A War Between Trickle-Down and Middle Out

  1. The Fed is trying to cure inflation with trickle-down economics
  2. Americans don’t know what to make of inflation
  3. Big money is flooding the American housing market
  4. The case for canceling student debt to increase consumer demand


The Supreme Court’s overturning of Roe V Wade will have consequences — both intended and unintended — for generations to come. Snap polling indicates that almost immediately, the decision has called the legitimacy of the Supreme Court into question, and it may have immediately changed the contours of the 2022 midterm elections.

But the political ramifications pale in comparison to the impact that this decision is going to have on the lives of real people — and we can begin to measure the size of that impact by examining its economic effects. First, we have to consider the women who will be most affected by these abortion bans. As Heidi Shierholz writes at the Economic Policy Institute, “Those who are denied an abortion are more likely to be in poverty and experience financial distress for years afterward, with higher rates of evictions and bankruptcies.”

A panel that EPI hosted this week points out that this decision will more directly hurt women of color and women on the lower end of the earnings spectrum. Wealthy white women in states banning abortion will largely be able to access safe abortions, as they have throughout our nation’s history. Meanwhile, the Washington Center for Equitable Growth further helps to dimensionalize what the economic impact will be by exploring how safe and legal abortion access has benefitted women over the last half-century:

An array of research already documents the links between bodily autonomy and economic opportunity, as well as the economic impacts of access to abortion and contraception. Studies find, for instance, that access to birth control pills were directly linked to women’s increased labor force participation and reductions in the gender wage divide. Other research demonstrates that access to abortion improves financial outcomes and reduces the likelihood of a woman being in poverty for up to 4 years, as well as facilitates many labor market opportunities for women and boosts educational outcomes.

And as this Huffington Post graphic shows, the states that have moved to ban abortions are unlikely to offer economic policies that support babies and their mothers, while states like New York and the three states of the West Coast Offense are more likely to promote policies like paid family leave, affordable health care, and anti-discrimination policies that allow pregnant people to keep their jobs. For women in those states who have had their rights stripped from them, this court decision will be an economic disaster that will forever change the course of their lives.

The Latest Economic News and Updates

The Fed is trying to cure inflation with trickle-down economics

Yesterday, Federal Reserve Chair Jerome Powell announced at an economic forum that there is “no guarantee” the Fed would be able to get runaway inflation under control without raising unemployment levels. Put another way, Powell seems to believe that his only option as Fed chair is to raise interest rates high enough that the economy cools down, consumer demand falls, and employers are forced to lay off millions of workers nationwide.

I wrote about the fallacy behind this kind of thinking in the introduction to last week’s newsletter, so I won’t spend too much time on it here, but it couldn’t be any clearer that Powell has been captured by trickle-down thinking. Trickle-down economics argues that the economy can be saved only through helping the wealthiest Americans at the top of the income scale. Recessions, after all, largely benefit the super-rich while immiserating everyone else.

The wildest part of the Fed actively trying to decrease consumer demand is that increased consumer demand isn’t the cause of our current inflationary spike. Jianna Smialek at the New York Times notes that the Federal Reserve Bank of San Francisco issued a report finding that the majority of this inflation crisis is on the supply side —meaning it’s largely caused by supply chain snags and runaway corporate price-gouging. So tamping down consumer demand might not necessarily solve the problem the Fed is trying to solve.

The Economic Policy Institute just took the dramatic step of calling on the Fed to avoid panicking and throwing the United States into a recession. “Years from now, a recession induced by the Fed raising rates too quickly will be seen clearly as a policy mistake that could have been avoided,” EPI warns. You should read the whole report, but significantly, EPI points out that while corporate profits aren’t quite as high as they were in 2021, they are still above pre-pandemic levels, indicating that corporate greed is still a big contributor to the higher prices we’re all paying.

Americans don’t know what to make of inflation

Axios reports that the Fed’s most recent interest-rate hike was inspired by what Powell characterized as an “eye-catching” consumer sentiment report. “The University of Michigan consumer sentiment index includes a question about long-term inflation expectations. The June 11 preliminary release showed Americans expecting 3.3% longer-term inflation, up from 3% and ringing the Fed’s alarm bells,” explains Axios.

“But the final June reading released this morning showed it ticked up only to 3.1%, a less worrying number,” Axios reports, characterizing the “knee-jerk reaction to the survey [as] a bad look for Powell.”

The truth is, Americans are rightfully confused and frustrated by these higher prices. When you dig into those University of Michigan numbers, you’ll find that American consumers are sending decidedly mixed signals. Consumer confidence is at a record low, but at the same time, most Americans are confident that business conditions will improve in the near future and more than half expect their own wages to increase over the next year.

And we have to place those fears in context: Bloomberg’s James Ellis says consumer sentiment isn’t immune from the uncertainty caused by the pandemic (which is still not in the rear-view mirror, as much as we’d like it to be) and a volatile political atmosphere:

“At this point, people have been primed with stimuli practically to the breaking point,” says George Loewenstein, a professor of economics and psychology at Carnegie Mellon University. “When people are in a state of fear, they become more afraid of everything. So people are right to be afraid about the economy, but their fears are amplified by all the other background risks they are, and have been, exposed to.”

Combine that with all the complex feelings inspired by spiking gas prices in the most car-loving nation on Earth and it’s no wonder that Americans are on edge.

Big money is flooding the American housing market

Jennifer A. Kingston reports at Axios that “One in 10 U.S. homes sold in the first quarter of 2022 was ‘flipped’ — or bought-and-sold within a year by an arms-length buyer — the highest level since 2000,” and that those numbers have increased for five straight quarters. The median flipped home sells for $67,000 more than its median purchase price, so flippers are making a profit of more than 25 percent from each sale.

