Monetary correspondent and podcast host Felix Salmon joins co-hosts V.V. Ganeshananthan and Whitney Terrell to go over the debt ceiling crisis and his new book The Phoenix Economy: Function, Life, and Income 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, like an improve in the monetary well being of reduce revenue Americans and a redistribution of population away from key cities. Salmon reads from The Phoenix Economy, and explains how the pandemic will continue to alter 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 web page. This episode of the podcast was developed by Anne Kniggendorf, and edited by Hannah Karau.
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From the episode:
V.V. Ganeshananthan: I’m a significant fan of what you contact “this influx of capital into the functioning classes.” It shows that we can influence financial good quality of life in reduce revenue brackets, if we want to. The query is, do we nevertheless 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 actually sort of depends on how you consider about “we.” A lot of these discussions consider about “we” as getting the government, proper? The government writes checks to the poor, and the poor do properly, or the government imposes function needs on the poor, and the poor do significantly less properly. The poor are just sitting there as somewhat powerless folks in America. They wind up successfully performing as properly 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 in the course of the pandemic was the rise not only in incomes of the poor, but also in the energy of the poor. They identified themselves with bargaining energy for the very first time. The relation involving labor and capital began becoming substantially far more even for the very first time that, far more or significantly less, any of us can bear in mind. The poor began getting in a position to quit their jobs and locate much better paying new jobs. They began getting in a position to unionize, and they began getting in a position to demand greater wages.
And employers began realizing that they required to spend folks far more in order to get them to do function. All of these points occur outdoors this query of: “should the government impose function needs on Medicare and points like that?”
So, yes, we can have debates about the government. And clearly, what the government does to the poor is extremely critical, and poverty reduction applications are essential. But underneath that, what we saw in the course of the pandemic, and I consider this is right here for this foreseeable future, is really anything far more highly effective nevertheless, in a way, which is that we’ve empowered the functioning classes to demand much better functioning situations and much better spend.
Whitney Terrell: I adore that. I imply, I’m a fan of that. It is a actually exceptional issue simply because it has been a lengthy time considering 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 have an effect on that aspect of it. In the book, you talked about how incredibly low interest prices are, which have now changed in the final year simply because the Federal Reserve has raised prices drastically.
And the other issue that I believed about was immigration. I imply, Trump straight away closed the borders utilizing this law that was related with influenza and diverse ailments, saying that you can deny asylum to everyone who could possibly be bringing a illness in the United States. They just stopped performing that. So I wonder, could you speak about these two challenges at that level?
FS: I can comment on the immigration method. I consider the very first issue you need to have to have an understanding of about immigration, and I’ll comment on interest prices in a minute, but the issue you have to have an understanding of about immigration is that it is excellent for each labor and capital in a weird way. Naturally, firms want new folks to do the jobs. We have a key labor shortage in the United States proper now, which was brought on 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 start out my personal organization.”
So we do have this extremely low unemployment price that is causing a labor shortage, and immigration would aid alleviate some of that labor shortage. But immigration— and this is anything which economists have actually studied for decades—at the margin, does not actually have any large impact on wages, but possibly brings them up rather than down. The immigrants wind up beginning firms and employing folks and escalating demand for labor and increasing the size of the economy. And most vibrant economies have quite sturdy degrees of immigration and the far more immigration America has, historically speaking, the much better its economy has carried out and the much better off its workers have been. So I consider we can be pro-immigration whilst nevertheless wanting far more energy for the functioning classes. I consider it is simple to hold each of these two tips in your head at the very same time.
And interest prices are slightly far more fascinating. You know, the entire point of the Federal Reserve raising interest prices is to cool demand in the economy they believed that the economy was operating also hot. They just wanted firms to slow down a bit and employ fewer folks and attempt to lower demand for labor, amongst other points. That will surely show up in lowered demand for workers in the bottom half of the revenue distribution, for certain, but 1 of the weird points is it has shown up, initially, mainly in the major half of the revenue distribution.
WT: Yeah, that is what I’ve been noticing, the computer software engineers are receiving laid off.
FS: Specifically. The significant layoffs have been in areas like Google and Amazon and Facebook, proper? They haven’t been in rapidly meals joints. So you know, perhaps that is the way we can lower demand, by laying off a handful of computer software engineers creating half a million dollars a year, and they’ll have to locate some new job paying $400,000 a year. That could have the very same impact.
VVG: This is fascinating. I am curious, and I consider we’re possibly going to do a entire separate episode about this later, but I’m actually curious about your take on how this will match in—I’ve been reading all of this stuff about efforts in diverse states to loosen the regulations on labor by minors. And also, of course, there have been some exposes about the exploitation of migrant young children for labor. But it appears like two separate points, like each this sort of performative Republican work to be like, “we want our young children 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 influence, if any, it will have.
FS: Appropriate. There’s a entire bunch of extremely, extremely separate challenges getting conflated right here. 1 is that sort of nostalgic Republican concept of like, “I had a paper route when I was a teenager, and it was excellent for me, and I discovered the energy of the dollar and the energy of challenging function, and we really should encourage our young children to locate jobs like that.”
That sort of issue plays properly with a specific aspect of the electorate, and it is absolutely unrelated to the other issue that is taking place, which is genuine exploitation of minors who are getting forced into function and from time to time not paid at all, who are normally migrants who are normally undocumented, who are normally just getting absolutely exploited. And that is, and generally has been, and generally really should be illegal. It is not actually getting enforced super challenging in all states. But even if you pass laws, sort of saying we really should let children to function, like the intense exploitation of migrants is anything that is not going to be created legal and clearly shouldn’t.
WT: All proper, so let’s say we default, let’s say they do not get it place collectively. Okay. So what would occur? 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 a different S&P downgrade on its debt, which is what occurred also in 2011, if I’m remembering proper. Or perhaps that was an earlier year, you can inform me. Would this actually have an effect on folks who do not have big stock and bond holdings? In the book you pointed out that the enforced hibernation of Covid really had some rewards, proper? Is it achievable that a debt default and ensuing financial winter would have some of the very same rewards? Specially for the functioning class? We just do the very same issue? Oh, yeah, we get far more stimulus, every person stays residence. It’ll be excellent.
FS: Okay. My thesis in the book is that we’re in “the new not normal” and lots of unexpected points occur. And we have to be open to crazy, unexpected events. And I suppose that, in principle, a U.S. government default abruptly getting a excellent issue would be incredibly unexpected. I also consider it would be extremely unlikely. There is a lot of doom and gloom getting wheeled out in terms of what would occur in the occasion of default, simply because we haven’t defaulted actually, considering that 1878.
We do not actually know, so I can not inform you what would occur. But what I can inform you is that the Treasury Bond market place is the bedrock upon which the whole worldwide monetary program sits, and these extremely steady and predictable money flows in terms of the interest payments on Treasury Bonds coming from the U.S. government and flowing into the whole worldwide monetary program is what keeps the worldwide economy moving. With no these flows, all the things grinds to an quick halt. The funds does not go exactly where it requirements to go.
Felix Salmon
• The Phoenix Economy: Function, Life, and Income in the New Not Regular • Slate Income podcast
Other individuals:
• “A Short History of Debt Ceiling Crises” by Raymond Scheppach
