Macro Roundup

"...Walker was outspent by Warnock nearly 3 to 1 (Warnock spent $126,232,942 to Walker’s $48,455,356)...Simply put: Walker was outspent, out-fundraised, and had very little help as opposed to Warnock and his campaign/party machine....America Votes, a left-wing get-out-the-vote group, knocked on 4 million doors leading up to the Georgia runoff (in contrast, the Walker-backing Faith and Freedom Coalition aimed to knock on just 400,000 doors) and made more than 1 million phone calls encouraging likely Democrat voters to cast ballots...."

Victoria Marshall, "3 Unsexy Reasons Warnock Beat Walker In The Georgia Runoff,"The Federalist, December 7, 2022, https://thefederalist.com/2022/12/07/3-unsexy-reasons-warnock-beat-walker-in-the-georgia-runoff/

3 Unsexy Reasons Warnock Beat Walker In The Georgia Runoff

The Georgia runoff is over. Raphael Warnock came out on top (as expected). And Republicans are once again running the “quality candidate” canard as the reason for Herschel Walker’s loss (in addition to the overblown, overused, Trump scapegoat). Yet despite the fact Walker was outspent by Warnock nearly 3 to 1 (Warnock spent $126,232,942 to Walker’s $48,455,356), Walker performed remarkably well, netting 48.6 percent of the vote to Warnock’s 51.4 percent.

This as Georgia Gov. Brian Kemp only came out in full force for Walker after he coasted to reelection in November (loaning his field organizing team to the Senate Leadership Fund — the GOP’s Senate super PAC which backed Walker). This translated to just a $2 million ground operation on Walker’s behalf.

Simply put: Walker was outspent, out-fundraised, and had very little help as opposed to Warnock and his campaign/party machine. While GOP establishment types might try to convince you that it was the Trump effect or Walker’s poor candidacy, this is nothing but willful ignorance. Winning elections after the 2020 election rule changes is all about the strength of a candidate’s ground game. Without that, there is no chance of ever succeeding to federal office. Here’s how the Warnock campaign did it.

1. Ballot Harvesting

Ballot harvesting, or the practice of going door-to-door soliciting mail-in ballots from voters, is an art form Democrats have perfected since unsupervised mail-in balloting (and a month of early voting) became legal in the wake of the Covid-19 lockdowns. Democrats in key battleground states know that collecting ballots is more important than collecting votes (i.e., generating Election Day turnout), and so they calculate how many ballots they need to secure a victory, and aim singlehandedly at that.

There are several Georgia-based leftist nonprofits that engage in ballot harvesting and curing. America Votes, a left-wing get-out-the-vote group, knocked on 4 million doors leading up to the Georgia runoff (in contrast, the Walker-backing Faith and Freedom Coalition aimed to knock on just 400,000 doors) and made more than 1 million phone calls encouraging likely Democrat voters to cast ballots. Other Democrat groups such as Stacey Abrams’ Fair Fight and the New Georgia Project have engaged thousands of volunteers to push their GOTV efforts, including registering largely non-white Georgian residents to vote. VoteBuilder, a voter registration database run by the Democratic National Committee and each respective state’s Democratic Party, gives such activists the information necessary to group and target Democratic voters and contact them about filling out and sending in their mail-in ballot.

2. Smart Spending

Georgia Democrats were very strategic about how they spent their money leading up to the runoff. While the GOP was largely focused on the old model of generating Election Day turnout through campaign mailers and TV ads (thanks to greedy GOP consultants), Democrats spent their dollars on initiatives that guaranteed them votes. Case in point: the Democratic firm Relentless paid 1,455 Georgians to contact more than 58,000 friends and family urging them to vote for Warnock. As Axios reported, Relentless paid each participant $200 to contact between 40-50 family members and friends, encouraging them to vote for Warnock. This isn’t the firm’s first rodeo, however. During the 2021 Senate runoff, the firm used the same tactic and boosted target voter turnout by 3.8 percent. Warnock’s own campaign also paid individuals $500 in a similar scheme. So did the Progressive Turnout Project (although this type of “relational organizing” was not limited to just Georgia). Research shows that voters are more likely to respond to appeals to vote from people they know.

