First, I want to thank everyone who stepped up this week in response to our fundraiser to help me go to the Mirror Awards in New York. Whether I win or not, I feel like a winner with all the support I’ve gotten. I am truly humbled.
We’ve also gotten a few more subscribers, which is a good thing in a couple of ways. First, paying subscribers help me earn a living. That $7 a month goes a long way, believe me. Second, even new free subscribers show up in Substack’s algorithms as a newsletter that is growing. All of you are subscribers in some way, but if you’re a free subscriber, please consider upgrading, or recommend this column to a friend, so it can grow.
Another way Substack sees growth is through open rates. So, even if you don’t have time to read the column the moment it arrives in your in-box, open and flag it.
Now, let’s get to this week’s story.
The Difference Between a Bookstore and a Book
Two economics stories landed in my inbox this week that said two different things, and yet weren’t contradictory. If I use the metaphor of a bookstore, the first piece, by venture capitalist Nick Hanauer for the American Prospect, essentially posits that there are many books in a bookstore, but only a few titles that have heavy sales. The other - a look at the astonishing prosperity of the U.S. on the world stage - comes from the Economist. It’s actually many pieces, that make up their cover story. This view says simply, “This bookstore is successful! It makes more money than a bookstore in France!” But it doesn’t care if the bookstore only sells 30 titles out of the thousands on its shelves, and that most of its authors don’t make any money, while writers who sell their books in France get a monthly artists’ stipend and marketing to get people to read.
This bookstore metaphor is mine. But you see how it works.
Hanauer’s piece is all about how you look at the numbers, the stories you tell about the data, the assumptions economists make going in. It’s titled “Six Ways Existing Economic Models Are Killing the Economy.” Two of those six overlap with the Economist’s stories.
One of them is productivity.
“America remains the world’s richest, most productive and most innovative big economy,” The Economist writes. This means we get more done - on average - per person than any other economy.
This is true. But as Hanauer notes, the models The Economist is using assume that peoples’ wages accurately measure their productivity. In reality - in the U.S. and in other less socially advanced countries - people making less money are usually the ones who are more productive. Working in a factory. Writing code. Checking out groceries. Hell, being a daily journalist. These are all jobs you can’t bring a book to. They are non-stop from the start of your day till the end. And increasingly the definition of “workday” has expanded.
Let’s also not forget that U.S. employers tend to make workers “managers,” not to give them more benefits, but to get out of having to pay them overtime. The buck or two more in salary for being a supervisor does not outweigh the times they work 10+ hour days, or the times they have to come in because another employee called out.
“People are not paid what they are worth,” says Hanauer. “They are paid what they have the power to negotiate.”
Thus, he notes, Chase’s CEO Jamie Dimon makes 917 times the average Chase worker. And “the CEO of McDonald’s [is paid] 2,251 times the average cook or cashier.”
To the Economist, the wages of CEOs and their workers are all thrown into one big pot to figure out the average productivity, with a throw-away caveat:
“True, Americans work more hours on average than Europeans and the Japanese. But they are significantly more productive than both.”
Again, the Economist is looking at the whole bookstore. “Boy those Americans produce a lot.” Hanauer is looking at what the actual producers are actually paid.
I mean, hell, the productivity of U.S. farms and plantations in the 1800s was amazingly high. But most of the workers were slaves.
It’s also worth noting that the Economist, which is based in England, is using Japan and Europe as a whole, in its example. Japan - after dominating the global market in the 1980s - plunged into a recession in the 1990s with a very slow recovery. It is still recovering slowly from the pandemic.
Europe is a patchwork of economies. France is stuck in a mire that is hard to explain in one column. Germany is the European country most comparable to the U.S. They have a robust social security system, and they recently raised the monthly stipend. Health care is free or low-cost for individuals. Their public transportation is better than in the U.S., so Germans don’t have to own a car. Germany also puts unions and businesses on the same plane, and they negotiate not just wages, but working conditions. In the U.S. most employees have little power. Even if they do belong to a union.
One of the problematic models Hanauer explores is Gross Domestic Product, or GDP. “We’ll sell everything!” is not a great slogan if what you sell is harmful to the people who buy it. As Hanauer notes:
“Not every positive human outcome can be measured in terms of growing GDP or increased revenue. As Bobby Kennedy so eloquently pointed out in his March 1968 remarks at the University of Kansas, an exclusive focus on these strictly numerical measures of the economy counts napalm and nuclear weapons as positives, ignores the value of health, education, and community, and ‘measures everything, in short, except that which makes life worthwhile.’”
Right on cue, the Economist gushes over U.S. GDP.
“In 1990 America accounted for a quarter of the world’s output, at market exchange rates. Thirty years on, that share is almost unchanged, even as China has gained economic clout. America’s dominance of the rich world is startling. Today it accounts for 58% of the G7’s GDP, compared with 40% in 1990.”
The writers at The Economist understand that people like me will point out GDP isn’t the only way of looking at economic health. So it throws this in: “It is true that, by one measure, America is no longer the largest economy in the world. Using currency conversions based on purchasing power—that is, on what individuals can buy in their own country—China’s economy has been larger than America’s since 2016… But though purchasing-power parity is the right metric for comparing people’s well-being in different economies, in terms of what those economies can achieve on the world stage it is exchange rates set by markets that count. And looked at this way, America’s pre-eminence is clear.”
The Economist, clearly, thinks the bookstore is more important than the authors, that the market is more important than the people who make it go. Hanauer would argue that purchasing power parity is more important - or at least just as important - than exchange rates.
Hanauer is a very rich guy who espouses a middle-out economic policy, mostly through his media company, Civic Ventures, which I read every week. He posits that it is problematic to assume that public investment will “crowd out” or dilute the gains from private investment. The mRNA vaccine was developed through public investment. As was the internet. As were our public highway systems. Hanauer likes Biden’s economic investments into cities and industries.
The Economist leans conservative, and is also one of my regular weekly reads. Its main piece on America the bountiful ends with a warning not to listen to people like Hanauer:
“The more that Americans think their economy is a problem in need of fixing, the more likely their politicians are to mess up the next 30 years. Although America’s openness brought prosperity for its firms and its consumers, both Mr Trump and Mr Biden have turned to protectionism and the politics of immigration have become toxic. Subsidies could boost investment in deprived areas in the short term, but risk dulling market incentives to innovate.”
All of this is to say, there are different views of economics, and when we journalists write about economics, we need to keep this in mind. This is one of the things I pointed out in the story below - which is the one that is nominated for the Mirror Award. I agree with the Economist - the U.S. is leading the world in economic output. And, as Heather Cox Richardson pointed out, the Biden administration is using that economic power to fight the fentanyl crisis. But Hanauer is also right: the U.S., with all its economic power, should treat the people who produce the wealth better.
This was great and made me think about the way we are looking at the Nevada economy now.