The Voice of the Limulus

Thinking about “Drowning in Deposits”

So, I read Dylan Riley’s provocative piece ‘Drowning in Deposits; it has a lot going on. What begins as an argument that the failure of Silicon Valley Bank owed mostly to overcapacity and the tendency of the rate of profit to fall under capitalism ends with an argument that the left should reject industrial policy since any attempts by the state to engineer private sector outcomes will result in future crises of overcapacity, and lock the government into ever more phases of bailing out private firms. There’s a lot of elements, but I wanted to use this forum to share some thoughts about financial instability, climate finance, and Bidenomics writ large.

I can appreciate Riley’s frustration with failures of the private sector – here, explicitly SVB and tech firms in general – to bring about productive change in the realm of climate change. I’ve gradually come around to the notion that low interest rates in the past decade or so have had ambiguous consequences, among them the growth of the US’s tech industry, which has created some monstrous corporate entities like Facebook and Uber, that have helped foster political instability through plenty of nefarious means and undermine labor markets by bolstering the gig economy respectively. But I think Riley has the order wrong; if he believes that tech firms have done nothing productive, and the banks have likewise failed to ‘invest in’ (I think he means ‘lend to’) private ventures, he should have looked further back to 2008 and 2010. In the slack economy of the 2010s, post-2008 Global Financial Crisis, the US government with the Obama Administration’s leadership failed to support households while it bailed out large banks; these moves fostered low demand, which in turn discouraged firms from rebuilding their productive capacity in the decade that followed. When the state stepped up its support for households in 2020 and 2021, and the private sector was caught flat-footed, inflation (which I still believe to be transitory, though for a longer period than I’d hoped) followed. This provided the foundation for aggressive (and misguided, in my opinion) rate hikes by the Fed in the past year. If we want to lay blame on the state for current financial turbulence in markets for Treasuries, we should cast our gaze back to a state failure to support households and, maybe, real sector firms back in 2010, rather than fixating on the recent past.

Riley argues that recent financial instability as exemplified by SVB reveals overcapacity, which has resulted from low interest rates, and that this has indirectly contributed to rising rates on US government debt. Riley’s focus on overcapacity centers on the notion that SVB’s preferred asset was US treasuries, rather than lending. Yet, while it constituted a relatively small share of its business, SVB was investing in climate transition; SVB had lent billions of dollars to climate related ventures, and provided more than 60% of funding for solar financing in the US, as well as to the construction of low-income housing, both worthy aims by any metric. If we care about climate change, and the IPCC has plenty of ammunition for why we should, and we should move as soon as possible, it’s not clear to me how SVB can be construed as finance failing to contribute to that effort, which is another argument that Riley emphasizes throughout the piece. And since the collapse of SVB, the question of what will happen for these ventures is open: will other banks step in to claim the mantel of premier lenders for facilitating carbon transition?

To Riley’s point that “neither the Biden administration, nor the neo-Kautskyites, have a credible answer to the structural logic of capitalism,” since a successful outcome of massive state push to increase industrial capacity would inevitably create a global bubble in green tech, first of all, we should be so lucky! I’m not sure how Riley supposes progressives or the state will force firms to start producing low-cost daycare, solar panels, and more; a cursory read of US history reveals that moments of the best successes for labor have occurred when the state and business have worked together. As Yakov Feygin noted, the closest the US government has come to direct management of production in its history has been through industrial policy with a wide scope. We should argue about whether the terms of those agreements have been ideal – whether the state should take more credit for its contributions (I agree with Marianna Mazzucato on this) or how the state should tax benefactors from its industrial policies are important debates – and critique how our government motivates firms to contribute to the public good; to do either requires left attention to industrial policy, if we would have future efforts better than prior ones.

In any event, the financial instability gyrations triggered by bank runs seems to have fizzled after some big central banks set their phasers on stun to curb panics in major financial arenas. A few takeaways for me include:

  1. The value of regulation and oversight: hearings in congress about the state of SVB’s balance sheets reveal that recent deregulatory measures played some significant role in bringing SVB to its point of failure, so maybe paying attention to the details is worthwhile.
  2. Leadership at the Fed’s persistent and destructive push to raise rates, in tandem with its sclerotic computer admin, helped destabilize banks and firms more than overcapacity in the green tech space.
  3. Jim Crotty noted often that Marxian tendencies toward crisis could begin or be exacerbated by lack of capital and liquidity crises; his work uniting Keynesian and Minskian thought with Marx emphasized the importance of the financial machinery that Riley dismisses. The crisis at SVB originated in both rapidly communicated panic and mounting uncertainty as the Fed raised rates; if depositors want a safe place to park their money, why not create a public banking system with checking accounts for households and firms [these exist in Germany]? And if we want to prioritize ‘good investment’ in climate transition and care work and rebuilding bridges and so on, how about creating some public infrastructure and capital lending banks [again, you see these in Germany]?

As I see it, the left’s job is to continue to lobby for both the industrial side and the care side of the equation; I’d be delighted for a combination of incentives for the private sector as well as subsidization of childcare. As for seizing the commanding heights… while you don’t get any of the reforms (or revolutions) you don’t attempt, Joe Manchin has demonstrated a lot of leverage, to say nothing of Republicans in Congress. That anti-neoliberal tendency in the Democratic party ought to be nourished, and if progressives that have made their way into the upper echelons of the administration and leftists protesting on the outside maintain pressure for better versions of this, how could that be a bad thing? Even Robert Brenner sees it as a step forward.

Apropos “all the finance stuff happening right now”

On March 20, I had the pleasure of talking to Kai Ryssdal about the Federal Reserve, financial regulation, and all the banking craziness happening this month (March 2023); you can find the interview here. It’s a short piece, so I wanted to put down in slightly more detail some other reflections I have, and what I’m looking for in forthcoming monetary and fiscal responses to *everything*.

