This is an edition of the Revolving Door Project’s “Hack Watch” newsletter. Subscribe to the Revolving Door Project on Substack.
Welcome to Hack Watch from the Revolving Door Project. This (hopefully) weekly newsletter will document the conflicts of interest, perverse incentives, and just flat-out wrong analyses endemic to the 90’s types whom the mainstream media turns to for quotes about the economy far too frequently.
Out Of Sight, Out Of Mind, Out Of A Job
In last week’s Hack Watch (if you haven’t already given it a read, check it out here), Max Moran and I wrote about the callousness of inflation hawks, a la Larry Summers, to the serious damage a recession could do to millions of American families. Well, this week it got worse. Following a bad (but not disastrous) release of new price data, Team Crash The Economy has quintupled down on their take. Summers and his fellow Harvard hack Jason Furman loudly proclaimed that the rise in core inflation seen in August meant the Fed must be aggressive in hiking rates, regardless of cost. Of course, it’s easy for them to say that, it’s highly improbable that they or anyone they know will actually pay those costs.
In their insistence to return to the established macroeconomic models that have been missing important trends since Milton Friedman’s heyday, these economists completely missed that the increase in core inflation is largely being driven by housing costs. This is a huge oversight for a couple reasons. To start, rents are a very clear example of price-gouging, with many landlords turning down pandemic aid because it came with a restriction on abusing their tenants. In other words, an analysis of the dynamics actually driving inflation supports that it is because of quite literal rent-seeking (for more on that, see my piece from January). Fed Vice Chair Lael Brainard also recently pointed to reducing corporate profits as a way to push inflation down, by the way.
Additionally, housing costs being at the core (no pun intended) of prices staying up should cast some serious doubt on the hawks’ policy prescription. If the cost of housing is doggedly high, then the obvious solution should be to increase the supply of housing. However, if the costs of borrowing money increase massively, then investing in new projects like apartments and other new developments becomes more cost prohibitive. Yep, so the hawks’ ideas to lower inflation could potentially make inflation even worse (mostly in the medium to long run because building takes time).
Many macroeconomists, regardless of ideology, see through this hyperbole. Paul Krugman thinks that we do need rate hikes but only enough to get unemployment up to about 4 percent and change, which is in line with what it has been historically and far less than the 6-10 percent that others are calling for. While we’d like to see a more cautious weighing of the risks of inflation against the risks of expanded unemployment, Krugman at least shows that it’s possible to fall on the other side of the issue without taking perverse pleasure in calling for as many people to lose jobs as possible.
There are other ways to address the ongoing inflation we’re seeing. The most straightforward is price controls. While ‘price ceilings’ is a dirty word in the prevailing neoliberal economic consensus, they’ve been used before and worked. They’re also very much in line with basic microeconomic theory as long as you don’t presuppose very specific supply and demand details. This tweet from economist Sam Levy gets the point across.
As Krugman explained, the evidence from this week does show some moderating of inflation expectations. There’s a reasonable case to be made that the most prudent thing is to wait and see. My CEPR colleague Dean Baker made that point with Joseph Stiglitz here.
The heartless way that hawkish hacks talk about seriously hurting the working and middle class was also a central part of Max’s piece in The American Prospect this morning. Max looked at Richard Clarida’s appearance on CNBC’s “Squawk Box.” Clarida, the disgraced former Fed Vice Chair who potentially used his inside knowledge of monetary policy to beat the market and enrich himself through stock trading, openly declared — twice! — that the Fed should consider itself a “single-mandate central bank” for now. (As an aside, if the Fed were to follow his advice and focus only on inflation, it would be flagrantly breaking the law. Since 1978, the Fed has been obligated to balance a dual mandate of maintaining price stability and full employment.) And the show hosts talked about unemployment with an aloof, jocular tone that highlighted what we all know: these issues are totally abstract to the hacks.
The Media’s Railroading Workers
Yesterday morning, a crisis was seemingly averted (at least for the immediate term) when rail companies and union negotiators agreed to a tentative deal that would include sizable raises and more flexible attendance policies. The deal now goes to rank-and-file union members for an up or down vote, and some longtime labor reporters are skeptical that the workers will support the deal. The workers’ core demand –a reasonable amount of paid sick leave, up from literally none – wasn’t fully met in the compromise deal. The deal does include a guarantee that workers would not be punished for going to the doctor…yikes, that shouldn’t be a negotiable point.
Most Americans this week have been seeing scary headlines about the threat of a rail strike and the economic devastation it could bring. What most Americans are not seeing is an explanation of how the workers are not the ones at fault here.
Some outlets did cover the story well. The American Prospect, The Guardian, and NPR all wrote about the work scheduling that was largely forcing the workers’ hands. Vice has been covering the scourge of so-called precision schedule railroading (a euphemistic way of saying “workers are always on call and never know when they’ll be able to spend time with their families”) for months. And More Perfect Union and Ryan Grim of The Intercept, on his substack, both talked about the rail corporations holding the economy hostage. But far too many mainstream outlets were quick to pivot to excluding that context and running stories that implied a shutdown would be the fault of workers.
