Exiles On Main Street

“He lost his job during the pandemic and hasn’t tried to get a new one because he started heavily drinking — like real bad heavy drinking,” she said.

She could be anyone, and the same goes for him. Nominal spending on beer, wine and liquor at retail stores in the US is up almost 25% from before the pandemic, according to the Census Bureau. On an inflation-adjusted basis, spending on liquor was 18% higher in December of 2022 compared to pre-COVID levels.

“Of course that’s taken a huge toll on me,” she went on. Although her story is tragically familiar, she, like countless others in similarly vexing predicaments, is real. It was the first time I’d spoken to her in nine years.

She managed the bar at a hopelessly generic hibachi spot in a small college town you’ve never heard of. We didn’t know each other for long before a job called me away to New York, a place she’s almost surely never been, although I don’t recall ever asking. I used to help her put the patio chairs up on the tables at closing time. We’d leave two down. I’d drink. She’d smoke. We’d talk.

One night in 2014, I made a flippant promise. “I’m gonna come back and rescue you from this place one day,” I told her. I didn’t mean the hibachi spot. I meant the city. It was (and still is) a dead end. “Ok.” “I’m serious.” She dragged on her cigarette. “I’ll be here.”

And she is. In 2023, she’s still there. Her situation is a sadly predictable amalgamation of the deleterious socioeconomic trends that relegated countless millions of Americans to a fate of forlorn obscurity in the three (or four, depending on how you date the decline of the middle-class) decades leading up to 2020. The pandemic only worsened their plight.

Like most distortions associated with COVID, the apparent surge in alcohol consumption isn’t amenable to straightforward analysis. Caveats abound, and more often than not, observers are compelled to present the numbers “as is” to avoid inadvertently drawing spurious conclusions or risking the pedantic ire of a statistician or an irritable economist looking for a fight. The figures presented here should be considered in that context. I did “teach” probability and statistics for a brief period (the scare quotes are a story all their own), but I’m no insider when it comes to the arcana of US government economic data series.

Restaurants and bars were shuttered during the lockdowns, which naturally led to a substitution effect. Those who previously spent their evenings making small talk with bartenders while using stir sticks to steer tiny icebergs through miniature oceans of bourbon, didn’t just stop drinking because the bars closed. It’s not a coincidence that the spike in sales of alcohol at retail stores occurred just as purchases of alcohol at restaurants collapsed.

But even after the drinks started flowing at bars again, sales at retail stores didn’t appear to taper off. All told, the Bureau of Economic Analysis’s figures suggest seasonally adjusted, real spending on alcohol remains up dramatically versus pre-pandemic levels, with the caveat that, as Justin Fox explained in a Bloomberg Opinion column that leveraged the same statistics, it’s not a great idea to add real spending categories together.

In his piece, Fox wondered if the increases versus pre-pandemic levels might partially reflect a continuation of the trend in tastes. Americans are enamored with small-batch liquor and craft beer which tend to cost more.

But that’s not new, and as Fox was keen to point out, bars and restaurants slap huge markups on alcohol, so if “restaurants’ and bars’ share of overall alcoholic beverage spending is still slightly lower than before the pandemic… consumption could be up by even more than spending.”

Whatever the trends in overall consumption, and however you want to explain them, one thing’s clear: The pandemic exacerbated an inexorable, long-running rise in drinking-related “deaths of despair,” as Anne Case and Angus Deaton described the decadesold epidemic of suicide, drug overdose and alcoholism in America. In their book of the same name, ominously published in March of 2020, Case and Deaton attributed those deaths in part to the failures of American capitalism.

“The Great Recession, disastrous though it was, cannot be blamed for the epidemics of death of despair which began much earlier and continued unabated through the slump,” Case and Deaton observed.

They dated the onset of the epidemic to the 1970s, when declining living standards for less well-off and less educated Americans ushered in a “slowly unfolding calamity for the working class.” Between that, and the “social disintegration” documented painstakingly in Robert Putnam’s canonical Bowling Alone, Main Street, and particularly blue collar America, succumbed to disaffection, disengagement and, ultimately, suicidal depression.

Putnam is generally considered the patron saint of social capital analysis although, as he made clear in Bowling Alone, the concept was hardly new when he inadvertently made it a national issue two decades ago. Social capital refers, as he put it, “to connections among individuals — social networks and the norms of reciprocity and trustworthiness that arise from them.” (Note that Putnam was writing just before the age of social media. By “social networks,” he didn’t mean Facebook. I’d argue that the social network only served to worsen the cracks in America’s civic foundation.)

What distinguishes social capital from the more nebulous concept of “civic virtue” is the former’s focus on reciprocity and connections. Real connections, not virtual friend requests. “A society of many virtuous but isolated individuals is not necessarily rich in social capital,” Putnam wrote. America’s social capital diminished over the decades, and it’s no coincidence that the slow disintegration of societal cohesion played out against an macroeconomic backdrop defined by the rise of shareholder capitalism and wave upon wave of globalization.