3. Litigating Election Law

Democrats ride election litigation like a jockey riding a horse. Democrat mega-lawyer Marc Elias, the Georgia Democratic Party, and the Warnock campaign filed a lawsuit back in November against the Peach State to prevent it from banning early voting on the Saturday after Thanksgiving — despite a state law explicitly prohibiting it. While there was still plenty of time available for early voting without that Saturday, Georgia Democrats argued the law would result in voter suppression (a.k.a., give them less time to harvest ballots). A Georgia appeals court bought their argument. The Georgia lawsuit is just one example of multiple efforts by Democrats nationwide to manipulate election law in their favor or sue until they get what they want.

What This Means

Despite what corporate media pundits tell you, Georgia is not a swing state. Republicans overwhelmingly swept all other down-ballot races this past election cycle. Nationally, Democrats were focused on control of the Senate, and accordingly focused their strategy and efforts on keeping their Georgia Senate seat. They did this by pulling out their most effective ground game tactics such as harvesting (and curing) ballots, spending millions of dollars in various get-out-the-vote efforts, and going to court to expand and cement their radical post-2020 election law changes. And it paid off. If Republicans can’t stop their tactics, then the GOP would do well to mirror them.

Pumpkin Person, "The IQ gap between Harvard undergrads & Harvard Law students,"Pumpkin Person, November 13, 2022, https://pumpkinperson.com/2022/11/13/the-iq-gap-between-harvard-undergrads-harvard-law-students/

The IQ gap between Harvard undergrads & Harvard Law students

Circa 2013, Jonathan Wai reported that Harvard undergrads had a mean SAT of 1490 which at the time equated to an IQ of 145. Meanwhile Wai reported that Harvard Law students had a mean LSAT score of 173.5 which also equates to an IQ of 145.

However by definition, elite students over perform on the very test used to recruit them, because one of the things they’re recruited for is “good luck” on the admission test. Thus it’s interesting to ask how Harvard students perform on a random test (not used in the selection process)

As I’ve noted many times the best data on the subject was obtained by Harvard scholar Shelley H Carson and her colleagues who had an abbreviated version of the WAIS-R given to 86 “Harvard undergraduates (33 men, 53 women), with a mean age of 20.7 years (SD 3.3)… All were recruited from sign-up sheets posted on campus. Participants were paid an hourly rate…The mean IQ of the sample was 128.1 points (SD 10.3), with a range of 97 to 148 points.”

Note: The actual scores were 99 to 150 but Carson reduced them by 2 points because it’s known in the literature that the abbreviated version yields IQs 2 points lower than the full-scale IQ. However she can’t just assume measurement error favours the full-scale, so I am going to return these 2 points and say the full-scale IQ was 130.1.

It should be noted however that the WAIS-R was published in 1981, and that the norms were collected from 1976 to 1980. Carson’s study was published in 2003, so presumably the test norms were 25 years old.

James Flynn cites data showing that from WAIS-R norms (circa 1978) to WAIS-IV norms (circa 2006) the vocabulary and spatial construction subtest (used in the abbreviated WAIS-R) increased by 0.53 SD and 0.33 SD respectively. These gains would result in the composite score of the abbreviated WAIS-R becoming obsolete at a rate of 0.26 IQ points per year, meaning the Harvard students’ scores circa 2003 were 6.5 points too high. This reduces the mean IQ of the sample to 122.6 (U.S. norms).

Also recall that this was an abbreviated version of the WAIS-R and thus only correlates about 0.9 with the full version. Dividing the number of IQ points above 100 by 0.9 raises their IQ from 122.6 to 125, a good estimate of how they would have scored on the full test.

It should also noted that this was a psychology study, and thus a disproportionate number of psych students likely took part. Realistically, us psych majors are not as bright (on average) as harcore STEM majors. Add to this the fact that the abbreviated WAIS only had a ceiling of 150, likely preventing some participants from showing their full potential. Given these two facts it seems reasonable to round up the mean score to 130.