For a brief recap, SVB was a regional bank in California that did a lot of business with startups (especially tech startups), wine producers, and other businesses in that part of the country. It was also heavily involved in climate finance and even had an arm working to fund construction of affordable housing. Its primary function — a big one! — was serving startups, which are generally uncertain ventures; holding venture capital funded deposits; and providing banking services (loans and so on) to venture capital firms, private equity groups, and high net worth individuals. SVB collapsed in part due to its business model: it received a large volume of deposits from area startups, but, due to relatively small demand for credit from its lending arm, held a large share of longer-term assets like US government bonds. US Treasuries are typically considered to be relatively safe assets, but SVB had the bad luck of holding Treasuries in the midst of the Fed’s 2022-2023 policy of consistently increasing interest rates, which has contributed in part to rising rates on US Treasuries (and, by extension, falling bond prices).

Without going into too much detail, SVB’s asset values, when marked to market, would have sold for less than their ‘book value’, or the value these assets were listed at on SVB’s balance sheet, to which we might expect prices to return if SVB could hold them to term. A group of SVB’s depositors publicized their worries about their ability to redeem their deposits in full, began a run on the bank, SVB attempted to honor those obligations by selling off assets, generating worse asset:liability ratios, the Fed declined to allow SVB to borrow against its (again, pretty high quality) collateral to quickly access cash, which all exacerbated worries of SVB’s default and the ensuing run. By Friday, March 10, the FDIC took over SVB, and by Sunday, March 12, the FDIC promised to move all deposits with SVB into a bridge bank, so that depositors would have full access. The Biden Administration made a big deal about how this was not a bail-out, because SVB was not being rescued, but rather its depositors. Shortly after, a similar scenario played out for Signature Bank, based in NY, which did a lot of business with cryptocurrency, in which depositors were rescued, but the bank was not.

These events unleashed a big wave of uncertainty (I by chance used the word ‘wobbles’ which made it into the tagline for that interview) — shareholders sold off financial stocks, which took a downturn, credit rating agencies decreased a number of major banks’ ratings, and a few other major banks were discovered to be at risk of failure, including First Republic Bank (rescued by a bunch of larger private banks but still in trouble) and Credit Suisse (purchased by UBS, and generating different sorts of financial turbulence). The Fed created a new lending facility for banks in distress, has lent $160 billion USD at the discount window to American banks, and is reopening dollar swap lines with foreign central banks; the Swiss National Bank has offered major liquidity support to UBS for its purchase of Credit Suisse; and bank stocks continue to fall in price. NB: these events are not directly related! But they seem to reveal underlying unease with financial institutions, and also that shareholders are trigger-ready to sell. We’re waiting to see whether this induces the Fed’s Open Market Committee to slow (or pause) its rate hikes on Wednesday, March 22. It’s a wild time!

It’s also a frustrating time! CEOs of SVB and Signature Bank lobbied for deregulation that ultimately (in 2018) exempted banks with $50 billion to $250 billion in assets from stress tests that much larger banks were subject to; the failure of these banks has revealed the major consequences of such theoretically ‘medium’ banks to their respective regions. There is also some irony in the tech industry, which has been linked with the rise of the gig economy and its many ills, complaining loudly about the negative employment consequences of not bailing out their premier banking institution. And where were the outraged VCs when congress let the Child Tax Credit, and every other socio-economic success of 2020 and 2021 expire? Worse still is the revelation that Powell declined to read one sentence in his speech about SVB’s regulatory failures prior to the run, and the fact that the bank had been under scrutiny for some time. While Powell’s desire not to fuel broader unease with the financial system was understandable, it was yet another bad mark for an institution staffed largely by former finance employees.

The Fed’s rate hikes since March 2022 have had devastating effects for developing economies thanks to interest rate spillovers and the appreciation of the USD. They’ve also induced major central banks elsewhere to follow suit, chilling real estate development when there is an obvious housing shortage, and making it harder for first time home-buyers to purchase. Contractionary monetary policy is designed to slow inflation in the bluntest of ways: make it more expensive to borrow, discourage lending, and (hopefully) decrease spending to the degree necessary to bring down prices overall. Despite the Fed’s aims, households that keep spending and firms that have continued to hire seem to be fueling what some cheeky commentators call the ‘honey badger economy’, which keeps growing regardless. But now that these rate hikes are finally chilling activity in part of the economy that has fueled growth for most of the 2010s onward, the Fed is pouring in money to rescue banks and their depositors. What gives?

It’s important to emphasize that allowing banks to fail has bad economic consequences. My objections to Uber and other particularly egregious cases of tech startups’ contributions to the flourishing of the gig economy notwithstanding, tech companies employ workers, banks serve communities, and allowing them to fail spreads the costs far and wide to vulnerable households and firms that had little to nothing to do with those dynamics. The Federal Reserve’s use of the discount window to ensure that banks have enough cash on hand to withstand uncertainty is another important resource that we want banks to avail themselves of, to forgo crippling financial panics that induce self-defeating runs on banks. Dollar swap lines are important resources to insulating global banking systems from international contagion; some firms that are unfriendly may benefit, but many more that are just fine will be saved from needless financial uncertainty in the process. My only complaint would be that there should be wider provision of these liquidity services to smaller economies that are generally more vulnerable to international financial fluctuations than more robust ones tend to be.

