In the past couple of weeks, I’ve written one column arguing that the economic situation for working class America is now better, relative to a decade ago, than some pessimistic populists make it sound, and another arguing that the eating-away at American wages because of inflation explains some important measure of President Biden’s political difficulties.
I think both of these points are true, but there’s at least a hint of a tension between them, one that’s worth exploring as we try to figure out the actual condition of our economy as we head into 2024.
Let’s start with a chart from Scott Winship at the American Enterprise Institute (where I am a nonresident fellow), who is a longtime skeptic of the more dire populist diagnoses of our ills. It shows, along various different methods of estimation, the median income for American men — whose difficulties are of particular concern to conservative populists worried about marriageability, family formation and relations between the sexes:
What you see here is a story that doesn’t match a narrative of economic carnage or plutocratic domination. By any of Winship’s listed metrics, men earn more today than in 1995 and earned more in 2000 than 1975. But the chart does show a serious period of stagnation from the end of the dot-com era through the mid-2010s. Meaning that at the time of Trump’s first campaign, the populists had a point about economic disappointment, and the 21st century economy seemed to be letting workers down.
But then in the 2015-2020 zone, the stagnation gives way to rapid growth — growth, as I noted in my column on populism, that also became more equitably shared, with the rate of gains for the 50th percentile and the 10th percentile of income converging with the gains for the 90th percentile. And this last pattern, notably, has continued through Covid and beyond: The Biden economy has performed better for the lowest-wage workers than for either the upper-middle or the middle class.
Clearly class stratification persists, but those trends form a solid basis for thinking that the American economy is not as ruthlessly rigged against the working man as some populist writers seem to suggest, and — as I suggested in a counter to Sohrab Ahmari recently — for privileging culture over economics in explaining some of the troubling social trends of recent years. (Birthrates and marriage rates fell through this period of wage growth, young people’s unhappiness has intensified, and so on.)
But then in the corner of Winship’s chart you can see the problem for the Biden era, where income growth stops and drops in the 2020s as inflation kicks in. This is not a great trend if you became president in January 2021! And indeed, when I noted the Biden economy has been better for low-wage workers, what that actually meant in 2021 or 2022 was that real hourly wages for the 10th percentile rose modestly while falling meaningfully for both the middle class and well-to-do — reducing inequality in the least ideal and least politically palatable way.
2023 has been a better year, with wage growth finally outpacing inflation. But in this chart from former Obama administration official Jason Furman, you can see the continuing political challenge for Bidenomics:
Note that these figures are for “production and nonsupervisory workers.” As Furman notes, wage growth for managers has actually been worse — further evidence, perhaps, that the professional-managerial class isn’t simply hoarding the gains from economic growth.
And note, too, that just as Winship’s chart shows multiple ways of measuring income trends, there are more optimistic analyses and estimates than Furman’s — like this one from Arin Dube of UMass Amherst, for instance, showing workers regaining more ground.
But the sourness of public opinion on the economy seems to match up pretty well with Furman’s estimates. At the very least, no matter where we stand relative to the late Obama or early Trump economy, some further improvement seems necessary to convince the public that the Biden economy is actually in good shape.
So then the question for the Biden administration becomes: What counts as a good wage trend? Remember that the economic trends before 2020 were the best of the last few decades, so just returning to that dotted line in Furman’s chart would be great news. But does Biden need that scale of success to get credit for a good economy, or does he just need wage growth at any pace? What do his re-election odds look like, for instance, if we spend the next year on a slightly more disappointing economic path than we were on in 2018, but a slightly better one than what we were tracing under Barack Obama and George W. Bush?
And then finally, what is the impact on expectations of that wild income spike at the outset of the pandemic? Because the grimmest scenario for Biden would be that the outpouring of Covid spending reset expectations so high that people will be sour with just about any economy until the memory of that weird subsidy fades out.
Finally, a note on the position of right-wing populists in this landscape. I don’t think the possibility that the economy has improved, especially for lower-wage workers, relative to the landscape of 10 or 15 years ago, proves that they should just fold up their arguments and re-embrace low-tax libertarianism. That’s because the arguments for a more interventionist conservative economic policy don’t necessarily depend on the view that the American economy is unjust to wage-earners on the scale that, for instance, Ahmari’s new book, “Tyranny, Inc.,” sometimes seems to assume.
Rather, the case for populist interventions can hold if you just think low-tax libertarianism is failing to sustain some more specific good. For instance, a general increase in prosperity might not be creating the conditions necessary for above-replacement fertility, because the costs of child rearing are largely fixed and can’t drop in the same way as, say, consumer goods, and families are in a positional competition that makes them over-invest in one or two kids rather than having three or four. Or an increase in household income might be achieved through free-trade policies that also hollow out our industrial capacity and leave us vulnerable in a new age of great-power competition.