Still, 130 is only 66% as extreme as their 145 IQs derived from the SAT. But as Jensen noted, except when content and format is very similar, different IQ tests only correlate 0.66 with one another so this is the expected result. One might ask why I’m regressing to the U.S. mean and not the mean of SAT takers. The answer is that virtually 100% of gifted American teens have taken the SAT, so regressing them to the SAT population would be redundant.

How would Harvard Law students scores on the WAIS?

To my knowledge there have been no studies of Harvard Law students taking any version of the WAIS, but if there were, I’d expect them to also regress to the mean. However unlike the SAT, we can’t assume that virtually all smart young American adults have taken the LSAT and thus we can’t regress them to the U.S. mean. We can however assume that virtually all Harvard Law students become get their degree, and the average IQ of Americans with professional degrees is about 125 so instead of regressing to the U.S. mean of 100, they’d regress to the professional mean of 125.

But given that correlations are lower in a restricted sample like professionals (say 0.56 instead of 0.66) we’d expect their WAIS IQs to be:

145 - 125 = 20(.55) + 125 = 136.

Conclusion

Even though Harvard undergrads and Harvard Law students both score IQ 145 on their respective admission tests, their actual IQs are likely 130 and 136 respectively. This is not to say that the WAIS is necessarily more accurate than the SAT or LSAT; rather it’s to say that the IQ of a group should never be measured by the very test that selected them, because by definition, they likely overperformed on that.

Ryan Enos“…College-educated whites, especially those with higher incomes, are not clear coalitional partners for anyone — they don’t favor economic policies, such as increasing housing supply or even higher taxes on the rich, that are beneficial to the working class, of any race. And many college-educated whites are motivated by social issues that are also not largely supported by the working class, of any race. It’s not clear that, with their current ideological positions, socially liberal and economically centrist or rightist college-educated whites are natural coalition partners with anybody but themselves. My sense is that much of the college-educated liberal political rhetoric is focused on social signaling to satisfy their own psychological needs and improve their social standing with other college-educated liberals, rather than policies that would actually reduce racial gaps in economic well-being, civil rights protections, and other quality of life issues….”

Thomas Edsall, "How Much Longer Can ‘Vote Blue No Matter Who!’ Last?,"New York Times, February 1, 2023, https://www.nytimes.com/2023/02/01/opinion/democratic-party-coalition.html

How Much Longer Can ‘Vote Blue No Matter Who!’ Last?

Over the past four decades, the percentage of white Democrats who identify themselves as liberal has more than doubled, growing at a much faster pace than Black or Hispanic Democrats.

In 1984, according to American National Election Studies data, 29.8 percent of white Democrats identified as liberal; by 2020, that percentage grew to 68.5 percent. Over the same period, the percentage of liberals among Black Democrats grew from 19.1 percent to 27.8 percent and among Hispanic Democrats from 18 percent to 41 percent.

This shift raises once again a question that people have been asking since the advent of Reagan Democrats in the 1980s: What does it mean for a party that was once the home of the white working class to become a coalition of relatively comfortable white liberals and less-well-off minority constituencies?

I posed this and other questions to a range of scholars and political strategists, including William Galston, a senior fellow at Brookings, who recently cited similar (though not identical) trends in Gallup data. In an essay last month, “The Polarization Paradox: Elected Officials and Voters Have Shifted in Opposite Directions,” Galston wrote: “In 1994, white, Black and Hispanic Democrats were equally likely to think of themselves as liberal. But during the next three decades, the share of white Democrats who identify as liberal rose by 37 points, from 26 percent to 63 percent, while Black and Hispanic Democrats rose by less than half as much, to 39 percent and 41 percent, respectively.”

Galston argued in an email that Black Democrats have assumed an unanticipated role in the party: “African Americans are now a moderating force within the party. It was no accident that they rallied around the most moderate candidate with a serious chance of winning the nomination in 2020, or that the leader of the pro-Biden forces took the lead in rejecting the “defund the police” slogan.”

The coalition of upper-middle-class liberals and minority voters, Galston wrote, “has been sustainable because the former believe in the active use of government to fight disadvantage of various kinds and are willing, within limits, to vote against their economic self-interest.”