Jay Powell and other top brass at the Fed are on the record that their primary responsibility is to control inflation and minimize unemployment rather than to use monetary policy to advance other social and economic goals. I think it’s important for progressives to accept him at his word, and stop looking to the Fed to provide more support for households, the poorer end of the US’s income distribution, other economies, debt relief, carbon transition, and so on. Instead, progressive ought to shift their perspective to other branches of the US government. To this end, moves by the Biden administration to work around these challenges — like creating new relief measures for student loan debt as the Supreme Court appears likely to overrule the administration’s attempt to cancel student debt in August 2022, and the Inflation Reduction Act as (biodegradeable) rocket fuel for carbon transition, and more — maintain my optimism that all is not lost. And if all else fails, a progressive consumption tax that bites is always there for anyone that wants to try it.

QE and spending by whom

Tim Barker has an excellent piece out today about left debates on whether dovish monetary policy has been bad for inequality, which has me thinking a lot (you should definitely read it).

Some very brief reflections:

  1. Tim frequently refers to the 2007-2022 period as one block when recounting assessments about the relative benefits of historically low interest rates that have prevailed since 2008 or so. He’s discussing interpretations from others — business reporters, left analysts, central bankers — in this context. But it seems bonkers to me to include that whole period when considering whether QE is on the whole bad or good for the lowest income strata of the US economy (to say nothing of the rest of the world).
  2. Low interest rates in the post 2008 period did not elicit the same boom in spending we saw in 2020; their pairing with ample support for households in 2020 is reason to investigate more whether/how those policies have made the difference in the corporate response that has disproportionately helped the lowest shares of the income strata, and an endorsement of Keynes’s argument that supporting household spending might be more important than supporting business spending in the midst of a recession.
  3. Tim’s attention to supply constraints is so important. I’d love another whole post about that, since I think a lot of the problems we’ve seen recently re: inflation owe to businesses putting capital expenditure on ice in the decade or so following the Global Financial Crisis. His points about household wealth rising due to rising home prices is also on point; I’m curious if there’s any work on the rapid gains households made in the housing bubble — very different in its contours — in late 2020-2021 from the one associated with subprime mortgage lending.
  4. I think all of what we’ve seen is a big reason to dive back into chapter 12 of The General Theory. If firms’ and banks’ (or at least, the biggest ones) responded to low interest rates in the 2010s by investing comparatively more in financial assets than capital expenditure, it’s a big argument for finding strategies outside of monetary policy to motivate growth.

These are just some preliminary thoughts about a provocative topic to read about when I should be getting ready for the first day back on campus after winter break.

Something New for the Spring Semester

There’s so much I’ve wanted to write about in recent weeks, but alas. Here is one little thing I’ve been working on: a syllabus for a course I’m teaching on cryptocurrency. Would love for people who think about this to have a look. While I’m unlikely to add much to this iteration, it would be cool to hear from other’s about what they’ve done in this space.

Authors we’ll be reading include Robert Skidelsky, Mike Beggs, Victoria Chick, Charles Kindleberger and Robert Aliber, and others, as well as Matt Levine, Elizabeth Kolbert, David Yaffe-Bellany, Taylor Nicole Rogers, Ephrat Livni, and myriad other reporters on crypto. My goal is for students to get a blend of more academic treatment of topics like money, asset bubbles, regulation, and so on, as well as more contextual treatment of the nuts and bolts of cryptocurrencies, who gets swept up in the manias, who profits, and who gets hurt when things don’t work.

Something new I’m doing: writing prompts for learning. I’ve been inspired by John Warner to do what I can to resist the five paragraph essay, especially given the rise of, well, you know. To that end, I’m asking students to respond to prompts about thorny questions no one necessarily wants to answer in real time, like ‘when did you learn about crypto? what do you think regulation of crypto would look like? is there anything you have changed your mind about re: crypto?’ Then, hopefully, we’ll talk about them in class!

Research project! More with the grounding assignments in stuff students may find interesting, and rejecting that five-paragraph essay model. I’m having students write pamphlets explaining something they think a particular audience of their choosing should know about cryptocurrency. It’s deliberately open-ended. I may regret that. Ah well! At worst, we’ll have a bunch of educational materials that I may ask my students for permission to use if they let me teach this course again.

If you have a look, do let me know what you think.

Some Thoughts on Teaching About Inflation from the Left:

Teaching about inflation in my Principles of Macroeconomics classes is a somewhat delicate operation. Inflation is a charged topic; it’s typically one of the top two variables that my students say they worry about in an informal survey that I give at the start of each semester. The other variable they care most about is unemployment, which may illustrate the tension people understand between these two, sometimes competing, dragons to be slain with economic policy. Inflation is also poorly understood. However, it frightens many people, not just college students, and is currently being touted as another bad harbinger for Democrats’ chances in the midterm elections (2022) and Biden’s prospects of winning a second term. I have come, over time, to take extra care to emphasize what inflation is and isn’t, why it is a confusing topic that generates sensationalist rhetoric and political grandstanding, and how students might better understand the relationships and dynamics that contribute to inflation overall.

When I started teaching macroeconomics, these worries about inflation annoyed me. In the first ten years that I taught the subject, inflation rates were low, and routinely below 2%, the targeted rate the Federal Reserve aims for. While I used to minimize the importance of inflation as a worry – it’s so low, you don’t know what you’re talking about, people constantly overestimate inflation – I have shifted tactics over time. In hindsight, I wish it hadn’t taken the observed rise in inflation in the past two years at the time of writing for me to do so, but here we are! Inflation invokes scary images for many: the interwar period in Germany, hyperinflationary episodes in low and middle income economies in the 1980s and 90s, and the prospect of worsening living standards, especially for those living on fixed incomes. Dismissing fears of inflation as incorrect (which they may be) or irrelevant compared to unemployment (a value judgement that may require persuasion and subtlety) is more likely to alienate students, and to lose potential allies to work on changing their parents and grandparents’ minds.