In these and other cases, conservatives could have good reasons to look for policy innovations even if Winship’s relatively optimistic take on the economic situation is correct. Though as Winship himself might then say, some of those innovations might themselves be libertarian — e.g., making family more affordable by the traditional capitalist expedient of building more housing.
My own mild point, though, is just that there’s a lot of space between Bernie Sanders and The Wall Street Journal editorial board — and thus a lot of room for an agenda with culturally conservative goals, an openness to experimentation, but a non-catastrophic view of the economic situation in which those experiments might take place.
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This Week in Anti-Decadence
People living through scientific revolutions are usually unaware of them — and, if they are, they don’t think about them in the same way that later generations do … The history of the first scientific revolution — the one that began in the famously terrible 17th century — suggests that the positive impacts of scientific innovation, in particular, are not always felt by the people living through the period of innovation.
… [Robert] Boyle was not hoping for the invention of steam engines, or telegraphs, or power looms, or many of the other famous breakthroughs of the age of industrialization that followed him. He was hoping for things like “the cure of wounds at a distance” and drugs that “exalt imagination.”
Boyle clearly knew he was living through a period of rapid change — as a leading member of the Royal Society of London, he was directly contributing to it. But we make a mistake if we assume that Boyle saw himself as a pioneering scientist (the word would not be invented until over a century after his death) and still less as a participant in a Scientific Revolution or inspiration for a looming machine age.
Throughout his career, Robert Boyle described himself as a natural philosopher or a naturalist; his frenemy Isaac Newton was an alchemist through and through. To truly understand them, we need to remember that they did not believe they were pioneering science, as such.
… When we quantify scientific innovation, then, it’s worth remembering that the ways we think about the science of the 2020s might seem as epistemologically foreign to people in the future as the self-conceptions of Boyle and Newton seem to people of today.
— Benjamin Breen, “Experiencing scientific revolutions: the 1660s and the 2020s” (Aug. 9)
China’s Ailing Pork Demand Another Sign of Economic Distress
(Bloomberg) — The fall holidays in China are usually boom-time for pork consumption, as parties and cooler weather entice households to splurge on the nation’s favorite meat.
The Mid-Autumn Festival on Friday typically gathers friends and family over celebratory fare like braised pork belly or sweet and sour ribs. This year, the lunar holiday is followed in short order by the weeklong National Day break, which should extend demand for the more expensive meatier dishes beloved by Chinese.
But consumption is falling flat and supplies are ample. Much of the blame lies with a weak economy and financial uncertainty that to some degree has affected all of China’s commodities markets. Prices of hogs and pork, which usually rise in anticipation of shoppers opening their wallets, have actually fallen. It’s a troubling sign for an industry that has yet to recover from the constraints imposed by the pandemic.
“Pork is selling poorly,” said Yao Shangli, a wholesaler based in Shanghai supplying restaurants in the city. “Look at the economic situation now. The economy is bad. There’s no demand. There wasn’t a wave of stock-building before the holiday either,” he said.
Chinese pork consumption is nearly five times that of 40 years ago, mirroring the rise of the middle classes. But even relatively well-off households are watching the pennies as the economy slows and a protracted property crisis saps confidence.
The impact will be felt as far afield as the Americas, whose farmers supply most of the animal feed for China’s vast pig herd. There’s also a direct impact on financial markets because of the meat’s weighting in the basket of food monitored by China’s central bank, with a drop in pork prices contributing to deflationary pressures in the economy.
In the wet markets of Guangdong in southern China, sales of fresh pork have been slow, said Citic Futures Co. Meat that should have sold out in the morning was still sitting on shelves in the afternoon, according to a report from the broker at the weekend.
Hog prices nationwide have dropped over 5% so far this month, and wholesale pork prices have also turned lower. Slaughter rates at abattoirs are flat.
Carcass sales have slowed and slaughterhouses aren’t getting many orders, according to commodities consultancy Mysteel, which cited the impact of the sluggish economy.
“This round of restocking for the holidays is basically over and demand didn’t really kick off,” said Zhu Di, an analyst with GF Futures Co.
Demand for cured pork usually rises toward the end of the year and that could give the market a boost, according to Zhu. “But I’m not sure how much it will be,” she said. “There’s too much supply. We are quite pessimistic about prices in the fourth quarter.”
That puts Chinese farmers in a bind. Profitability is already lagging pre-pandemic levels, due to a combination of oversupply, weak demand, high feed prices and the costs of fending off diseases like African swine fever.
With hopes dashed this time around, the focus will switch to the run up to the next festival period around Lunar New Year — the period of heaviest demand for pork in the Chinese calendar.