Julie Wronski, a political scientist at the University of Mississippi, wrote back by email: “Underlying the liberal shift among white Democrats is their tendency to hold more liberal racial attitudes. In the Voter Study Group’s Racing Apart report, the percentage of white Democrats that hold the most liberal positions on the standard racial resentment measure has increased over the last decade to such a large extent that their racial resentment views match those of Black Democrats.”

The Democratic Party, Wronski continued, has become, “a coalition of racial minorities (especially Blacks) and whites who are sympathetic to the inequities and challenges faced by minority groups in America. Racial identities and attitudes are the common thread that link wealthier, more educated whites with poorer minority constituencies.”

The Democrats’ biracial working-class coalition during the mid-20th century, in Wronski’s view, “was successful because racial issues were off the table.” Once those issues moved front and center, the coalition split: “Simply put, the parties are divided in terms of which portion of the working class they support — the white working class or the poorer minority communities.” The level of educational attainment is the line of demarcation between the two groups of white voters.

By 2020, the white working class — defined by the Federal Reserve of St. Louis as “whites without four-year college degrees” — voted for Donald Trump over Joe Biden, 67 to 32 percent, according to network exit polls. In the 2022 election, white working-class voters backed Republican House candidates at almost the same level, 66 to 32 percent.

The shift of non-college white working-class support to the Republican candidates, Wronski wrote, “was driven by racial group animus. Trump was particularly able to attract members of the white working class on the basis of racial (and other) group sentiments — with those disliking minority groups being uniquely attracted to Trump, in a continuation of the division of the working class along racial lines.”

There are those who argue, however, that the contemporary Democratic coalition is more fragile than Wronski suggests. Ryan Enos, a political scientist at Harvard, emailed to say, “If you’re a Democrat, you might worry that the coalition is not stable.”

Over the long haul, Enos wrote: “College-educated whites, especially those with higher incomes, are not clear coalitional partners for anyone — they don’t favor economic policies, such as increasing housing supply or even higher taxes on the rich, that are beneficial to the working class, of any race. And many college-educated whites are motivated by social issues that are also not largely supported by the working class, of any race. It’s not clear that, with their current ideological positions, socially liberal and economically centrist or rightist college-educated whites are natural coalition partners with anybody but themselves.”

Enos went so far as to challenge the depth of elite support for a liberal agenda: “My sense is that much of the college-educated liberal political rhetoric is focused on social signaling to satisfy their own psychological needs and improve their social standing with other college-educated liberals, rather than policies that would actually reduce racial gaps in economic well-being, civil rights protections and other quality of life issues.”

Paul Begala, a Democratic strategist, is an explicit critic of the left wing of the party. “It is plain to me that the Democrats’ greatest challenge is the progressive left,” Begala wrote in an email: “Pew Research shows they are the most liberal, most educated and most white subgroup in the Democratic coalition. They constitute 12 percent of Democrats and those who lean Democrat — which means 88 percent of us are not on their ideological team.”

In contrast, Begala continued: “Black voters are both the most loyal Democrats and the most sensible, practical, strategic and moderate voters. This is why it was important, politically and even morally, for President Biden to move the African-American-rich South Carolina primary ahead of overwhelmingly white Iowa and New Hampshire.”

In the November 2021 study of the composition of the Democratic Party that Begala referred to, Pew Research reported: “The progressive left makes up a relatively small share of the party, 12 percent of Democrats and Democratic-leaning independents. However, this group is the most politically engaged segment of the coalition, extremely liberal in every policy domain and, notably, 68 percent white non-Hispanic. In contrast, the three other Democratic-oriented groups are no more than about half white non-Hispanic.”

This disproportionately white wing of the party, as I previously discussed, provided crucial support for Alexandria Ocasio-Cortez and Ayanna Pressley when they ran for Congress in 2018, putting them over the top in their first primary victories over powerful Democratic incumbents.

A variety of forces is straining the center-left coalition.