At its most basic, inflation refers to a sustained increase in the aggregate price level. A common method for assessing inflation is to observe the change in a so-called market basket of commonly purchased goods and services, which varies from country to country. The consumer price index (CPI) in the US tracks inflation by the indexed measure of the price of this specific market basket. If a critical mass of components of the basket get more expensive, the CPI grows. The reverse occurs if more goods and services fall in price, or if their decrease in price is more dramatic than the parallel increases in price. The Bureau of Labor Statistics (BLS) constructs myriad CPIs. These indices focus on different parts of the economy (urban versus rural, regions of the US), and may include or exclude particular goods to account for particularly volatile prices for goods like food and fuel. The basic CPI includes the highly volatile components of food and fuel; the personal consumption expenditure (PCE) index does not. These indices are used to calculate how benefit payments should change, if they are indexed to inflation, and as official measures of inflation overall.

When I teach inflation, I emphasize thinking about inflation as an increase in the aggregate price level – a literal inflation. Effectively, an increase in the price level, all else equal, should lead to a decrease in real purchasing power. It’s common for people to think about inflation leading to a decrease in purchasing power, which they may describe as a ‘decrease in the value of the dollar’. While this is effectively the consequence of rising prices and diminished purchasing power, I find that it can turn people around if they extrapolate from inflation to changes in the exchange rate, which also considers the price of other currencies in terms of the dollar (or vice versa). This extension may complicate students’ understanding of the link between changes in the exchange rate and inflation as a whole. If the dollar appreciates relative to other currencies, it implies that imports are relatively less expensive to US consumers, though the reverse may be true for exports. Inflation can occur in tandem with appreciation or depreciation of a currency in foreign exchange markets, so I try to emphasize changing only one variable at a time.

What factors may contribute to inflation overall? Supply factors are most directly associated with inflation. If producers observe higher costs of production, whether due to labor costs, input costs, or service costs, these changes are most directly linked with changes in overall prices, if producers opt to pass them on. Do producers always pass on increased costs to consumers? Not necessarily. Producers care about consumers’ price elasticity of demand (propensity to change quantities they buy relative to changes in the price); changing the price of goods for sale may be costly in and of itself. Another factor to consider is why a producer might transfer costs to consumers. Does a business in a particular industry earn a profit margin? The prevalence of profit margins and rates varies industry to industry. Some high price services like childcare and restaurant service may have low profit margins, given the high costs of operating in those industries. Other goods and services may generate much higher profits, based on the willingness and ability of producers to mark up their output for sale.

How do demand factors affect inflation? It’s complicated! If demand induces firms to produce at rates associated with increased average costs of production, and if those firms want to maintain their profit margins, they may increase prices. These changes may be temporary or longer lasting. But the component of inflation that can be attributed to demand is tenuous and hard to verify. Similarly, the effects of government spending on inflation is ambiguous – if a government is spending to improve road infrastructure, the costs of transporting goods may fall as firms spend less on vehicle maintenance, for example. Will this spending translate into lower prices? It’s difficult to predict from outside. Key pillars of the ‘Build Back Better’ bill, which aimed to negotiate for lower prescription drug prices and to fund more childcare services, could have decreased the costs of two sources of rising costs for households in recent decades. These policies were clearly focused on depressing prices of a good, or fostering an increased supply of a service, rather than mitigating demand for those services, which is how anti-inflationary policy typically looks in practice.

Yet, despite the ambiguous links between changes in demand and inflation, the specter of inflation is invoked to oppose expansive welfare states and government spending. Centrist Democrats have asked President Biden to stop talking about welfare programs in favor of explaining how his administration will slow or reverse inflation rates. Republicans that have willfully increased structural deficits when they’ve held the presidency quickly pivot to arguments for austerity as a tool to curb inflation. Comparisons of fiscal responses to the Great Recession reveal an unprecedentedly muted government spending response to the largest recession since the Great Depression. In Europe, stronger economic members of the Eurozone argued that 4-5% inflation in Germany was just as bad an outcome as 20%+ unemployment rates in Southern European states. Political and economic discourse about inflation typically works to demonstrate the value judgements actors in these institutions have made about the relative desirability of decreasing unemployment or limiting the potential for prices to increase.

What’s also worth noting is that people have a notoriously bad track record at estimating inflation based on prices they encounter. Academics have been analyzing this phenomenon for decades – households in the US and abroad, across demographic groups, and over time consistently overestimate inflation rates. Part of the problem owes to how they may be surveyed on the topic. Evidence seems to indicate that how survey distributors frame questions about whether people perceive an increase in prices versus bouts of inflation have the potential to increase respondents’ estimation of inflation rates. As such, politicians willing to stoke fears of inflation – threatening that current welfare spending will lead to inflation that future generations will have to pay back, for instance, or that allowing governments of countries in crisis to delay repayment of debts paired with drastic tax increases and budget cuts while social costs proliferate – prey on popular misperceptions of actually observed inflation. When central bank employees invoke their duty to stabilize inflation in order to anchor expectations, they may not be quite honest about the degree to which perceptions of inflation match experience, or whether it would behoove the broader public to understand that actually, inflation is not that high.

Factors that may exacerbate the importance that people grant to inflation is how it’s written about and analyzed. How researchers phrase survey questions about the importance of inflation to households, and whether they believe that they observe inflation or not matters substantially for their responses. Economists have gone to elaborate lengths to reframe ‘inflation’ to survey respondents to see how important those respondents believe inflation is, which brings into question the relative importance of inflation to households overall. At the same time, when surveys ask people on the street about whether they believe prices are rising or if inflation is occurring, the relative neutrality of how those questions are worded contribute both to assessments of whether inflation is occurring, and if it is a problem. Persistent academic analyses of the importance of inflation and expectations of inflation for households’ behavior may shape media treatment of the topic, in ways likely to further stoke anxieties about inflation, and whether or not it is problematic for the average individual or household.