The Week’s Diary
(All times Beijing unless noted.)
Thursday, Sept. 28
- China weekly iron ore port stockpiles
- Shanghai exchange weekly commodities inventory, ~15:30
- China Intl Aluminum Week in Yinchuan, Ningxia, day 3
Friday, Sept. 29
- China’s Mid-Autumn Festival holiday
Saturday, Sept. 30
- China’s official PMIs for September, 09:30
Sunday, Oct. 1
- Caixin’s China PMIs for September, 09:45
On the Wire
Saudi Aramco will start talks to buy a 10% stake in a Chinese refining and petrochemical company, as it looks to boost its presence in the world’s biggest energy importer.
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Economy doing better than expected in face of higher interest rates, banking watchdog says – Financial Post
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Chinese social media censored a top economist for his bearish predictions. He now warns that China’s property crisis will take a decade to fix
How long will it take to fix China’s flailing real estate sector? One of the country’s most prominent economists, who was ejected from its social media platforms for his bearish predictions about the economy, thinks it might take 10 years to fix.
“Fixing the property sector may be a multiyear or even a decade’s work in front of us,” Hong Hao, chief economist for Shanghai-based hedge fund Grow Investment, said on CNBC Tuesday.
That will mean more pain for China’s suffering real estate sector, now two years into its debt crisis. A default in 2021 by China Evergrande Group, one of the country’s largest private developers, sparked contagion across the whole sector as financing dried up. Construction stopped, leading to protests as homebuyers realized they might never get the homes they paid for.
Now with China’s economy underperforming after the COVID pandemic, Beijing officials are grappling with how to wean the economy from real estate without torpedoing the economy in the short term.
For much of the past decade, Chinese developers like Evergrande went on a debt-fueled construction spree, building millions of new homes throughout the country. That’s led to an oversupply, dragging down prices.
“We built way too much housing for Chinese people,” Hong said on CNBC.
Demand is also in long-term decline. Investment bank Goldman Sachs estimated in August that China’s annual urban housing demand peaked at 18 million units in 2017, and will fall to 11 million units this year and 9 million units by 2030.
On Tuesday, Hong pointed to slowing rates of urbanization, with fewer rural Chinese moving to the cities for work. “Two years ago, we were selling 18 trillion yuan [$2.5 trillion] worth of property,” he said. “This year, we’d be lucky to do even [10 trillion yuan], and going down the road, we’d be lucky to do even [5 trillion] or [6 trillion].”
Hong is an outspoken commentator on China’s economy, growing his audience during his tenure as the head of research of BOCOM International, a division of state-owned Bank of Communications.
Yet Hong’s takes were censored last year amid China’s tough COVID lockdowns in cities like Shanghai. Hong argued that the lockdown, which trapped millions of people to their apartments in a bid to stop an outbreak, would hurt China’s economy and would encourage capital flight.
When Hong got a new gig at Grow International a few months later, he warned that those working at state-owned brokerages were starting to face restrictions about what they could say. “Even if you don’t speak the truth, market prices will tell the truth,” he told Reuters at the time.
Hong’s suspension was an early indicator of Beijing’s censorship of bad economic news. This year, regulators are asking analysts and economists to stop using negative language to describe China’s economy—think “subdued inflation” rather than deflation—and the statistics bureau has stopped releasing some indicators like consumer confidence and youth unemployment.
China’s economic recovery has stagnated. Retail sales and manufacturing have grown at lower-than-expected rates for much of the year, and foreign trade has plunged. Still, Chinese economic data beat forecasts last month, suggesting that government support measures may finally be having an effect.
China’s property crisis
China’s real estate sector contributes as much as a third of the country’s GDP. Yet the sector’s liquidity crisis shows no signs of ending anytime soon.
China Evergrande, whose default arguably triggered the crisis in the first place, missed a payment on an onshore yuan-denominated bond on Monday. The developer revealed over the weekend that it could not issue new debt. Chinese authorities are also probing the developer’s former CEO and CFO, reports Caixin.
The bankrupt developer faces a liquidation petition on Oct. 30.
Another major Chinese developer, Country Garden, is also having debt issues. The developer, which has four times as many projects as Evergrande, recently made a $22.5 million interest payment with just days to spare.
While China has relaxed some real estate policies in a bid to stabilize home prices, analysts think that the glory days of the sector are over.
That may be by design, as officials try to wean China off its real estate sector. On CNBC, Hong suggested that once China’s economy relies on other industries rather than the property sector, then “we will have a better, much healthier Chinese economy than before.”
“Not having an overbearing Chinese property sector actually is good for the Chinese economy going forward,” he said.
This story was originally featured on Fortune.com
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Chinese social media censored a top economist for his bearish predictions. He now warns that China’s property crisis will take a decade to fix