Bruce Cain, a political scientist at Stanford, replied by email to my inquiries: “Many white liberals live in enclaves of affluence, sheltered from the economic and personal insecurity of the low-income communities. They are more strongly motivated by identity issues around gender and race but are less concerned with poverty or economic insecurity issues than liberals in the sixties.”

As a result, in Cain’s view: “Parts of the Democratic coalition are talking past each other and sometimes clashing. In the case of climate change, white liberals want to accelerate the adoption of electric vehicles that most low-income nonwhites cannot afford. During Covid, affluent white liberals could work at home and have food delivered to them by nonwhite workers who left the food packages at their doorstep or who had to go to work and suffer higher rates of illness.”

When all said and done, “White liberals are still a better deal for nonwhites than the Republican Party,” Cain contended, “but it is revealing that the African Americans in South Carolina preferred Biden to Sanders or Warren.”

The liberalism of white Democrats cuts across a wide range of issues. Brian Schaffner, a political scientist at Tufts, cited data collected by the Cooperative Election Study: “In 2020 white Democrats scored similarly low on racial resentment as Black Democrats. And white Democrats actually have significantly lower levels of sexism than Black or Hispanic Democrats. In the 1980s and 1990s, the Democratic Party was indeed fairly divided on issues of race in particular, but that no longer seems to be the case.”

Now, Schaffner continued, “white Democrats appear to be the most liberal group in the party on a range of issues, including immigration, climate, crime/policing, abortion, health care, gun control and economic/social welfare.”

I asked James Stimson, a political scientist at the University of North Carolina-Chapel Hill, how the meaning of “liberal” changed over the past 40 years. He replied: “The term has become infused with racial content. That may be the key to the conversion of educated suburban voters into liberals and Democrats. Trump’s open racism must surely have added greatly to the new meaning of liberalism. Perhaps the L-word has become a way to say, “I am not a bigot.””

Along similar lines, Viviana Rivera-Burgos, a political scientist at Baruch College of the City University of New York, pointed out how much the liberal agenda has transformed in a relatively short time: “Issues like abortion, same-sex marriage and L.G.B.T.Q.+ rights and immigration have become important ideological cleavages in the past 40 years or so. Being a liberal today means you’re most likely pro-choice, pro-same-sex marriage, pro-expansion of L.G.B.T.Q.+ rights and anti-restrictive or punitive immigration laws. These issue positions couldn’t be inferred based on someone’s ideology alone 40 years ago.”

Lanae Erickson, a senior vice president at Third Way, a centrist Democratic group, argued in an email that there is a danger of overemphasizing the liberal tilt of the Democratic electorate: “Although the percentage of Democrats calling themselves liberal has grown over the past three decades, it still remains true that only about half of self-described party members identify that way — in contrast to Republican voters, about 80 percent of whom call themselves conservative. So Democrats have long had and continue to have a more ideologically diverse coalition to assemble, with nearly half of the party calling themselves moderate or conservative.”

Erickson did not hesitate, however, to describe the party’s educated left wing as, “overrepresented in the media, on Twitter and in positions of power. That group is loud and more culturally liberal, though they often purport to speak or act on behalf of communities of color. Meanwhile, the African American and Latino voters who deliver victories to Democratic candidates in nearly every race have remained much more ideologically mixed.”

“If we continue to let white liberals on Twitter define what it means to be a Democrat,” Erickson warned her fellow Democrats, “we are going to continue to alienate the voters of color who are essential majority makers in our coalition. While the Twitterati wants to ‘Defund the Police,’ communities of color want their neighborhoods to be safe — both from police violence AND violent crime.”

To build her case, Erickson cited that role of minority voters in the last New York City mayoral election: “They elected Eric Adams and rejected the far-left candidates whose voting blocs were made up primarily of white liberals,” noting that “Adams outpaced Maya Wiley by 23 points with Black voters and 10 points with Hispanic voters.”

In local elections in 2021, Erickson continued, Black voters “rejected a measure in Minneapolis, where George Floyd was killed, to defund the police: According to ward-level data, the predominantly Black Wards 4 and 5 rejected the Minneapolis ballot measure by wide margins (over 60 percent voted no), while predominantly white wards drove the measure’s support.

