The news this morning is catching a lot of pundits and economic prognosticators off guard. Here’s the headline from The NY Times:
The employment gains, which far surpassed expectations, show that the labor market is not slowing despite efforts by the Federal Reserve to cool the economy.
U.S. employers added 528,000 jobs in July, the Labor Department said on Friday, an unexpectedly strong gain that shows the labor market is withstanding the economic impact of higher interest rates, at least so far.
The impressive performance — which brings the total employment back to its level of February 2020, just before the pandemic lockdowns — provides new evidence that the United States has not entered a recession.
But with the Federal Reserve pursuing an aggressive policy of interest rate increases to bring inflation under control, most forecasters expect the labor market’s momentum to slow markedly later in the year, as companies cut payrolls to match lower demand.
“At this stage, things are OK,” said James Knightley, the chief international economist at the bank ING. “Say, December or the early part of next year, that’s where we could see much softer numbers.”
The unemployment rate was 3.5 percent, down from 3.6 percent in June, matching its 50-year low on the eve of the pandemic.
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Remember all those headlines screaming how inflation was at 40 year high? How is the press going to spin an economy where people are able to find work at record levels? The narrative is that high employment numbers are a bad thing, because it means companies have to pay people more — and ordinary people getting more money is considered inflation. But… companies enjoying record profits is not? Funny how that works — which brings up the next header in The NY Times report:
Wage growth climbed more quickly than economists had expected in July, concerning news for the Federal Reserve at a time when officials are watching for signs of a sustained moderation in pay gains that could help to pave the way to lower inflation.
Average hourly earnings climbed by 5.2 percent in the year through July, more than the 4.9 percent forecast in a Bloomberg survey of economists, and its growth was revised higher in June. Pay gains are still moderating slightly compared to very high readings earlier this year — they were up by 5.6 percent in March compared to a year earlier — but the pace of increase remains unusually rapid.
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Here’s where the cognitive dissonance kicks in. You might think people getting paid more money is a good thing, the kind of thing America’s worship of Capitalism promises: good jobs with good pay and prospects for more of the same in the future.
Guess again.
While economic policymakers usually embrace strong labor markets and robust pay growth, wages have been climbing so rapidly this year that they would likely make it difficult for price increases to slow down to comfortable levels. Companies would have to take a profit hit to keep paying their employees more without charging more to cover the expense. But even robust wage growth is not enough to outpace inflation for most people.
So, even though employment is high and wage growth is up — it’s still not enough to keep up with inflation, the inflation that comes from higher prices. So… the answer is to impose policies that will cool inflation by doing things that will keep people from earning more money. And the justification is protecting corporate profits.
Does anyone see a problem with this?
Here are the rest of the headlines at The NY Times article about the jobs report:
Unless you are invested in the stock market, tumbling stock prices aren’t a big deal — which suggests making it a big deal tells something about who is considered the important player in the economy. Employment growing strongly across nearly all sectors shows this isn’t a freak phenomenon due to special circumstances.
People can find all kinds of work apparently — so why are people gloomy about the economy when they don’t have to worry about being laid off and there are lots of jobs out there with more money? Inflation seems to be the big deal (along with heavy negative messaging from the usual suspects), so let’s look at inflation.
Why are prices high?
The classic answer is supply and demand. When demand for goods is higher than the supply, people who own those goods charge more money for them and prices go up until demand is either satisfied or suppressed. This scenario depends on a very simple view of how things work. It’s not entirely wrong, but it is far from the whole story.
The world is seeing higher prices for energy because the Russian invasion of Ukraine has cut supplies even as the global economy is starting to pick up again as it adapts to Covid. So, short supply, higher demand = rising prices. Simple enough.
That alone should be cooling the economy somewhat and driving demand to alternative sources of energy, like renewables. It should also be incentivizing petroleum producers to ramp up supply to meet demand right? Except they can sell all the oil they want at current high prices for higher profits — so why would they cut those profits by spending money to produce more oil to bring the price and their profits down?
Let’s look at it from another angle. When demand for something is high, the “invisible hand of the market” is supposed to step in with new producers jumping in to increase supply, chasing those profits — and competition is supposed to bring prices down as supply increases.
Robert Reich has chapter and verse on what’s really happening:
Workers are being punished for inflation. The real culprit is corporate greed
...Inflation has broken out all over the world – the consequence of pent-up demand from more than two years of pandemic and of limited supplies of everything from computer chips to wheat, due to difficulties getting the world economy up and running.
Add in Putin’s war in Ukraine driving up world energy and food prices, and China’s lockdowns against Covid, and you get a perfect conflagration.
That’s not all. Big corporations are busily raising their prices because consumers have so little choice. Corporations are using inflation as cover.
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Reich has the goods:
...The two giant American oil companies [Exxon and Chevron] aren’t pouring their profits back into energy, green or otherwise. They’re buying back their shares of stock to reward investors and executives.
Or consider giant corporations selling consumer staples, such as Proctor & Gamble (maker of everything from Gillette razors to Tide detergent). On Friday, P&G reported another quarter of rising profits despite the increasing costs of raw materials and transportation. How did it manage this feat? By raising its prices even more.
Meanwhile, half of the recent rise in grocery prices is from beef, pork and poultry. Just four large conglomerates control these markets, and they’ve been coordinating their price increases to score large profits – here again, using “inflation” as an excuse.
Reich also has some suggestions:
The government should use a firehose better aimed at the conflagration, which won’t so badly burden the bottom 80%.
For starters, impose a temporary windfall profits tax on big oil, on giant sellers of consumer staples and on big ag. This would reduce their incentive to engage in price gouging.
Bolder antitrust enforcement – even the threat to block mergers and break up giant companies – could also reduce their ardor to raise prices.
If Congress refuses to allow the government to use its bargaining power to reduce the prices of pharmaceuticals, big pharma is a good candidate for temporary price controls. (FDR controlled prices via executive order.)
Finally, higher taxes on the wealthy – such as Democrats seem finally ready to enact – will help dampen total demand, thereby dousing some of the inflation fire.
The Fed’s single tool for fire-fighting – interest-rate increases – is aimed in the wrong direction. It’s hitting working people rather than corporations responsible for most price increases (over and above the rising costs of global supplies).
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If you’re not hearing these suggestions raised in the US media, well consider how they are increasingly consolidated and influenced by corporate-think, plus decades of indoctrination by conservative/libertarian messaging and anti-labor propaganda.
The economic policies we have today are the product of the eternal war on workers, with things like the Powell memo, ALEC, the Federalist Society, and Citizens United; government as wealth-transfer machine from the bottom to the top.
There is a lot of populist distrust of government, anger about the economy, and general cynicism among Americans, feeding a lot of other tensions along racial and religious lines — all of which is being exploited by those who benefit from the conditions that create that grievance.
When the news is that rising wages and high employment are bad things, it should be a clear warning sign that things are seriously out of whack.
Democrats have a huge opportunity here — IF they can figure out how to seize it AND are not afraid to do what it takes to make the economy work for the people who DO the work. Passing the Inflation Reduction Act and messaging heavily about it and the gains for working people from the Biden economy would be a good start.
