• Wed. Jun 7th, 2023

Felix Salmon on the Debt Ceiling Crisis and the Surprising Resilience of the COVID Economy ‹ Literary Hub


May 25, 2023

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: Perform, Life, and Income in the New Not Regular. Salmon unpacks the political and economic ramifications of our present 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 boost in the economic well being of decrease earnings Americans and a redistribution of population away from significant cities. Salmon reads from The Phoenix Economy, and explains how the pandemic will continue to adjust 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 site. This episode of the podcast was developed by Anne Kniggendorf, and edited by Hannah Karau.

From the episode:

V.V. Ganeshananthan: I’m a large fan of what you contact “this influx of capital into the operating classes.” It shows that we can influence financial good quality of life in decrease earnings brackets, if we want to. The query is, do we nevertheless want to do that? Will this continue in any way? The function specifications that the Republicans want for Medicaid are moving in specifically the opposite path, it appears to me.

Felix Salmon: So it truly sort of depends on how you feel about “we.” A lot of these discussions feel about “we” as becoming the government, proper? The government writes checks to the poor, and the poor do effectively, or the government imposes function specifications on the poor, and the poor do much less effectively. The poor are just sitting there as comparatively powerless men and women in America. They wind up successfully undertaking as effectively or as badly as the U.S. government desires them to do, and the energy, it just sits in Washington.

I feel what we saw for the duration of 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 involving labor and capital began becoming a great deal extra even for the very first time that, extra or much less, any of us can don’t forget. The poor began becoming in a position to quit their jobs and come across improved 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 required to spend people today extra in order to get them to do function. All of these factors come about outdoors this query of: “should the government impose function specifications on Medicare and factors like that?”

So, yes, we can have debates about the government. And clearly, what the government does to the poor is quite essential, and poverty reduction applications are critical. But underneath that, what we saw for the duration of the pandemic, and I feel this is right here for this foreseeable future, is essentially one thing extra strong nevertheless, in a way, which is that we’ve empowered the operating classes to demand improved operating circumstances and improved spend.

Whitney Terrell: I enjoy that. I imply, I’m a fan of that. It is a truly exceptional issue mainly because it has been a lengthy time due to the fact you have observed people today be in a position to bargain for improved wages, at least in my anecdotal memory of the final 20 years. There are some concerns, although, and I wonder how they’re going to have an effect on that component of it. In the book, you talked about how very low interest prices are, which have now changed in the final year mainly because the Federal Reserve has raised prices drastically.

And the other issue that I believed about was immigration. I imply, Trump right away closed the borders working with this law that was linked with influenza and diverse ailments, saying that you can deny asylum to any person who may possibly be bringing a illness in the United States. They just stopped undertaking that. So I wonder, could you speak about these two concerns at that level?

FS: I can comment on the immigration course of action. I feel the very first issue you want to fully grasp about immigration, and I’ll comment on interest prices in a minute, but the issue you have to fully grasp about immigration is that it is excellent for each labor and capital in a weird way. Certainly, organizations want new people today to do the jobs. We have a significant labor shortage in the United States proper now, which was brought on largely by Covid. A lot of people today died, a lot of people today got lengthy Covid, and a lot of people today 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 support alleviate some of that labor shortage. But immigration—  and this is one thing which economists have truly studied for decades—at the margin, does not truly have any enormous impact on wages, but almost certainly brings them up rather than down. The immigrants wind up beginning organizations and employing people today and growing demand for labor and increasing the size of the economy. And most vibrant economies have quite sturdy degrees of immigration and the extra immigration America has, historically speaking, the improved its economy has performed and the improved off its workers have been. So I feel we can be pro-immigration though nevertheless wanting extra energy for the operating classes. I feel it is uncomplicated to hold each of these two tips in your head at the identical time.

And interest prices are slightly extra fascinating. 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 organizations to slow down a bit and employ fewer people today and attempt to cut down demand for labor, amongst other factors. That will undoubtedly show up in decreased demand for workers in the bottom half of the earnings distribution, for certain, but 1 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 computer software engineers are finding laid off.

FS: Precisely. The large layoffs have been in areas like Google and Amazon and Facebook, proper? They haven’t been in quick meals joints. So you know, possibly that is the way we can cut down demand, by laying off a couple of computer software engineers generating half a million dollars a year, and they’ll have to come across some new job paying $400,000 a year. That could have the identical impact.

VVG: This is fascinating. I am curious, and I feel we’re almost certainly going to do a complete separate episode about this later, but I’m truly 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 factors, 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 feel about that and what prospective influence, if any, it will have.

FS: Proper. There’s a complete bunch of quite, quite separate concerns becoming conflated right here. One particular is that sort of nostalgic Republican notion of like, “I had a paper route when I was a teenager, and it was good for me, and I discovered the energy of the dollar and the energy of really hard function, and we should really encourage our young children to come across jobs like that.”

That sort of issue plays effectively with a particular component of the electorate, and it is fully unrelated to the other issue that is taking place, which is genuine exploitation of minors who are becoming forced into function and often not paid at all, who are typically migrants who are typically undocumented, who are typically just becoming fully exploited. And that is, and generally has been, and generally should really be illegal. It is not truly becoming enforced super really hard in all states. But even if you pass laws, sort of saying we should really permit little ones to function, like the intense exploitation of migrants is one thing that is not going to be produced 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 come about? The stock market place would crash, I assume. It went down like 19 %, I feel, in 2011 when we got close to it. The bond market place would go haywire. Perhaps the U.S. would get a further S&ampP downgrade on its debt, which is what occurred also in 2011, if I’m remembering proper. Or possibly that was an earlier year, you can inform me. Would this truly have an effect on people today who do not have big stock and bond holdings? In the book you pointed out that the enforced hibernation of Covid essentially had some added benefits, proper? Is it doable that a debt default and ensuing financial winter would have some of the identical added benefits? Specifically for the operating class? We just do the identical issue? Oh, yeah, we get extra stimulus, everybody stays property. It’ll be excellent.

FS: Okay. My thesis in the book is that we’re in “the new not normal” and lots of unexpected factors come about. And we have to be open to crazy, unexpected events. And I suppose that, in principle, a U.S. government default abruptly becoming a excellent issue would be very unexpected. I also feel it would be extremely unlikely. There is a lot of doom and gloom becoming wheeled out in terms of what would come about in the occasion of default, mainly because we haven’t defaulted truly, due to the fact 1878.

We do not truly know, so I can not inform you what would come about. But what I can inform you is that the Treasury Bond market place is the bedrock upon which the complete international economic program sits, and these quite 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 international economic program is what keeps the international economy moving. Devoid of these flows, every little thing grinds to an instant halt. The income does not go exactly where it requirements to go.

Felix Salmon

•  The Phoenix Economy: Perform, Life, and Income in the New Not Regular  •  Slate Income podcast

Other people:

 •  “A Short History of Debt Ceiling Crises” by Raymond Scheppach

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