Erickson suggested that the culturally liberal tilt of the party’s left wing was a factor in declining minority support: “Case in point: Democrats dropped nine percentage points with non-college voters of color between 2012 and 2020, falling from 84 percent support in 2012 to 75 percent in 2020, according to Catalist. This was most pronounced with non-college men of color who went from 81 percent Democratic in 2012 to 69 percent in 2020.”

These losses reflect “a divergence in priorities and values,” Erickson wrote, citing poll data showing that, “while Democratic primary voters say hard work is no guarantee of success, Black voters disagree — saying most people can get ahead in America if they work hard — and that by a two-to-one margin, Black Americans say it is necessary to believe in God to have good morals. Democratic primary voters of all races disagree with that statement by similar margins.”

While the party is divided on values and priorities, Erickson pointed out that Democrats in Congress have reached general agreement on many issues that were highly divisive in the past: “There is only one pro-life Democrat left in Congress, and today’s moderate Democrats are loudly supportive of reproductive rights. There are no more N.R.A.-endorsed Democrats on the Hill, and if gun safety legislation were brought up tomorrow, every single Democrat in federal office would support it. Similarly, every Democrat not only supported the Respect for Marriage Act but would’ve likely gone further to explicitly codify marriage equality into law at the federal level.”

The major intraparty conflicts that remain, Erickson wrote, “are concentrated around two big questions. One is a process question: Do you believe progress is achieved by incremental steps or revolutionary change? The other is a values question: Do you believe that, with some basic policy reforms, our economic system can deliver a good life to those who work hard in this country, or rather that it needs to be torn down and fundamentally rebuilt from the ground up?”

The transition from a partisan division among white voters based on economic class to one based on level of educational attainment has had substantial consequences for the legislative priorities of the Democratic Party.

Frances Lee, a political scientist at Princeton, pointed out in an email that “the class base of the parties has atrophied” with the result that “the party system in the U.S. simply does not represent that ‘haves’ against the ‘have-nots.’ Both parties represent a mix of haves and have-nots in economic terms.”

Because the Democratic Party must hold down “a coalition of upper-income whites and minority constituencies across all income groups,” Lee wrote, party leaders, “are likely to prioritize issues that do not pit the well-off against the poor very directly, such as the rights agenda (e.g., voting rights, abortion, gays and lesbians) and climate/environment. Democrats in government are unlikely to genuinely prioritize the economic interests of low-income and working-class voters, because those voters simply do not represent a majority of their party’s coalition.”

As an example, Lee wrote, “Current Democrats are much more concerned about forgiving student loans than about the majority of voters who will not or did not go to college.”

What, then, is likely to happen in the Democratic ranks?

The reality, as summed up by Ryan Enos, is that for all their problems, “The Democrats are clearly the majority party and may be experiencing an unparalleled period of dominance: Since 1992, a period of 30 years, Republicans have only won a majority of popular presidential votes once, in 2004, and that was during the extraordinary time of two overseas wars.”

For the moment, the Democratic coalition — with all its built-in conflicts between a relatively affluent, well-educated, largely white wing, on the one hand, and an economically precarious, heavily minority but to some degree ascendant electorate on the other — remains a functional political institution.

“In this sense,” Enos told me, “it’s important not to overstate the damage that some perceive liberalism as having done to the Democrats’ electoral fortunes.”

The Economist reports that between mid-2020-2022 America's lower earners saw cumulative inflation of 13.5% whereas middle earners saw 15.5%. The difference was largely driven by car prices and fuel expenditures.

“…Middle-income earners, not the poorest, appear to have borne the brunt of America’s current bout of inflation. Research by Xavier Jaravel of the London School of Economics has yielded a distinctive shape—an inverted-U curve—that illustrates the distributional effects of inflation in America from mid-2020 to mid-2022. For the lowest earners, inflation was about 13.5%. For those in the middle of the spectrum, inflation was closer to 15.5%. The wealthiest faced inflation of about 14%. Since 2020 nominal wages have increased at an average annual rate of about 4.2% for Americans as a whole. The lowest-earning quartile, however, has seen the biggest gains, with their wages up by 5.3% on average during the same period….”