CBS aired a segment titled “Potential railroad strike threatens U.S. economy, supply chains.” CNN, similarly, published an article that in the title invoked the threat of “the economic damage it [a strike] would cause”, and a Washington Post analysis says that the impact of a looming strike are already here and then calling those effects “pain”. Another piece from the Post blared that the “Freight rail strike threatens supply chains,” invoking an issue that irked Americans throughout 2021 and early 2022. The New York Times, incredibly, dismissed the rail workers entirely in its initial coverage with the phrase “Whatever the roots of the conflict…”
Framing like this makes the workers’ discontent, which is almost never explained in these stories, seem like the threat’s origin. That is wrong. Rail workers have been extremely patient with negotiations that have gone on for three years, even as their workload has increased while watching the companies they work for rake in sky-high profits. These workers are often on call every single day, at all hours, without sick leave, despite continual safety risks.
If a company is able to exploit its workers by dodging safety concerns while simultaneously making it harder for them to access medical care and requiring them to come in to work with only an hour and a half’s notice, the company is pushing those workers to take aggressive action for self-preservation. The number floating around is $2 billion a day lost because of a strike (that number comes from the railway’s trade association as well). But that $2 billion won’t be lost because of a strike; those billions are the price that we pay for letting corporations continue to profit off the suffering of the people doing all their hard work. Put another way: continual refusal from railroads to exercise basic human decency threatens to cost the United States $2 billion daily.
The blatant disregard for the fact that, using virtually any rational metric, the rail corporations are very clearly the root of this threat is hugely disappointing. Of course, the economic media tends to defer to the interests of corporations and their pundit allies, but the outright cruelty and victim-blaming by omission is an embarrassment. As my colleague Max Moran and I put it last week, the critical contexts of important economic issues easily “can get overshadowed when the media constantly turns to the ultra-rich and establishment economists… to be spoon fed capital-holders’ talking points.”
As the Post analysis from earlier notes, the key issue is the practice of precision scheduled railroads. However, that piece completely omits key details of what that means. Here’s that explanation:
“The system, which emphasizes moving rail cars as soon as they come and not waiting to build trains with rail cars of the same type and destination, makes sense. It also requires customers to adhere to schedules for picking up and dropping off rail cars. Problems arose when railroads used the efficiency gains to park locomotives, shut down switching yards and reduce employees. Profit margins jumped, but service sputtered when the networks hit snags, such as bad weather or a derailment. PSR would work well if the railroads were staffed and equipped more robustly.”
That last sentence especially is outright embarrassing dishonesty. In fact, a key part of PSR is “streamlining operations” to pad profits. And in corporate-speak, “streamlining operations” and similar phrases invariably mean reducing the workforce to as thin of a skeleton crew as possible, while pulling back capital investment and removing reserve equipment to decrease overhead.
The rail companies have slashed employment massively and retired engines. Both of these have dramatically reduced the flexibility required to respond to potential issues (like a pandemic-induced supply chain crunch). The lack of extra hands and extra engines has stretched workers and equipment to their limits. As Greg Regan, President of the AFL-CIO’s Transportation Trades Department, explained it:
“PSR operations seek to maximize operating ratios—a railroad’s expenses as a percentage of revenue—to appease shareholders and increase returns. Fundamentally, a PSR railroad abandons the traditional operating model of a service industry that responds to the variable demand of its customers. Instead, it operates on a regimented schedule more akin to passenger rail. After eliminating on-demand response, flexibility in the construction of train consists [components], and the availability of service, railroads then [move to] jettison capital assets like locomotives and cars and slash jobs across the network.
In doing so, Class I railroads all but ensured their operations would not be able to rapidly respond to economic shocks or rapid changes in the flow of traffic, like those the nation is currently experiencing. This is evident in the hollowing out of the industry that has taken place in recent years. During the five-year period between 2014 and 2019, Class I railroads eliminated a staggering 20% of their overall workforce. I might add that many of these freight rail employees have specialized skills and training—many require certification—that are not easily replicated in the broad US workforce.”
All of this has been egged on by Wall Street, eager to reduce operating ratios and line pockets. This, unfortunately, has resembled a trend across transportation, where deregulation has led to market consolidation, which is then used to exploit workers and “eliminate redundancies” (read: get rid of sufficient backup equipment and staff to step in when needed). Truckers are frequently underpaid and, as RDP has covered before, chronically misclassified so their employers can get around providing benefits, leaving more money for investors. Shipping deregulation led to similar consolidation, which companies have routinely used to try and bully American workers into worse conditions. And airlines, after receiving massive bailout money from the government during the pandemic, laid off much of their workforce to pay their executives’ big bonuses while blaming an absolute breakdown of their actual services on a fabricated labor shortage.
The mainstream media has really outdone themselves this time in their commitment to punch down on American workers. Even other corporations are upset at the railroads. A variety of them raised complaints to the Surface Transportation Board back in the spring, even before the recent brinkmanship. Plus the head of the chemical industry’s trade association recently said “Freight rail has been a constant thorn in our side and been a significant challenge for our members for quite some time.” When you frame an issue in a way that undermines the complaints of workers and other corporations, you’re really on the wrong side.
As my colleague Eileen Appelbaum at CEPR pointed out in a statement yesterday, the entire impasse around a new rail contract highlights how much remains to be done to protect basic worker rights. And workers fighting for basic humane treatment don’t need or deserve this implicit undermining of their case by the media.