All of this worrying about inflation has the potential to shape economic views, assessments of elected officials, and voting behavior. However, the officials with the official purview to mitigate inflation are unelected, and the officials that may be better poised to shape those circumstances may be loath to regulate price-setting by firms, or to approve measures to increase spending on productive capacity that might lead to lower costs and prices by extension. Past experience during Biden’s time in office seems to indicate that Republican and Democratic officials that purport to oppose inflation may overestimate the potential for contractionary policies, fiscal or monetary, to curb inflation. How I approach this in my classes now is to emphasize the microstructures of these processes. How is the CPI constructed? How do aggressively pessimistic forecasts of future cost increases shape inflation expectations and forecasts? What are the mechanisms by which austerity measures or contractionary monetary policy actually throttle inflation? At what point must we leap from facts to value judgements, and meet those worried about inflation where they are? (There will be a moment!) Alienating people worried about inflation because they hear about it frequently risks turning them off to better solutions. This tendency is exacerbated by economists appearing to do all that they can to make survey respondents more anxious about inflation. If I succeed in getting students to re-evaluate their perceptions of inflation, and what the best responses to it are in practice, I have some hope that they may be able to convince their parents and others who may in turn reconsider some of their voting practices. Doing this requires compassion and changing up tactics, but it’s a key part of shifting the narrative starting in the classroom.

After the fact assessments of the 2009 responses

A long long time ago I wondered whether anyone besides Paul Krugman regretted past economic positions for insufficient radical ambition, and I was thinking about both macroeconomic orthodoxy (globalization good, inflation bad, fiscal deficits risky because inflation bad) as well as policy. Paul Krugman remains a good egg on this front; so, too, does Dani Rodrik. Brad deLong and Christina Romer both regretted the limited scope of what they did; Larry Summers, despite feints at expansive thinking, remains … less than repentant.

I felt great relief when the American Recovery Plan was passed, not least for what the bill contains, as for the potential it promises for future policy. JW Mason goes into far more detail about the broad strokes and particulars of what makes it revelatory, so I won’t belabor those details. But something else that delighted me is this piece in the New York Times by Astead Herndon, with the provocative title “Democrats, Pushing Stimulus, Admit to Regrets on Obama’s 2009 Response“. After lots of evidence of the Fed moving in ever more radical directions, unhampered as it is by Congress, and after Democrats’ movements in Congress toward a relatively expansive early response to the crisis that was subsequently quashed by Republican opposition (that may, ironically, have improved Trump’s chances in the presidential election last November), it’s good to see Congress resisting the quibbles of people like Larry Summers, Olivier Blanchard and the whims of would-be bond market vigilantes. I hope they stick to it, since there is still so much to be done.

David Graeber

I didn’t love David Graeber’s Debt. I actually got so annoyed with it that I stopped reading halfway through. But I could appreciate that the author cared, even if I thought he glossed over certain things, interpreted other phenomena differently than I did, and made such straw men out of economists that I felt compelled to write defenses of people that work at UC Berkeley.* Yet, even with those reservations, his writing could make me laugh, and I appreciated the gusto of writing a book hundreds of pages long presenting a grand history of debt, how it traps people, and why that is Not A Good Thing, Actually. And there was no arguing with the design of the book; the cover is spectacular.

There was a certain irony to my coming back to it when I did. Long ago, as a struggling grad student getting serious about my dissertation, I heard people in my department gushing about this book by an anarchist about debt; shortly after, this prophet-like figure ended up at Occupy Wall Street when I wanted desperately to be in Zucotti Park, but for nerves and a sense that I should really buckle down on that dissertation. I splurged on an ebook of Debt (less $ than the paperback), which promptly showed up as a corrupted file in the off-brand eReader someone had given me. I think I cursed, took it as a sign to get writing, and moved along. It may be that if I had read it then, my experience would have been different.

Years later, when I picked it “back” up (a new paperback copy) and started it, I also read the exchange in Jacobin, started by this piece, the response here, and the further rejoinder there. By the end of it, no one was really talking about Graeber’s book, which likely pointed to something deeper. Provoking thought and debate about big problems, and the structural components that shape them, is a worthy end. Thinking big things and writing about them is messy. I can appreciate, as the original critique did, the chutzpah of writing those grand narratives which launch a thousand thoughts, activists, or research agendas.

I thought a lot while reading Graeber. It reminded me, in a skewed way, of my two attempts as a college graduate to read Atlas Shrugged. When I read Ayn Rand’s book, I kept confronting my understanding of … everything. The role of the environment, who exploits whom and what that even means, what markets are really good for, and when they are so not up to the task that even George Mason University economics professors may agree. But reading and debating the author internally was wholly different with Debt: I liked the fundamental points Graeber was making, I loved his sense of humanity, and I’m hard pressed to think of a better anti-Atlas Shrugged than Debt, which celebrates giving, communal systems, and preservation. Reading Rand was a demoralizing grind; Graeber was more like an invigorating gauntlet.

Graeber has, since last summer, hovered close to the top of my consciousness often. It’s not hard, when one writes about debt and money, to have reasons to think about him. I read his screed against economics last fall with interest, tried to figure out why it annoyed me, and had to acknowledge that my discipline drives me crazy a lot of the time, too. Just this morning, before learning about his death, I thought about him while reading a review of a book that I wanted to compare to Debt, sometime, when time allows, et cetera. I would have needed to reread Debt to bring that to fruition, and I wondered if I really wanted to. I winced when he suggested that if anyone should be a global hegemonic force that it should be New Zealand, and when he argued with people who likewise wanted better for the world but questioned his particulars. But it was impossible not to smile when he wrote wistfully about not being able to find a book by Thorstein Veblen on a shelf at New York City’s biggest book store while he visited for a week, or when he responded to someone’s question about whether people in olden times ever made ad hoc amusements like water slides, just to have fun.