Economist Staff, "Inflation usually hits America’s poor hardest. Not this time," The Economist, February 2, 2023, https://www.economist.com/graphic-detail/2023/02/02/inflation-usually-hits-americas-poor-hardest-not-this-time

Inflation usually hits America’s poor hardest. Not this time

It is often seen as an axiomatic truth about the pernicious effect of rising prices: the lowest earners suffer the most. The calculation is straightforward. Those on low incomes must spend a greater share of their earnings on food and rent, so when the prices for those items soar, they have less left over for everything else. The rich and the middle class, by contrast, are better insulated. This pattern has been observed over many decades, in many countries (see left-hand chart). But America’s current bout of inflation may be an exception to the rule: middle-income earners, not the poorest, appear to have borne the brunt of it (see right-hand chart).

Research by Xavier Jaravel of the London School of Economics has yielded a distinctive shape—an inverted-U curve—that illustrates the distributional effects of inflation in America from mid-2020 to mid-2022. During that time consumer prices rose by an average of 15%. Yet that average masked considerable variation. For the lowest earners, inflation was about 13.5%. For those in the middle of the spectrum, inflation was closer to 15.5%. The wealthiest faced inflation of about 14%. That the rich suffered less is unsurprising. But why have the poor also been somewhat sheltered?

The answer is in large part down to Americans’ reliance on cars. Mr Jaravel used annual expenditure shares from consumer surveys to work out who spends how much on what. Middle-income earners, he found, spend more than others on both petrol and vehicles relative to their wages. That may reflect school runs, longer commutes by car to work, more frequent trips to shops and the like. In the two years that he examined, inflation was extreme for petrol (the price of which more than doubled) and cars (used-vehicle prices rose by about 50%). By extension that hurt the middle class most. A further breakdown of the data reveals even more nuance: at all levels of income, rural Americans faced higher rates of inflation than their urban compatriots because they spent more hours behind the wheel.

A difference of two percentage points in inflation over the course of two years may not seem like much. But it comes on top of a divergence in nominal wage growth that has also, unusually, benefited Americans at the low end of the income scale. Since 2020 nominal wages have increased at an average annual rate of about 4.2% for Americans as a whole. The lowest-earning quartile, however, has seen the biggest gains, with their wages up by 5.3% on average during the same period. Slightly lower inflation makes those gains even bigger in real terms.

This suggests that the combination of a tight labour market and unevenly distributed inflation has made America a little more equal over the past few years, a striking difference with how things normally play out. Unfortunately, it may also be a blip. Wage growth has started to soften as the economy slows. Food inflation has become more severe. On both counts low-income earners are the most vulnerable. The sorry old truth that inflation hits the poor hardest still applies—just not always.

Michael Spence and Belinda Azenui note that labor productivity between the tradable and non-tradable sectors started to diverge in 1998, and by 2021 per-employee value-added in tradable sectors was nearly double the non-tradable sectors.

“…Value-added per employee is a measure of labor productivity. In America’s tradable sector, it has risen steadily over the last two decades in both manufacturing and services, reaching roughly $185,000 (in chained 2012 dollars) in 2021. Over the same period, productivity growth in this sector averaged nearly 3%. The non-tradable economy is just 0.57% per annum over the last 20 years. This reflects below-average productivity levels and, in most cases, low-to-moderate productivity growth in the large-employment sectors. There was not always a large gap between the tradable and non-tradable sectors. On the contrary, as the chart shows, labor productivity was about $100,000 across the economy in 1998. But by 2021, after more than two decades of steady divergence, per-employee value-added in the tradable sector was nearly double the level in the non-tradable sector….”

Michael Spence and Belinda Azenui, "American's Widening Productivity Gap,"Project Syndicate, February 6, 2023, https://www.project-syndicate.org/commentary/us-productivity-growth-non-tradable-sectors-labor-shortages-by-michael-spence-and-belinda-azenui-2023-02

America’s Widening Productivity Gap

MILAN/GRANVILLE, OHIO - The United States has a productivity problem, though one would never know it from looking only at the industries producing goods and services that are traded internationally. Because these goods and services account for only one-third of GDP and slightly over 20% of employment, as is typical for a developed economy, it is important also to consider the non-tradable sector that comprises the remaining two thirds of the economy.

