Economic correspondent and podcast host Felix Salmon joins co-hosts V.V. Ganeshananthan and Whitney Terrell to talk about the debt ceiling crisis and his new book The Phoenix Economy: Function, Life, and Funds in the New Not Regular. Salmon unpacks the political and monetary ramifications of our existing debt ceiling crisis—and compares the present impasse to prior debt ceiling fights.
He also discusses the underappreciated and unexpected financial effects of the COVID pandemic, such as an enhance in the monetary overall health of reduced earnings Americans and a redistribution of population away from key cities. Salmon reads from The Phoenix Economy, and explains how the pandemic will continue to transform our financial lives.
Verify out video excerpts from our interviews at Lit Hub’s Virtual Book Channel, Fiction/Non/Fiction’s YouTube Channel, and our internet site. This episode of the podcast was made by Anne Kniggendorf, and edited by Hannah Karau.
From the episode:
V.V. Ganeshananthan: I’m a significant fan of what you contact “this influx of capital into the operating classes.” It shows that we can influence financial high-quality of life in reduced earnings brackets, if we want to. The query is, do we nonetheless want to do that? Will this continue in any way? The function needs that the Republicans want for Medicaid are moving in precisely the opposite path, it appears to me.
Felix Salmon: So it seriously type of depends on how you consider about “we.” A lot of these discussions consider about “we” as becoming the government, correct? The government writes checks to the poor, and the poor do nicely, or the government imposes function needs on the poor, and the poor do much less nicely. The poor are just sitting there as comparatively powerless folks in America. They wind up properly carrying out as nicely or as badly as the U.S. government desires them to do, and the energy, it just sits in Washington.
I consider what we saw through the pandemic was the rise not only in incomes of the poor, but also in the energy of the poor. They discovered themselves with bargaining energy for the very first time. The relation among labor and capital began becoming a great deal additional even for the very first time that, additional or much less, any of us can keep in mind. The poor began becoming in a position to quit their jobs and obtain much better paying new jobs. They began becoming in a position to unionize, and they began becoming in a position to demand larger wages.
And employers began realizing that they necessary to spend folks additional in order to get them to do function. All of these factors take place outdoors this query of: “should the government impose function needs on Medicare and factors like that?”
So, yes, we can have debates about the government. And definitely, what the government does to the poor is pretty essential, and poverty reduction applications are vital. But underneath that, what we saw through the pandemic, and I consider this is right here for this foreseeable future, is basically one thing additional potent nonetheless, in a way, which is that we’ve empowered the operating classes to demand much better operating circumstances and much better spend.
Whitney Terrell: I really like that. I imply, I’m a fan of that. It is a seriously outstanding point mainly because it has been a lengthy time considering the fact that you have observed folks be in a position to bargain for much better wages, at least in my anecdotal memory of the final 20 years. There are some challenges, even though, and I wonder how they’re going to influence that element of it. In the book, you talked about how incredibly low interest prices are, which have now changed in the final year mainly because the Federal Reserve has raised prices considerably.
And the other point that I believed about was immigration. I imply, Trump quickly closed the borders applying this law that was related with influenza and unique illnesses, saying that you can deny asylum to any individual who could possibly be bringing a illness in the United States. They just stopped carrying out that. So I wonder, could you speak about these two challenges at that level?
FS: I can comment on the immigration procedure. I consider the very first point you need to have to realize about immigration, and I’ll comment on interest prices in a minute, but the point you have to realize about immigration is that it is very good for each labor and capital in a weird way. Certainly, corporations want new folks to do the jobs. We have a key labor shortage in the United States correct now, which was triggered largely by Covid. A lot of folks died, a lot of folks got lengthy Covid, and a lot of folks just got, you know, a feeling of “YOLO. I do not like my job, and I’m going to quit it to go and lay on the beach or commence my personal business.”
So we do have this extremely low unemployment price that is causing a labor shortage, and immigration would assist alleviate some of that labor shortage. But immigration— and this is one thing which economists have seriously studied for decades—at the margin, does not seriously have any enormous impact on wages, but in all probability brings them up rather than down. The immigrants wind up beginning corporations and employing folks and rising demand for labor and increasing the size of the economy. And most vibrant economies have quite powerful degrees of immigration and the additional immigration America has, historically speaking, the much better its economy has completed and the much better off its workers have been. So I consider we can be pro-immigration although nonetheless wanting additional energy for the operating classes. I consider it is uncomplicated to hold each of these two concepts in your head at the exact same time.