I think that what I failed to appreciate when I opened Debt for the second/first time last summer was the emotion with which he wrote. I had been filing down my emotional edge in paper submissions, and more successfully (I think) projecting a logical façade in my teaching, which both seemed like the proper things to do, and I may have been jealous that someone else could so bracingly do it to popular acclaim. Graeber never seemed to shy away from the moral impetus propelling his life, work, and writing. Way back when I wanted to read Debt the first time, I was angry about power and money in the world most of the time, and it bled into my writing. I still am, when I think about the state of the world economy, the power imbalances that hurt so many, and the structural violence of most debt structures on the global and domestic stage, but I have gotten better at compartmentalizing those thoughts and feelings. Or at least, before the Covid-19 pandemic. Graeber’s moralistic muckraking galvanizes; I aspire to that.

I read Graeber’s work with interest. I rarely expected to agree with it, at least on the specifics, but I knew it would make me think. His compassion shone through it all, even if I usually left a piece broadly agreeing about the problem, trying to figure out just what I objected to, why, and whether it mattered. I’m terribly sad about the news that he died; the world is much the poorer for it.

*No one should feel compelled to defend economists from UC Berkeley.

Thoughts about Making Capitalism Kinder:

On June 25, 2020, the New York Times published an op-ed by Darren Walker, president of the Ford Foundation, titled “Are You Willing to Give Up Your Privilege? Philanthropy Alone Won’t Save the American Dream.” Walker criticizes his peers leading billion dollar companies for creating mostly low-paying jobs, not paying taxes, and opposing welfare programs, despite their professed desire to increase economic opportunity, and argued that business leaders should commit to making capitalism a kinder system that would once again help people move up the income ladder, as it helped Walker himself. The piece echoes sentiments put forth by Mark Benioff, CEO of Salesforce back in October in his own New York Times op-ed, businesses should follow Salesforce’s lead with firm-level pay initiatives and increased philanthropy to make capitalism great again. These are laudable sentiments for corporate leaders and the heads of foundations that work with them to broadcast in the New York Times Op-Ed section. Unfortunately, there is no reason we should trust individual firms or CEOs to lead the way on reversing the inequity endemic to American capitalism.

Recent reporting on the economic consequences of the pandemic have emphasized stark failures of capitalism. Miles long lines of cars wait for food pantry aid, while farmers slaughter hogs and bury tons of root vegetables. Employers demanded workers in essential industries like meat processing risk exposure to the coronavirus, while they could not adequately distance, or reliably get medical care in the event of exposure. Before the pandemic, those workers were subject to UTIS from lack of access to breaks. Prisons, a source of labor for many companies globally, remain a major source of infection and site of outbreaks across the country. The mechanism of aid provision in the US – expanded provision of unemployment benefits – has left unemployed workers at the mercy of overtaxed and underfunded systems, while banks and landlords have been trusted to use their own discretion in determining whose obligations to defer or waive in the moment. Walker is right to call out his peers for their complicity at worst, and silence at best, but imagining that CEOs will undertake these changes without pressure from activists or the government borders requires superhuman optimism.

Firms affiliated with CEOs Walker praised in his piece illustrate this point. Benioff argued that firms should stop evading taxation, but in 2018, Salesforce had a market capitalization of $160 billion, and paid no federal tax in 2019. Ursula Burns, board member of Uber, has spoken about her personal fears of police racism, but Uber has helped destroy the taxi industry, hollowed out public transit usage in cities, and doggedly lobbies to classify its workers as contractors to avoid paying them overtime and health insurance. Paul Polman, former CEO of Unilever, may have lobbied for corporate support of the Paris Climate Accords, but Unilever was one of the largest global plastics polluters in 2019, and paid an undisclosed amount in 2016 to 591 former workers at a factory in India for getting caught knowingly exposing them to mercury in 2001. Though Unilever acknowledges that it only uses prison labor in a rehabilitative context, wages for incarcerated workers are below minimum wages, let alone market standards. Business leaders using their celebrity for political ends may have good intentions, but company-level policy cannot counteract how their businesses entrench inequity.

Walker and Benioff both lauded the Business Roundtable, an organization created in 1972 to improve the public image of business and lobby against governmental regulation, for an August statement arguing that corporations should maximize ‘stakeholder interests’ of employees, communities, and citizenry, rather than focusing solely on shareholders. Unfortunately, the Roundtable has done much to systemically undermine the social safety net for American workers through its opposition to taxes, corporate regulations, and expenditure on public works. The statement had no specific recommendations for its members. Meanwhile, more than three quarters of the Roundtable’s members’ (and their family members’) 2019 political contributions went to Republicans. Until members acknowledge that elevating stakeholder interests will likely reduce their profits, and back it up with commitments to pay workers more, bring wealth holdings out of international tax shelters, or to promote higher corporate tax rates, the public should assume that corporate leaders are using this as a PR exercise rather than signaling a willingness to change.