The economy’s tradable sector comprises agriculture, forestry, fishing, and manufacturing - the production of goods, as either final or intermediate products - which in 2021 accounted for one-third of tradable value-added. The tradable sector also includes services such as research and development, consulting, information, and much of finance. Taken together, services account for about two-thirds of tradable value-added - a share that has increased over the last two decades.

Value-added for a firm or industry is calculated by subtracting purchased inputs like energy and intermediate products - excluding labor and capital - from total sales in dollars. It can be understood as the value created by the combination of labor and capital. That value is then captured as income for the labor (forming the upper limit on the average compensation of employees in the sector) and returns for the owners of the capital.

Value-added per employee is thus a measure of labor productivity. And, in America’s tradable sector, it has risen steadily over the last two decades in both manufacturing and services, reaching roughly $185,000 (in chained 2012 dollars) in 2021. Over the same period, productivity growth in this sector averaged nearly 3%. If this had been true of the non-tradable part of the economy - including large-employment sectors such as government, health care, traditional retail, accommodation and food service, education, and construction - nobody would have to be worried about productivity.

There is no good way to measure government productivity, because markets do not price the value created by services that are generally not sold. For accounting purposes, value-added for the government is measured by the costs of labor and capital, the assumption being that democratic collective-choice mechanisms will eliminate services whose costs exceed the perceived benefits. But that approach does not provide much insight into productivity: the fact that value-added per government employee has grown very slowly - by 0.25%, on average, over two decades - just means that, on average, labor and capital costs grew at roughly the same pace as employment.

For the rest of the non-tradable economy, however, we can measure productivity growth, and the results - based on industry-specific data from the Bureau of Economic Analysis for employment and real value-added (in billions of chained 2012 dollars) - are very different than the tradable picture and far from rosy: just 0.57% per annum over the last 20 years. This reflects below-average productivity levels and, in most cases, low-to-moderate productivity growth in the large-employment sectors.

For example, in 2021, hospitality employs 12 million people, has value-added per employee of $41,355 - less than one-third of the $130,000 national average - and productivity growth of 0.26%. The health-care and social-assistance sector employs 20 million people, with value-added per employee of $73,624 and productivity growth of 0.71%. For construction, the figures are 7.6 million, $87,425, and -1.21%, respectively.

There was not always a large gap between the tradable and non-tradable sectors. On the contrary, as the chart shows, labor productivity was about $100,000 across the economy in 1998. But by 2021, after more than two decades of steady divergence, per-employee value-added in the tradable sector was nearly double the level in the non-tradable sector.

Today, however, many non-tradable parts of the economy - including all the large-employment ones - are experiencing labor shortages. This is partly because factors like stress, safety issues, low compensation, and lack of flexibility are driving workers away from these jobs. But skills gaps are also playing a role. Given this, removing barriers to the acquisition of higher-level skills and incomes is a critical component of any structural-transition agenda.

Demand for health care, hospitality, and construction services is not going to drop. So, labor-supply constraints may lead to higher wages and higher prices, raising incomes and measured labor productivity to some extent. But more must be done to boost productivity growth in low-productivity sectors, thereby mitigating supply constraints, which population aging is set to exacerbate.

Digital technologies have been an important driver of productivity growth in rapidly expanding industries. Given recent breakthroughs in robotics and artificial intelligence, there is every reason to believe this will continue. But progress in high-end services and manufacturing alone is not enough. These powerful technologies must also be applied in low-value-added, low-wage, and low-productivity-growth parts of the economy.

Given labor-supply constraints and economic shocks - linked, for example, to climate change and geopolitics - the case for productivity-boosting interventions is clear. Unless policymakers use a combination of investment and incentives to reverse negative productivity trends, the US will achieve modest growth, at best. Worse, the growth that it does attain will be highly uneven, excluding many from its benefits.