Voters take out their frustrations on those who are in positions of power. And that is doubly true in moments of economic turbulence, as Jimmy Carter and the Democrats learned in 1978, as Ronald Reagan and the Republicans learned in 1986, as Barack Obama and the Democrats learned in 2010.

Finally, Jason Easley explains what I have posted about numerous times over the years, and it is as true today as it ever was. The Real Job Creators: 95% Of US Job Growth Came Under Democrats Since 1989:

One of the biggest false narratives in American politics is that Republicans create jobs. 95% of the nation’s job growth has happened under Democrats since 1989.

The liberal think tank NDN put the data together:

33.8m jobs – 16 years of Clinton, Obama

7.4m jobs – 13 months of Biden

1.9m jobs – 16 years of Bush, Bush, and Trump

Biden’s 7.4m jobs is already almost 4 times as many jobs as were created in the 16 years of the last 3 Republican Presidencies combined.  It is also millions more than were created in the entirety of any of their three individual Presidencies.  Many millions more.  Since 1989 and the end of the Cold War, the US has seen 43 million new jobs created.  Remarkably 41 million of those 43 million were created under Democratic Presidents, 95%

And look at the jobs created per month over these Presidencies – Rs at just 10k per month over 16 years.  Biden is running at more than 50 times that so far.  Yes, more than 50x.  

Studies going back 75 years have found that Democrats create more jobs than Republicans.

Democrats create jobs, and Republicans destroy them with tax cuts for the rich and recessions. The last two Republican presidents have overseen the greatest economic collapses since the Great Depression. The last three Republican presidents have all had recessions.

The idea that Republicans are fiscally responsible job creators is a political myth that simply will not die.

The real job creators and middle-class tax-cutters are Democrats.

Democratic presidents equal prosperity. Republicans bring nothing but pain to everyone who is not in the top 1%.

It is time for Democrats to set the record straight and make sure that voters know that voting Republican is a recipe for economic destruction.

I am convinced the problem lies in the fact that 99.9% of Americans, including the vast majority of politicians and reporters, have no understanding of economics. This makes it easy for demagogues and lamestream corporate media reporters to parrot Wall Street’s propaganda to an uninformed American public.