As regular readers are aware, I generally subscribe to the utilitarian argument vis-à-vis globalization. Hundreds of millions were lifted out of abject poverty in the developing world over the last four decades. From a cold, “by the numbers” perspective, that outweighs the suffering among displaced workers in developed economies where yesteryear’s good-paying jobs were outsourced and otherwise lost to cheap labor abroad. The scope of the decline in the percentage of the world population living in households below the global poverty line during the globalization years is hard to fathom. As Scott Galloway put it in Adrift, a compelling visual tour of America at a crossroads, “the modern world order has ample flaws, but sometimes the scale of our achievement is so vast, we lose sight of it.”

The forlorn Americans at the center of Deaths of Despair will be forgiven if they do “lose sight” of the bigger picture. As Case and Deaton wrote, recapping a tale that haunts many a hollowed out manufacturing town, nearly all jobs once held by so-called  “blue collar aristocrats” were “replaced by imports or by automation in factories, globalization, or robots.” They went on: Some of the displaced “withdraw from the search,” and while “most find other jobs,” those positions “typically have lower wages or [are] less attractive in other ways.”

An Economic Policy Institute analysis of government data from 1979 through 2013 shows a mere 6% increase in real wages for middle-income workers in the US. Like Case and Deaton, the EPI emphasized that “this disappointing living-standards growth preceded the Great Recession” by decades. “The vast majority of American workers” have seen little, if any, wage growth for an entire generation, the EPI lamented.

Again: Nearly all of the deleterious socioeconomic trends so often discussed, but never addressed in a systematic way, began around the same time. They either continued or, in some cases, worsened, over the period economists describe fondly as “The Great Moderation.”

A centerpiece of Deaths of Despair is the diverging fortunes of the less educated and those with a college degree. The phenomenon began — you guessed it — some 40 or 50 years ago, and it’s worsening by age cohort. “More jobs require postsecondary education and training beyond high school now than ever before [but] college degrees are more expensive and exclusive than they’ve ever been,” Galloway wrote in Adrift. “The convergence of these trends has intensified inequality among those who are lucky enough to obtain a degree and those who aren’t.”

In 1973, nearly three quarters of jobs in America were open to those with no college education. By 2020, that share was down to just a third. Consider that 50 years ago, nearly a third of jobs were available to Americans with less than a high school diploma. Today, the same share (around a third) are reserved for those with at least a Bachelor’s degree.

Like so many of America’s nameless “extras,” the small-town bar manager I promised to rescue from limbo slipped off the success ladder in her mid-twenties, when the cost of tuition became too burdensome. As Case and Deaton would attest, that’s an economic death sentence.

Very often, college dropouts take jobs at restaurants and bars, which can become professional and personal black holes. Although I don’t know this for sure, my old friend likely met her significant other at a restaurant job — a job he wouldn’t necessarily have needed in a bygone era when good, blue collar jobs were plentiful for those without degrees. And she wouldn’t have needed a bar manager position had tuition inflation not put a college education out of reach.

This all raises serious questions about whether the Faustian bargain America struck decades ago was worth it. Claudia Sahm broached the subject last month. “The Fed’s claims that low inflation is… the only path to a ‘healthy’ economy that benefits workers over the long-term are out of touch with reality and offensive,” she wrote, on January 11. “The benefits of low inflation exist for consumers, but they come at a cost to workers,” she continued. “Most Americans are consumers and workers; low wage growth offsets [the] benefits from low inflation.”

Of course, as we’ve seen over the past two years, high inflation offsets the benefits from higher wages, but if, during the period we typically associate with low inflation, prices rose inexorably for things like health care and the college education people need to avoid falling through the proverbial cracks, then what was the point?

If young women and men not born into money can’t afford to finish college, effectively condemning them to menial, thankless work in the services sector, and if those occupations are conducive to personal tragedy and bad relationships as the associated economic precarity begets psychological distress and escapism through alcohol and opioids, then what comfort are cheap durable goods, flatscreens and gadgets?

Sahm captured it well. “Cheap labor and just-in-time supply chains are profitable,” she said. “For shareholders and the C-suite, the low-inflation world is a win-win.”

There too (i.e., in the context of shareholders), those without an education are increasingly left out. The share of corporate equities controlled by those with less than a college degree in America was whittled down to almost nothing over the past four decades.

In 1989, the share of corporate equities controlled by Americans with a high school degree or less was near 17%. As of September 2022, that figure was just 7%. Tellingly, those with no diploma held less than 1% of the nation’s corporate equities and mutual fund shares as of Q3 last year. In 1989, they held more than 4%.

So, the era of shareholder capitalism has coincided with a decline in the rate of shareholders among lesser educated Americans. Over the same period, the cost of getting an education soared. Here again, economists’ narrative about Main Street prosperity and low inflation appears at least somewhat dubious, particularly when considered with the morbid statistics presented so persuasively by Case and Deaton.