And interest prices are slightly additional exciting. You know, the complete point of the Federal Reserve raising interest prices is to cool demand in the economy they believed that the economy was operating as well hot. They just wanted corporations to slow down a bit and employ fewer folks and attempt to lessen demand for labor, amongst other factors. That will unquestionably show up in decreased demand for workers in the bottom half of the earnings distribution, for confident, but a single of the weird factors is it has shown up, initially, largely in the major half of the earnings distribution.
WT: Yeah, that is what I’ve been noticing, the application engineers are obtaining laid off.
FS: Specifically. The significant layoffs have been in locations like Google and Amazon and Facebook, correct? They haven’t been in rapid meals joints. So you know, perhaps that is the way we can lessen demand, by laying off a couple of application engineers creating half a million dollars a year, and they’ll have to obtain some new job paying $400,000 a year. That could have the exact same impact.
VVG: This is fascinating. I am curious, and I consider we’re in all probability going to do a complete separate episode about this later, but I’m seriously curious about your take on how this will match in—I’ve been reading all of this stuff about efforts in unique states to loosen the regulations on labor by minors. And also, of course, there have been some exposes about the exploitation of migrant kids for labor. But it appears like two separate factors, like each this type of performative Republican work to be like, “we want our kids to function,” and it is also an try to, in some way, address this labor shortage, that is not immigration. I’m just curious what you consider about that and what prospective effect, if any, it will have.
FS: Appropriate. There’s a complete bunch of pretty, pretty separate challenges becoming conflated right here. One particular is that type of nostalgic Republican concept of like, “I had a paper route when I was a teenager, and it was terrific for me, and I discovered the energy of the dollar and the energy of challenging function, and we really should encourage our kids to obtain jobs like that.”
That type of point plays nicely with a specific element of the electorate, and it is totally unrelated to the other point that is taking place, which is genuine exploitation of minors who are becoming forced into function and in some cases not paid at all, who are usually migrants who are usually undocumented, who are usually just becoming totally exploited. And that is, and generally has been, and generally really should be illegal. It is not seriously becoming enforced super challenging in all states. But even if you pass laws, sort of saying we really should permit children to function, like the intense exploitation of migrants is one thing that is not going to be created legal and definitely shouldn’t.
WT: All correct, so let’s say we default, let’s say they do not get it place with each other. Okay. So what would take place? The stock market place would crash, I assume. It went down like 19 %, I consider, in 2011 when we got close to it. The bond market place would go haywire. Perhaps the U.S. would get yet another S&P downgrade on its debt, which is what occurred also in 2011, if I’m remembering correct. Or perhaps that was an earlier year, you can inform me. Would this seriously influence folks who do not have big stock and bond holdings? In the book you pointed out that the enforced hibernation of Covid basically had some positive aspects, correct? Is it doable that a debt default and ensuing financial winter would have some of the exact same positive aspects? Particularly for the operating class? We just do the exact same point? Oh, yeah, we get additional stimulus, absolutely everyone stays residence. It’ll be very good.
FS: Okay. My thesis in the book is that we’re in “the new not normal” and lots of unexpected factors take place. And we have to be open to crazy, unexpected events. And I suppose that, in principle, a U.S. government default all of a sudden becoming a very good point would be incredibly unexpected. I also consider it would be extremely unlikely. There is a lot of doom and gloom becoming wheeled out in terms of what would take place in the occasion of default, mainly because we haven’t defaulted seriously, considering the fact that 1878.
We do not seriously know, so I can not inform you what would take place. But what I can inform you is that the Treasury Bond market place is the bedrock upon which the complete worldwide monetary method sits, and these pretty steady and predictable money flows in terms of the interest payments on Treasury Bonds coming from the U.S. government and flowing into the complete worldwide monetary method is what keeps the worldwide economy moving. Without having these flows, anything grinds to an instant halt. The income does not go exactly where it requirements to go.
• The Phoenix Economy: Function, Life, and Funds in the New Not Regular • Slate Funds podcast
• “A Short History of Debt Ceiling Crises” by Raymond Scheppach
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