Walker is right to ask his peers to stop relying on philanthropy, but much of the outreach by the CEOs he praises amounts to charity. Benioff cited Salesforce’s philanthropic contributions of almost $300 million by 2019, while Ray Dalio, Bridgewater Associates founder, joined Bill Gates and Warren Buffett’s Giving Pledge in 2011, promising to give more than half of his then almost $90 billion over his lifetime.  Charitable tax deductions are regressive. Gifts to build new university boat houses and to purchase more meals for the homeless are rewarded equally by the US tax code, and tax write-offs for charity generate billions of losses in tax revenue yearly. Most organizations give only the annual 5% required to maintain their tax-exempt status, even as their endowments have grown considerably during sustained stock market rallies. Philanthropic organizations are unaccountable to voters or customers and nontransparent; private interests can withhold funds if criticized; and organizations from the Carnegies’ to the Sacklers’ have used their philanthropy to shield themselves and their corporations from public scrutiny. Titles like 2019’s “Silicon Valley Billionaires Keep Getting Richer No Matter How Much Money They Give Away,” should give readers pause. Private largesse will not improve the American income distribution, no matter the givers’ intentions. Concrete demands for peers like Benioff and Dalio would signal more willingness to attack systemic inequity.

The urge to make capitalism work better for the world at large is noble, and has a long history, from Industrial Democracy pre-WW1, to John Maynard Keynes, to Elizabeth Warren’s argument that “Capitalism without rules is theft.” A quick comparison between Benioff and Walker’s proposals with Warren’s campaign, however, reveals a gulf in specificity and scope. Warren’s campaign proposals included protecting rights to join unions, elimination of student debt up to $50,000, and a wealth tax that outraged billionaire Leon Cooperman enough to profanely accuse her of wanting to destroy the American Dream. Jamie Dimon and Lloyd Blankfein argued much the same. Corporate leaders waxing nostalgic for the shared growth of the post-war period should support measures that hearken back to the economic conditions of the post-war period including greater union membership, rising wages, and higher tax bills. Instead, high profile CEOs like Blankfein, a registered Democrat, argued that he would have an easier time voting for Trump than then-candidate Bernie Sanders on the basis of his economic platform, which was advised by the same people working on Warren’s. High-profile CEO endorsement of politicians like Jamaal Bowman, Mondaire Jones, Alexandria Ocasio-Cortez, and other Justice Democrats associated candidates would go much farther in signaling commitment to change, and making way for the sorts of policy reversals that Walker recommends. Using personal wealth to claim authority while calling for change, without promises for how elite leadership will change the system, is a hollow exercise. Racial inequality and environmental injustice owes much to the power corporate institutions wield in politics, and Walker is right to criticize corporate America for exacerbating these problems. But the actions of those he argues understand the problem – company-level policies and the philanthropy –fall short of the goals he states elsewhere in the piece. Billionaires serious about change should create specific and multi-level initiatives; lobby publicly and privately for those changes; and convince fellow billionaires to join. They should begin by paying their workers more, and by paying their taxes. In the meantime, activists and progressive Democrats should continue leading the charge for radical economic and political change.

Some things I’ve written in April and May, 2020:

In the hopes of getting back to posting at least once a month, here’s a small rundown of some pieces I’ve written in the past few weeks:

Economic Reporting on Hardships of Pandemic Should Focus on Market Failures” — for Fairness and Accuracy in Reporting, April 25, 2020

This op-ed touched on what made me feel optimistic about reporting on the economic crises associated with Covid-19 this time around compared with reporting on the aftermath of the Global Financial Crisis and a lot of mainstream reporting on the Eurozone Crisis. It also examined some gaps in reporting, which I thought should focus more on the market failures — and problems with capitalism — that I thought reporters were eliding from their analyses.

Learning All the Wrong Lessons From the 2008 Financial Crisis” — also for Fairness and Accuracy in Reporting, May 12, 2020

This op-ed was a little bit of a bait and switch — despite the title, I’m still impressed with NYT reporting on the debt build-up associated with the current crisis, mostly by not freaking out about it prematurely, but I talked about some language I found troubling in a relatively recent piece about the trillions of debt being accrued in present responses to the crisis. And they’re way better than the Wall Street Journal and the Financial Times on this front. It also gives a bit of a primer on what the problems associated with large debt can be, and why (I think) we shouldn’t worry too much about it right now.

The End of Capitalism: Ooh La La” — for Progress in Political Economy, associated with the University of Sydney’s Political Economy department, May 27, 2020

This appreciation and deep dive into Run the Jewels and Rage Against the Machine, re: protest music, was a lot of fun to write, and kick started by a twitter link to the just released video for Run the Jewels’ new single, “Ooh La La”. I couldn’t stop watching it. Before the current crisis, I wouldn’t say that I’ve spent a lot of time contemplating alternatives to capitalism; I think that amply applied reform can do a lot of good, which will likely trigger more action by workers, in a feedback dynamic. But the crisis and the tensions that it has laid bare — as discussed in the previous pieces — has me going back to Marx and Keynes and others. What I loved was how RTJ imagined the end of capitalism as something fun; joy pervades the video. But it’s a leap to write about music, especially music to which you feel connected, so I’d say it was also one of the more challenging things I’ve ever put together and submitted for public viewing. Shortly after posting it, someone on Twitter noted that I had no idea what a money gun is. Now I do. Later that evening, my husband looked it up, and I also got the designer of Killer Mike’s primary colored windbreaker wrong. Oops.

Stay safe out there, gang.

Coronavirus, Market Forces, and Contingent Teaching

It’s been a while, hasn’t it? Life was moving along: I was preparing drafts for resubmission, grading in flurries of activity, and incorrectly filling in travel funding applications, and before I knew it, we were all rehashing the 2008 financial crisis, which had once upon a time yanked me Vaudeville style down the path I would ultimately move academically, into uncertainty, finance, and ‘crisis stuff.’ But all in a slow motion horror movie fashion, somehow. What has become apparent, again, are the myriad structural problems and inequities of the global economic system, owing somewhat to bad luck (the spread of this particular virus), and in larger part to the flaws of a largely neoliberal economic system that privileges capitalist markets in directing economic activity with immediate and longer term political and social implications. And, on further consideration, the development of the virus and its spread owes much, too, to patterns of regional development, incursion into surrounding environments, and markets writ large.