In the years since the financial crisis, easy monetary policy (justified, somewhat ironically in the context of this discussion, by the fear of deflation) was blamed for exacerbating inequality, as the benefits of ever higher asset prices accrued exponentially to those in whose hands those assets were overwhelmingly concentrated. The dynamic went into overdrive during the pandemic, as Fed policies aimed at bolstering the economy delivered massive windfalls to billionaires and drove up property values.

Now, part and parcel of the battle to arrest the highest inflation in a generation entails leaning into the property bubble, but because prices are unlikely to reset to pre-pandemic levels even in a sharp housing slowdown, the read-through for many would-be buyers on Main Street is higher prices and higher financing costs.

“I’m currently looking for a house,” my old friend told me. Living with someone battling alcoholism is difficult enough when that person is high-functioning and gainfully employed. An unemployed alcoholic not seeking work can be a ruinous burden.

She won’t find an affordable house. I didn’t tell her that, of course, but as Fed economist Daniel Ringo argued in a recent paper, the sharp rise in mortgage rates bodes ill for Americans with lower incomes — Americans like bartenders searching for a way out of a bad situation.

Ringo presented the other side of the story vis-à-vis the argument that loose monetary policy leads invariably to more inequality. “While low-wealth households may not experience an immediate appreciation of financial assets when the stance of monetary policy is expansionary, that stance can allow them to get their foot in the door of homeownership,” he wrote. Ringo used mortgage applications to analyze rate locks around monetary policy shocks. His conclusions were disheartening, but hardly surprisingly.

“I find that a one percentage point policy-induced increase in mortgage rates lowers the presence of low-income households in the population of home buyers by one percentage point, and of low- and moderate-income households by two percentage points, immediately following the shock,” Ringo wrote. “Monetary policy shocks can have a near-instantaneous effect on the composition of home buyers because of the nature of mortgage underwriting.”

The effect doesn’t wane quickly. In fact, it echoes over time. “The lower-income share of home buyers remains persistently lower for approximately one year following a contractionary monetary policy shock,” Ringo went on. The implication, he said, is that “a one-time monetary policy decision has the potential to meaningfully affect the income composition of the stock of home owners by altering the composition of the inflow for a protracted period.”

When you think about Ringo’s findings, consider the scope of the monetary policy shock in 2022. Mortgage rates were 3.11% during the last week of 2021. 10 months later, they were more than 7%, a four-point monetary policy-induced increase. The effect of that on the longer-term composition of homeownership won’t be known for years, if ever, but the important point is that lower- and middle-income buyers are coping with both the pandemic price premium and higher financing costs.

No matter how hard the Fed tries, monetary policy won’t succeed in bleeding the price premium out of the market. Prices may fall as a result of higher rates, but not by nearly as much they rose over the past two years. And it’s unlikely rates will be back to levels which helped facilitate the boom anytime soon.

That’s just one more example of the “can’t win for losing” predicament that plagues Main Street. It’s true that homeownership soared for a decade from 1995 through 2005, but how did that turn out for regular people? Main Street bailed out Wall Street when a mountain of risky, securitized mortgages soured.

It often strikes me that there’s a divide between those who understand how all of this fits together to form a coherent narrative about the last four decades in America and those for whom that narrative is real — an “unbridgeable chasm,” as I put it last month, between those who tell the story and those who are the story.

For the most part, the storytellers enjoyed the benefits that accrued to the well-off during The Great Moderation years, and also during the post-Lehman era of easy money. Their penance is explaining what went wrong for everyone else, and why. Those explanations differ in important ways, but they all describe a slow decline in both civic engagement and Main Street economic vibrance beginning four or five decades ago and accelerating during the years economists and policymakers associate with low inflation and general prosperity. As Sahm put it, the revisionist history favored by America’s elite is “out of touch with reality and offensive.”

“We can go anywhere we want,” I told the bar manager last month. I wasn’t even sure what I was offering, but I pitched it as a kind of golden ticket. I hadn’t forgotten after all. Of all the promises made to Main Street, this one, at least, wasn’t empty. I’d come back to liberate a lost soul from the prison of precarity.

“You know, I haven’t thought about that in a long time,” she said. Part of me was surprised she remembered at all. We were friends, but hardly close, and it’s been nearly a decade. That she had even a faint memory of my salvation pitch was a testament to the notion that regular people do still dream, no matter how many times they wake up to a nightmare.

She went on. “As much as that sounds incredible, I wouldn’t know what to do with myself.”

“Do you know what a deus ex machina is?” I asked. “No.” I read her the definition.

When we got off the phone, probably for the last time, I thought about Putnam’s meticulous account of detachment and solitude in America, about my own self-imposed exile and about how, on some days, the isolation is psychologically taxing.

Then I read the deus ex machina definition again, this time silently, to myself. “A plot device whereby a seemingly unsolvable problem in a story is suddenly and abruptly resolved by an unexpected and unlikely occurrence,” it said. “Its function is generally to resolve an otherwise irresolvable plot situation, to surprise the audience, to bring the tale to a happy ending.”

It wasn’t clear anymore whether I was volunteering to save her or volunteering her to save me.

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