As we saw in 2008, bad things tend to happen when we treat houses like stocks, or Beanie Babies, or any other commodity to be traded for purely financial gains. It drives up prices to the point that ordinary Americans must go into extreme debt to find shelter, and every increase in home prices or rent adds more people to the homeless population.

And flippers aren’t even the worst financial actors in this space. ProPublica’s Heather Vogell reports that private equity and corporate landlords are snapping up homes at a rate we haven’t seen in 16 years. Corporate landlords have bought up nearly 80,000 single-family homes in the last four years, and a Congressional study headed up by California Rep. Maxine Waters found that the biggest corporate landlords are specifically targeting Black neighborhoods and neighborhoods with high numbers of single mothers. In the last four years that corporations and private equity firms have bought rental properties, they’ve raised fees by 40 percent, thereby more than doubling the number of tenants who fell behind on rent.

And if all that isn’t sickening enough, a new report from Accountable.US finds that since the 2008 financial crisis, private equity firms have spent $12 million lobbying against affordable housing reforms in order to keep their customer base of renters on the market.

Obviously, this kind of price-gouging is unsustainable — without regulations, we know that corporations will continue to raise the price of housing until millions more Americans are on the streets. In this case, the Not-In-My-Back-Yard crowd might actually have a surprising solution: Homeowner associations in wealthy American suburbs are trying to ban investors and corporations from buying homes with the intent to rent. Some are requiring new owners to live in the property for two years before they rent it out — a requirement that a corporation cannot fulfill.

Of course, crackdowns from HOAs, which are largely organizations of and for wealthy white homeowners, aren’t going to solve the problem of corporate landlords gentrifying areas by pushing families out of nonwhite, non-wealthy neighborhoods. But perhaps lawmakers can examine what has and hasn’t worked in HOAs as they formulate a policy response to this growing crisis.

The case for canceling student debt to increase consumer demand

While we’ve seen several waves of news stories about President Biden’s impending cancellation of $10,000 in individual student debt over the last few months, the president has yet to actually take the plunge. Zolan Kanno-Youngs, Jim Tankersley and Stacy Cowley report for the New York Times that Biden’s deliberation has been slowed by the inflation crisis. As they write, “What would it mean for the economy if the government forgives some $321 billion in loans?”

A former economic adviser to the president also told the Times that Biden “wants to make sure that [student debt cancellation is] based in equity and it doesn’t exacerbate disparities.” The article claims that Biden will make his final decision by the end of the summer.

There’s something to be said for treading cautiously when making a decision about a third of a trillion dollars, obviously, but hopefully Biden’s circle of middle-out economists can alleviate his concerns by pointing out that his fears are based in trickle-down economics, and a growing series of reports indicate that putting money in peoples’ pockets is good for everyone.

I was particularly intrigued by a report from Vox’s Siobhan McDonough: Aid organizations and governments around the world are finding that giving people cash is a better and more efficient way to end global hunger than directing food to people in need.

It’s obviously not a one-to-one comparison with student debt, but this is just the latest datapoint in a series finding that direct payments, and not tax credits or means-tested vouchers, are the best way to end poverty, stimulate local economies for everyone, and create lasting economic stability. Forgiving student debt would not only relieve a lot of economic anxiety for Americans, it would likely unleash a flood of spending that has been held in reserve as those Americans realize they’re free from crushing debt.

Real-Time Economic Analysis

Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunk Works; and follow us on Twitter and Facebook.

  • On Pitchfork Economics this week, Goldy interviewed historian Marcelo Casals about the 2019 anti-neoliberal protests that rocked Chile, and how the nation’s attempts to write a more economically inclusive constitution are going. This is a fascinating portrait of a country that is actively trying to create an entirely new economic philosophy from scratch.
  • And in Business Insider, Paul talked about the Marshall Plan for Moms, and how women won’t truly achieve economic parity until businesses stop penalizing pregnancy and motherhood. That goal will require policy solutions like paid family leave and anti-discrimination, and it will also require a change in corporate culture. Employers will hopefully realize that they can compete for workers by adopting benefits that encourage moms and moms-to-be to feel fully empowered in their workforce.

Closing Thoughts

We spent a fair amount of this newsletter talking about what the Federal Reserve should not do to combat inflation, and I wanted to close by highlighting an actually good policy that will make a real difference in the lives of Americans by directly combating high prices. Specifically, California Governor Gavin Newsom worked with the state legislature to create a program that will send inflation relief checks to Californians by the end of the year.

These checks, which will take the form of direct bank deposits and debit cards mailed to Californian households starting in October, will be significant — up to $1050 per household. They will immediately improve the lives of some 23 million people. And the checks will encourage consumer spending at a time when middle-class spending is holding the economy aloft.

This is a big deal. During the Great Recession of 2009, our leaders roundly adopted a trickle-down path that bailed out banks and enriched a tiny few of the wealthiest Americans at the expense of everyone else. But this time around, California is choosing a middle-out path in the fight against inflation.

Even as the Fed is calling for trickle-down inflationary solutions that will penalize American workers by driving up unemployment, this California policy reminds us that we have other tools in the toolbox: We can encourage the vast majority of Americans to participate in the economy, creating jobs and circulating money through communities. Hopefully other leaders will reject the trickle-down option and follow California’s lead by putting the needs of the many above growing the wealth of the few.

Be kind. Be brave. Get vaccinated — and don’t forget your booster.