In the early weeks, I did my best to pull together some thoughts about directions for policy, but then daycare was cancelled, and time felt even more divorced from my pre-March-2020 conception of it. Nevertheless, I’m continuing to plug away in a more disjointed way than I’d like, thinking about financial aspects of the crisis, the fiscal requirements of any response to the crisis, and the more structural aspects of the crisis, especially the need to reorganize the way that many essential industries and services in our US version of the capitalist market (yet still mixed) system to better serve humanity.

One of the things that was apparent to me, as an assistant professor who is still on the tenure track, was the large role that universities and schools in general have had to play in responding to everything. Of course I know that that’s obvious. Anyone with kids at home is living it; any teacher who has needed to fundamentally retool their curricula to suit our socially distanced moment is there, too. Lost in the shuffle of national reporting on this crisis seems to be the crucial role played by universities’ shift away from full time tenured and tenure track faculty toward non-tenured faculty, of the full time (lecturers) and the contingent (adjunct and visiting assistant professors) varieties.

So, in an 18 page brief that I put together and have been slooowly reworking into more polished standalone pieces that properly argue things rather than pointing out problems, I included the university system (and schools in general) as a region of society and the economy that governments should (1) give far more money, (2) actively take on the funding role, and (3) empower to improve in ways that “market forces” don’t encourage.* Chief among these are the arguments that (1) teaching is an essential service at whatever level, (2) teachers and professors should be paid more, and (3) teachers at all levels need more security in their professions. Successfully pivoting from one mode of teaching to another is arduous and takes finesse; if we believe that markets reward skills with higher pay, the evidence on this is a mixed bag with the most generous interpretation. If we instead believe that these are essential services and worthy of investment, we might simply decide, using the power of government, to dictate norms and provide ample and conditional funding on the promise that universities and schools do better by their faculty, starting with higher pay and extending more generous benefits and terms of employment that grant flexibility rather than requiring ever more flexibility from teachers themselves to those crucial workers.

But another structural aspect for redress is academia’s market driven drift toward contingent teaching. Lecturers and adjuncts who bear the brunt of teaching in order to give star faculty more time for research are vulnerable, period, to the whims of students, their tenured peers, and the vagaries of the economy. The postings on Twitter from contingent faculty not having their contracts renewed in this moment of intense need, but also when education is apparently (and obviously) important to so many, students and their parents, is a moment of nauseating cognitive dissonance. Maybe that’s just capitalism, baby, but we shouldn’t tolerate it.

Luckily, there’s an excellent piece weighing in on the structures and costs of this trend, and cogent arguments for changing it. In their article “Refusing to be cheap or flexible: labour strategy in academia,” for Overland, Australia’s “only radical literary magazine,” Doctors Michael Beggs, Senior Lecturer of Political Economy at the University of Sydney, and Rebecca Pearse, Lecturer of Sociology at Australian National University, have written about the perniciousness of this trend in Australia, where I’m sure things are still much better than in the US. (Lecturers outside of the US have standing parallel to tenure-track and tenured professors in the US.) The piece itself is equal parts diagnosis of the appeal of contingent teaching under capitalism and a cri de coeur to reject it.

Despite this work being based on Australian experiences, there are immediate parallels to the US experience. If we consider universities’ willingness to delay tenure clocks for pre-tenure faculty, we might remember that pre-tenure faculty are paid less than tenured faculty; this ‘makes economic sense’, where ‘economic’ is a crude proxy for the bottom line. At the same time, universities appear ambivalent to extending graduate students’ funding, despite the immense disruption to their work, as this adds to the universities’ outlays, in a time of genuine economic duress. Finally, when considering whom to cut from payrolls, contingent faculty with few, if any, job protections are most vulnerable, even as the effect on school enrollment may be ambiguous in the midst of a massive economic depression.

Plenty of forces are working behind the scenes here. Declining public funding of research increases pressure to apply for a diminishing pool grants to fund research in cost-intensive fields like the hard sciences, or to access expensive data for business, financial, and economic research. Star faculty, athletics coaches, and administrators have been wooed with ‘competitive’ pay, and (presumably) lost due to those pesky market forces before. Yet students are the bread and butter of most universities, and (ahem) the point of why we all went into this, right?

The market economy is going to get much worse before it has any hope of getting better. Endowment funded grants are likely to shrink further in supply as a consequence of market gyrations on a weekly basis, and tanking asset prices across the board. Students and their parents’ ability to pay tuition is ever more precarious, even as some pundits will start lecturing about skills and exertise and the value of education. Large universities seem to be considering pay cuts for administrators and tenured faculty; this would be a good gesture in a moment of sharing the burden. But if this is a moment for potentially radically reorienting our (national, global) economy and centering what we believe is important, and what our students and faculty deserve, why shouldn’t the federal government back stop the university system? There’s an inherent injustice in the notion that US universities should insulate themselves from fiscal crises by relying more on their own marketing, or that universities in states that continue to fund public colleges are perpetually at risk of budget balancing at the state level. Both strategies are vulnerable to shocks beyond their control; reliance on market forces to bolster tuition dollars and university prestige is a recipe for disaster, as we are currently seeing, and will only see more of soon.

*If you care, other industries/services that I think are too important to be left to ‘market forces’ are the provision of health care, journalism, the arts, care of children, elders, and families writ large, grocery service, and climate change related industries/services. Like I said, it’s a wide ranging document.