May 28, 2019

Axios Future

By Bryan Walsh
Bryan Walsh

Have your friends signed up?

📺 Watch the trailer for Season 2 of "AXIOS" on HBO, premiering 6 pm ET/PT Sunday.

Any stories we should be chasing? Hit reply to this email or message me at steve@axios.com. Kaveh Waddell is at kaveh@axios.com and Erica Pandey at erica@axios.com.

Smart Brevity count: 1,133 words/<5 min. read)

Okay, let's start with ...

1 big thing: A case for large wage hikes

Illustration: Rebecca Zisser/Axios

The Fed is mandated to worry about inflation. But the risk of runaway prices seems so remote that, at least for now, some Fed officials and leading economists are embracing what for decades has been rejected as heretical — allowing wages to keep rising without stomping on them with higher interest rates.

  • A question, however, is whether — given decades of largely flat wages — the Fed should go further to encourage companies to more aggressively raise their employees’ pay.

Driving the news: U.S. workers have had a six-month run of real pay gains. Ordinarily, that would be a signal for the Fed, alert always to "wage inflation," to contemplate hiking interest rates and incentivize companies to slow the increases.

But this time, several Fed officials suggest they are open to extended real wage hikes, a sentiment that — should it become bank policy — could have both economic and political impact if living standards rise in places that since the 1980s have seen mostly decay.

Officially speaking, the Fed has no mandate to move wages. But it ends up influencing pay through its interest rate policy.

  • Meeting with reporters on May 16, Neel Kashkari, president of the Minneapolis Fed, said that if wages rise, "we shouldn't respond very much," per Reuters.
  • Two days earlier, Esther George, an inflation hawk and president of the Kansas City Fed, signaled support for wage increases. And, in remarks last month, Fed vice chairman Richard Clarida said pay gains are not pushing up inflation.
  • Last week, Reuters' Howard Schneider reported that the Fed as whole is reviewing how it treats labor and inflation — "a chance to lean into a new consensus that a low unemployment rate alone does not tell the whole story of the economy."

What's next: I asked a group of leading economists whether the Fed should embrace not just more months of wage gains, but higher increases, in line with those of prior decades. The answer I got back was mostly “yes” — that would be a “fine idea,” as Lawrence Summers, the former Treasury secretary, put it. But there was much hand-wringing on what the Fed could actually do.

  • "The question is what leverage the Fed has over wage-setting," Summers said. "The usual view is the main leverage comes from the Fed driving unemployment down. It's hard to imagine the Fed jawboning employers." 
  • Jason Furman, chief economist for President Barack Obama, agreed that the only thing the Fed can do is keep interest rates low.
  • Glenn Hubbard, chief economic adviser to President George W. Bush and now dean of Columbia University's business school, said, "The best thing the Fed [could] do for wage growth is to continue to let the job market run hot."

But Karen Dynan, chief economist for the Treasury Department in the Obama administration, said the Fed has the power of its word — economic and financial actors often hang on the utterances of Fed officials, especially chairman Jerome Powell.

  • "Fed officials have taken some steps in the direction of encouraging faster wage growth by making it clear that there is room for wages to grow without pushing price inflation to undesirably high levels. [But] given that price inflation is still falling short of the target, I think the messaging could be a little stronger on that front," Dynan said.
2. Trouble for Amazon's suppliers

An Amazon fulfillment center in Baltimore. Photo: Erica Pandey/Axios

In yet another win for bigness and big companies, Amazon may be leaving the small suppliers who rely on its platform in the dust.

Erica writes: Amazon is culling its supplier list, getting rid of small players in favor of big brands and conglomerates like Procter & Gamble, Sony and Lego, which offer wholesale prices, reports Bloomberg.

Why it matters: With the rise of supercenters like Walmart in the 20th century, smaller manufacturers and businesses were effectively banished from main streets. Now, Amazon, which has already been grabbing market share, may purge them from the web, too.

  • "Efficiency and profitability are the issues here," says James Thomson, a former Amazon executive who now consults for sellers on the platform. Amazon is trying to slash away costs in its retail business and working with primarily major suppliers will help the company do that.
  • For example, when it comes to products affected by the trade war, conglomerates with deep pockets have options, including shifting production out of China, to keep tariffs from turning into price hikes. Smaller suppliers can't do the same.
  • Amazon reportedly told some smaller suppliers that it will only pay 5% more to buy products that are tariffed 25%, per the Washington Post.

Small companies still have the option of selling directly on Amazon's website, but hunting for individual customers amid an ocean of products and users is much messier than selling in bulk to the behemoth, Bloomberg notes.

  • On top of that, Amazon has increased the cut it takes from merchants per sale since it first opened up its platform to third-party sellers.

In a statement to Axios, Amazon strongly disputed the Bloomberg report: "We informed Bloomberg prior to publication of their article that their sources and story are wrong. We review our selling partner relationships on an individual basis as part of our normal course of business and any speculation of a large scale reduction of vendors is incorrect. Like any business, we make changes when we see an opportunity to provide customers with improved selection, value and convenience, and we do this thoughtfully and considerately on a case-by-case basis.”

3. Today's stat: Rat sightings

Rat protest, New York, 1948. Photo: Charles Hoff/NY Daily News/Getty

The sighting of rats in major U.S. cities is up. In New York City, the public reported 17,353 rats last year, up 38% from 12,617 in 2014, reports the NYT's Winnie Hu.

But that's mild compared with Chicago, which is the rat capital of the U.S., according to calls to Chicago's 311, per RentHop. It had 50,963 sightings in 2017, up 55% from 32,855 in 2014.

Washington, D.C., has seen nearly triple the number of rats since 2014, but that only meant about 6,000, up from around 2,400, per the NYT.

4. Worthy of your time

Illustration: Rebecca Zisser/Axios

The plan to change how economics is taught (Dylan Matthews — Vox)

Humanity and autonomy (Joann Muller — Axios)

Amazon targets the government (Rana Foroohar — FT)

Democracy and its discontents (Adam Tooze — NY Review of Books)

How Huawei may lead China to disconnect (Craig Timberg, Reed Albergotti — WP)

5. 1 word thing: The Spelling Bee begins

Last year's competition, D.C. Photo: Katherine Frey/Washington Post/Getty

For almost a century, one of the most grueling endeavors any kid could attempt was participation in the National Spelling Bee competition. Honestly, how many of you, before reading this, could spell "koinonia," last year's winning word, less what it means (Christian fellowship)? This year's Bee began yesterday in Maryland and ends Thursday.

  • Background: This week is the culmination of eight months of competition that began with some 11 million students — from elementary school through the 8th grade.
  • The number of participants has significantly risen because of a 2-year-old rule change allowing parents to pay a $1,500 fee for their child to enter: In 2017, there were 291 spellers. This year, there are 565.
  • “My brain is dripping out my ears,” Erin Howard, 14, of Huntsville, Alabama, told Reuters' Lacey Johnson today. Howard advanced to the second round by correctly spelling the word "oyez."
Bryan Walsh